Stop-loss insurance

Stop-loss insurance is a type of insurance that is designed to limit claim coverage (stop loss) to a specific amount. This type of policy is typically used by employers who self-insure their employees' health care costs; it protects these employers from catastrophic or unpredictable losses.

Overview

Self-insurance is a risk management method where a calculated amount is set aside to compensate for the potential future loss. If self-insured employers want to protect themselves against catastrophic losses, they will use stop-loss insurance. The stop-loss policy kicks in when the cost of claims exceeds certain levels, which are outlined in the policy.

Types of Stop-Loss Insurance

There are two main types of stop-loss insurance: individual (or specific) stop loss, and aggregate stop loss.

Individual Stop Loss

Individual stop loss (ISL) insurance is a policy that protects the employer from high claims for each individual employee. The policy would kick in if an employee’s claims exceed a set threshold during a specific period.

Aggregate Stop Loss

Aggregate stop loss (ASL) insurance is a policy that protects the employer from high total claims of all employees. The policy would kick in if the total claims of all employees exceed a set threshold during a specific period.

Benefits of Stop-Loss Insurance

Stop-loss insurance can provide several benefits for self-insured employers. It can protect the employer’s financial health from high-cost claims, provide stability in cash flow, and allow employers to provide their employees with a comprehensive health care plan.

Criticisms of Stop-Loss Insurance

Despite its benefits, stop-loss insurance has been criticized for allowing employers to circumvent regulations of the Affordable Care Act. Some argue that it allows employers to avoid certain market reforms, which can lead to adverse selection in the health insurance market.

See Also

• Health insurance in the United States
• Self-funded health care
• Catastrophic health insurance
• Risk management

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