As the cost for health care continues to rise (across the nation employers and insurers are expecting a 6% increase in health care costs in 20191) more and more companies are considering self-funded health plans.2 The percentage of workers covered through a self-funded health insurance plan grew from 44% to 60% between 1999 and 20173 and with that stop loss insurance sales more than doubled between 2011 and 2016.4
Stop loss insurance is key: claims of $1 Million+ have increased 87% from 2014 to 20175
With self-funded health plans, employers assume the responsibility and related financial risk for paying plan participants’ health care claims. They often contract with insurance companies or other third parties to administer the plan through an Administrative Services Only (ASO) arrangement.
While self-funded ASO arrangements offer flexibility and the potential for cost savings, containing financial risk is a key concern of employers. That’s where stop loss insurance comes in.
How stop loss insurance works
Stop loss is an insurance product which provides coverage to a self-funded health insurance plan for catastrophic (or series of catastrophic) claims above a certain dollar threshold. Depending on the type, stop loss coverage essentially caps the amount an employer is responsible for paying in the event of a catastrophic claim, or series of catastrophic claims.
There are two key types of stop loss coverage:
Individual Stop Loss
Insures against large, catastrophic claims incurred by a single individual, reimbursing an employer when claims for one person exceed a specific deductible.
Aggregate Stop Loss
Limits projected liability to a specific amount to ensure that numerous catastrophic claims don’t exceed the reserves of the self-funded plan.
A bundled approach to self-funding
With a bundled approach, the insurance company maintains control of the plan components, including integrated stop loss insurance, claims administration, reporting, banking, pharmacy management, network management, disease management and wellness programs.
For employers, the advantages of bundling may include:
- Less cash flow volatility – real-time recovery of individual stop loss claims and no waiting period for claims review
- Administrative ease and financial savings through the elimination of third-party fees
- Greater control over the medical loss ratio of the stop loss quote
Is self-funding right for your business?
You’ll want to carefully weigh the pros and cons of a self-funded ASO plan with integrated stop loss. Understanding your business’s risk tolerance, cash flow, employee needs, and demographics can certainly help guide you. To explore options for your business:
- Talk to your broker or insurance company
- Learn more about how ConnectiCare meets the unique needs of employers
Sources: 1. PWC Health Research Institute medical cost trends 2007-2019; 2. Kaiser/HERT Survey of Employer–Sponsored Health Benefits, 2007-2017; 3. “Ripe for Growth,” Best’s Review, November 2017; 4. Best’s Special Report: Stop-Loss Insurance Market Continues to Grow, August 15, 2017; 5. 2018 Sun Life Stop-Loss Research Report: High-cost claims and injectable drug trends