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What is stop-loss coverage?

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How self-funded employers cover high claims

Are you an employer or business leader considering self-insuring your company’s health plan? Some employers believe that because they wouldn’t be able to sustain very high medical claims, self-insurance isn’t for them. However, stop loss coverage protects self-insured groups against these high costs, and can make this a good option for groups that might otherwise not consider it.

Here’s what you should know about stop-loss coverage when considering a self-funded health plan.

First, what’s the difference between a self-funded health plan and a traditional, fully-insured health plan? Largely, it boils down to who pays for the claims. In a fully-insured plan, the insurance company covers employee claims. In a self-funded plan, the employer covers the cost of employee’s healthcare directly. (More: Should my organization self-insure?)

So, what happens if an employee has a really high claim? For example, what if an employee or dependent has a serious accident, a baby in the neonatal intensive care unit, or a heart attack? These kind of healthcare experiences can be very expensive.

This is where stop-loss coverage comes in. Stop-loss coverage reimburses employers for very high claims after a certain threshold.

There are two kinds of stop-loss coverage–specific and aggregate. Specific stop-loss coverage applies to a specific employee. For example, when an employer has spent $10,000 on one employee’s claim, stop-loss coverage would kick in.

There is also aggregate stop loss, in which the employer reaches a larger threshold for the group as a whole. For example, once the employer hits $100,000, the coverage would kick in to pay for additional claims. The money spent on individual employees would add up to reach that aggregate.

This is how employers are protected from catastrophic claims.

Want to learn more about what stop-loss options are out there, or if self-insurance is a good fit for your organization? Click below to schedule a free consultation with a Bernard Health advisor.

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