Aggregate Stop-Loss Insurance

MoneyBestPal Team
A policy that covers the excess of claims over a specified amount, called the aggregate limit or attachment point.

Aggregate stop-loss insurance is a policy that covers the excess of claims over a specified amount, called the aggregate limit or attachment point. 

This indicates that the insurance provider will pay the employer the difference if the total amount of claims in a year exceeds the aggregate limit. For instance, if the combined claims exceed the aggregate limit of $500,000 by $750,000, the insurance company will pay the employer $250,000.

Aggregate stop-loss insurance is different from specific stop-loss insurance, which covers individual claims that exceed a certain threshold. For instance, if the particular limit is $50,000 and an employee makes a $100,000 claim, the insurance provider will provide the employer $50,000. While aggregate stop-loss insurance shields the employer from numerous claims, specific stop-loss insurance shields the business from catastrophic claims.

Employers who self-fund their employee health plans typically obtain aggregate stop-loss insurance. This indicates that for a fully insured plan, the employer pays for each claim as it occurs rather than making a fixed premium payment to an insurance carrier. Employers may benefit from greater flexibility and cost savings from self-funding, but they also run the risk of becoming more volatile.

How Does Aggregate Stop-Loss Insurance Work?

The main components of an aggregate stop-loss insurance policy are:
  • The aggregate limit or attachment point: This is the maximum number of claims for which the employer is liable each year. It is often determined using an attachment point, or a percentage of predicted expenditures, which depends on a variety of variables, including the number of enrolled employees, their risk profile, and demographic trends. The normal attachment point is around 125% of the yearly claim projections.
  • The premium: This is the sum that the employer forks over to the insurance provider in order to receive the coverage. As the employer bears the majority of the risk, it is typically less expensive than the premium for a fully insured plan. Many elements, including the size of the company, the type of coverage, and the history of claims, may affect the premium.
  • The reimbursement: This is the amount that the insurance company pays to the employer if the total claims exceed the aggregate limit. It may be paid monthly, quarterly, or annually, depending on the policy terms.

Why Is Aggregate Stop-Loss Insurance Important?

Self-funded enterprises should have aggregate stop-loss insurance because it gives them stability and protection against unforeseen or excessive claims. If claims exceed the budget or reserves, an employer without aggregate stop-loss insurance may suffer large losses or cash flow issues. This can make it more difficult for them to cover other costs or make commercial investments.

Aggregate stop-loss insurance also allows employers to benefit from self-funding without taking on too much risk. Self-funding can offer advantages such as:
  • Lower administrative fees and costs
  • Greater influence over the benefits and plan design
  • Greater transparency and information on claims and usage
  • Possible financial benefits from reduced taxes and regulations
  • In the event that claims are lower than anticipated, there may be refunds or dividends.
Employers can enjoy these benefits by purchasing aggregate stop-loss insurance while limiting their exposure to large or unpredictable claims.