Aggregate stop loss insurance is a policy designed to limit coverage for claims (losses) to a specified amount. This coverage guarantees that catastrophic claims (specific stop-loss) or multiple claims (aggregate stop-loss) do not deplete the financial reserves of a self-financing plan. The added stop-loss protects the employer against higher-than-expected claims. If the total claims exceed the aggregate limit, the insurer covers the loss limitation claims or reimburses the employer.
key takeaways
- Aggregate stop loss insurance is designed to finance an employer who funds their employees’ health plan with higher-than-expected claim payouts.
- Loss limitation insurance is similar to high deductible insurance, and the employer remains responsible for claims that fall below the deductible amount.
- The deductible or rider for aggregate stop loss insurance is calculated based on a number of factors including the estimated value of claims per month, the number of employees on file, and a stop loss rider multiplier that is approximately 125% of previous claims. generally estimated.
Understanding Aggregate Stop Loss Insurance
Aggregate stop loss insurance is maintained for self-funded insurance plans in which an employer bears the financial risk of providing health care benefits to its employees. In practical terms, all claims are filed by self-funded employers as they are filed rather than paying a flat premium to an insurance company for a fully insured plan. Loss limitation insurance is like buying insurance with high deductibles. The employer remains responsible for claim costs below the deductible amount.
Loss limitation insurance is different from regular employee benefit insurance. The stop-loss only covers the employer and does not provide any direct coverage to employees and health plan participants.
How aggregate stop loss insurance is used
Employers use aggregate loss limitation insurance to hedge against high value claims. Added stop-loss insurance comes with a maximum level of claims. When an upper threshold is exceeded, the employer is no longer required to make payments and may receive some refunds.
Aggregate stop loss insurance can be added to an existing insurance plan or purchased independently. The threshold is calculated based on a certain percentage of the projected costs (known as connection points), approximately 125% of the projected claims for the year.
The aggregate stop-loss threshold is usually variable and not fixed. This happens because the threshold varies as a percentage of an employer’s registered employees. The variable threshold is based on an aggregate emission factor which is an important component in calculating a stop-loss level.
As with high-deductible plans, most stop-loss plans will have relatively low premiums. This is because the employer is expected to cover more than 100% of the value of the claims it receives.
According to the 2018 Henry J. Kaiser Family Foundation Employer Health Benefits Survey, insurers now offer health plans with a self-funding option for small or midsize employers; These health plans incorporate stop-loss insurance with low emission points.
Aggregate Loss Limitation Insurance Calculations
The aggregate attachment of a stop-loss plan is calculated as follows:
Step 1
The employer and the loss limitation insurance provider estimate the average dollar value of claims an employee expects per month. This value will depend on the employer’s estimate, but is often between $200 and $500 per month.
Step 2
Assume the stop-loss plan uses a value of $200. This value would be multiplied by the stop-loss adjunct multiplier which is typically between 125% and 175%. Using a claim estimate of $200 and a loss limit issue multiplier of 1.25, the monthly deductible would be $250 per month per employee ($200 x 1.25 = $250).
Step 3
This deduction must then be multiplied by the employer’s plan enrollment for the month. Assuming an employer has 100 employees in the first month of coverage, their total deductible would be $25,000 for the month ($250 x 100).
Step 4
Enrollment may vary by month. Due to enrollment variance, full stop-loss coverage may be monthly deductible or annually deductible.
Step 5
With a monthly deductible, the amount an employer must pay can change each month. With an annual deductible, the amount the employer must pay would be summarized for the year and would typically be based on estimates from the initial month of coverage. Many stop loss plans will offer an annual deductible that is slightly lower than the sum of your deductions over 12 months.
