Members & Employers

What You Should Know About Stop-Loss Insurance

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I turned to Director of Business Development, Mike Roche, for answers about stop-loss insurance and how The Alliance makes a difference in members’ stop-loss rates. Mike helps employers make data driven decisions that align with their company’s strategies for health benefits.

Interview:

What exactly is stop-loss insurance?

Roche: Stop-loss insurance helps self-funded employers manage their risk and protects them from catastrophic or unusually high overall claim costs.

Why is stop-loss insurance so important for self-funded employers?

Roche: Stop-loss provides a financial safety net in which employers know the maximum claims liability in any given plan year.

Do employers with a fully-insured health plan need stop-loss insurance as well?

Roche: In fully-insured plans, the carrier takes on the risk as well as the gains or losses if the employer’s claims experience is greater or less than the total premium collected.

What is the difference between specific stop-loss and aggregate stop-loss insurance?

Roche: Specific stop-loss protects against high cost claims on any one individual during the plan year. Aggregate stop loss provides a ceiling on the claims expense that an employer would pay in the plan year.

How is loss defined when having to use stop-loss insurance?

Roche: Losses are those expenses that are submitted to the stop loss carrier for reimbursement. The expenses must be eligible for coverage under the medical plan and must fall under the stop loss carrier’s policy definition of loss.

What amount of stop-loss is usually purchased by an employer?

Roche: Many factors are considered when determining the appropriate level of coverage and deductible amounts. These factors include the employer’s cash flow, group size and demographics, and historical claims experience.

Should employers shop around for stop-loss insurance?

Roche: Stop loss can be a commodity; most employers annually review their carrier or it is highly recommended to do so.

How does the stop-loss carrier project work?

Roche: The Alliance proactively reaches out to key stop-loss carriers every year, providing them data to evaluate the value of The Alliance’s PPO network. We also offer stop-loss underwriters information about:

- Network and contract performance measures, such as average discounts
- Employer group information, which includes the number of employers, total eligible lives and other details
- Claim charges
- Current Procedural Terminology (CPT) codes
- List of in-network hospitals
- Carriers use this information to determine the amount of the discount that is offered to Alliance members. The Alliance then gives members a current list of carriers who offer discounts to our members.

Does The Alliance help employers with stop-loss insurance in any other way?

Roche: The Alliance can not only reach out to carriers with overall preferred provider organization (PPO) data, we can also provide employer-specific, de-identified claims data for our current employer members.

As stop-loss insurance evolves, have you seen any “best practices” that employers should consider?

Roche: Including prescription drug coverage under the stop loss coverage is becoming more important as the cost and number of specialty drugs continues to grow; it makes financial sense to cap the employer’s cost exposure not only for medical claims, but for prescription claims.

What are some mistakes to avoid?

Roche: In all cases, employers need to understand the details of the stop loss arrangement, including differences in coverages from one carrier to another carrier. It is important to understand if some claims may not be covered under the new policy. Ratings are also key; A.M. Best, Standard & Poor’s, and Moody’s all rate carriers based on the carrier’s financial stability. Many employers use a rating of B+ as the starting point for evaluating carriers. Employers should also be sure not to exclude data from carriers so as to avoid the carrier carving out, or ‘lasering’ certain patients. Lasering can result in the employer having to cover a higher claims dollar amount before the stop loss coverage applies.