Health insurance is an important employee benefit, but as every business owner knows, it’s extremely expensive. More and more companies are turning away from costly private insurance models and considering self-funded healthcare plans instead, which can lead to significant cost savings.
However, by adopting a self-funded healthcare model, companies open themselves up to financial risk. Stop-loss insurance covers this gap and protects employers from catastrophic loss.
What Is Stop-Loss in Health Insurance?
Stop-loss insurance, also known as reinsurance or excess insurance, is a type of insurance policy that is designed to protect employers from unpredictable, unexpected, or excessive healthcare claims.
When a business decides to self-fund their employee healthcare plans, they agree to cover employee medical bills and expenses that go over a set deductible limit. While this cost may be manageable for many companies and in most situations, smaller businesses may have difficulty covering expensive healthcare bills. Additionally, some medical expenses are so costly that they can destroy the financial health of a company.
With stop-loss insurance, employers do not have to assume 100% of this financial risk. Instead, this type of coverage allows a company to cap expenses for employee medical bills. For small businesses, this limit can be as low as $10,000.
If the cost of healthcare exceeds that established cap, the stop-loss policy covers the additional costs.
How Does Stop-Loss Insurance Work?
While traditional, private insurance models require businesses to pay monthly insurance premiums, self-funded companies pay healthcare providers directly for employee medical expenses—which means they assume the risk associated with those claims unless the employer has a stop-loss policy in place.
There are two types of stop-loss insurance:
- Individual or specific stop-loss insurance covers claims for a specific employee as well as their spouse and/or dependents.
- Aggregate stop-loss insurance covers claims for a group of employees that exceed a specified annual threshold.
Most self-funded employers invest in a combination of individual and aggregate stop-loss insurance plans to minimize financial risk.
Should You Purchase Stop-Loss Insurance?
Stop-loss insurance coverage is essential for any self-funded company. If your business is considering becoming self-funded or has already made the switch from private to self-funded health insurance benefits, you should consider purchasing stop-loss insurance. Without stop-loss insurance in place, your company is exposed to potentially catastrophic financial risk.
Not all insurance companies offer stop-loss insurance, and policies vary widely based on the provider, employer, and premium. Speak with a trusted insurance agent to learn more about your options.
Contact Melton McFadden to See Your Insurance Options
At Melton McFadden, our experienced insurance professionals can help you develop a health insurance plan that protects your business, finances, and peace of mind. We are ready to guide you through the process of identifying areas of risk, finding gaps in your current health insurance plan, and creating a solution that works best for you, your employees, and your company.
Whether you are looking to protect your business from financial loss or secure additional health insurance for your employees, we’re here for you every step of the way. Contact us today or request a free quote to get started.
