What is stop loss insurance?

Stop loss insurance is a type of policy that protects self-insured employers from catastrophic claims that exceed predetermined levels. If total claims exceed the limit, the stop-loss insurer either covers the claim or reimburses the employer. Specific stop loss insurance protects the employer from a large claim brought by an individual. The employer will be reimbursed when an individual's claims exceed a particular deductible. Aggregate stop loss insurance sets a limit on the amount an employer pays for several claims under an entire plan during a contract period. At the end of the period, the insurer reimburses the employer.

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When do I need to be aware of stop loss insurance?

If your company has chosen to forego a traditional health insurance and benefits plan and opt for a self-funded plan, stop loss insurance will protect you against high claims. It limits your risk and can help you save money that would have been spent on higher-cost traditional health plans. In this way, stop loss insurance is similar to high-deductible insurance as the employer is responsible for claims below the deductible amount.

What is important to know about stop loss insurance?

Stop loss insurance can help companies save money by offering an alternative to traditional health care plans that are typically more expensive. There are some other important items you should know about stop loss insurance:

Employers can eliminate monthly premiums that would have been paid to a traditional health insurance company, giving them access to more cash flow that they can reinvest in their companies.
Stop loss insurance can help employers pay fewer taxes because the only insurance item they will only have to pay taxes on is the stop loss premium.
Self-insured health care gives a company access to claims data it would not have through a traditional policy, and the data may allow employers to offer health benefits tailored to employees' needs.