Aggregate Stop-Loss Insurance
Aggregate stop-loss insurance is a policy that limits claim coverage (losses) to a predetermined sum. This coverage assures that a catastrophic claim (particular stop-loss) or a series of claims (aggregate stop-loss) do not deplete a self-funded plan's financial reserves. Aggregate stop-loss insurance protects the employer from claims that are larger than planned. If the overall number of claims exceeds the aggregate limit, the stop-loss insurer pays the claims or reimburses the employer.
Understanding Aggregate Stop-Loss Insurance
For self-funded insurance plans in which an employer takes the financial risk of providing healthcare benefits to its employees, aggregate stop-loss insurance is held. In practice, instead of paying a predetermined premium to an insurance company for a fully insured plan, self-funded companies pay for each claim as it is submitted. obtaining stop-loss insurance is comparable to obtaining high-deductible insurance. The employer is still liable for claim expenditures that are less than the deductible amount.
Stop-loss insurance is not the same as traditional employee benefit insurance. Stop-loss insurance only covers the company and does not give direct coverage to employees or health plan participants.
How Aggregate Stop-Loss Insurance Is Used
Employers utilize aggregate stop-loss insurance to protect themselves against high-value claims. The aggregate stop-loss insurance policy has a claim cap. When a maximum payment threshold is reached, the employer is no longer required to make payments and may be eligible for reimbursement.
Aggregate stop-loss insurance can be added to an existing policy or purchased separately. The threshold is determined by a percentage of estimated expenditures (referred to as attachment points)—typically 125% of anticipated claims for the year.
Typically, an aggregate stop-loss level is changeable rather than fixed. This is due to the fact that the threshold varies as a percentage of an employer's enrolled employees. The variable threshold is based on an aggregate attachment factor, which is used to calculate a stop-loss level.
Most stop-loss plans, like high deductible plans, will have relatively cheap premiums. This is due to the employer's expectation of covering more than 100% of the value of claims received.
Aggregate Stop-Loss Insurance Calculations
The total attachment for a stop-loss plan is computed as follows:Â
Step 1
The employer and the supplier of stop-loss insurance assess the average monetary value of claims expected by the employee per month. This amount is determined by the employer and typically ranges from $200 to $500 each month.
Step 2
Assume the stop-loss plan is set at $200. This figure is then multiplied by the stop-loss attachment multiplier, which typically runs between 125% and 175%. Using a $200 claims estimate and a 1.25 stop-loss attachment multiplier, the monthly deductible would be $250 per employee ($200 x 1.25 = $250).
Step 3
This deductible must then be multiplied by the employer's monthly plan enrollment. Assuming a business had 100 employees in the first month of coverage, the total deductible for the month would be $25,000 ($250 x 100).
Step 4
Enrollment may vary from month to month. Because of enrollment differences, aggregate stop-loss coverage may have a monthly or annual deductible.
Step 5
With a monthly deductible, the amount an employer must pay may vary from month to month. With an annual deductible, the amount the employer must pay is calculated annually and is usually based on estimations from the first month of coverage. Many stop-loss plans will have an annual deductible that is slightly lower than the sum of deductibles over the course of a year.