What is global stop loss insurance?
Global stop-loss insurance is a policy designed to limit the coverage of claims (losses) to a specific amount. This cover guarantees that a catastrophic loss (specific stop-loss) or numerous losses (cumulative stop-loss) do not exhaust the financial reserves of a self-funded plan. The overall stop-loss protects the employer against higher than expected claims. If the total of the claims exceeds the overall limit, the stop loss insurer covers the claims or reimburses the employer.
Key points to remember
- Comprehensive stop-loss insurance is designed to protect an employer who self-finances their employee health plan from paying higher than expected claims.
- Stop-loss insurance is similar to high-deductible insurance, and the employer remains responsible for claims less than the deductible amount.
- The deductible or garnishment for global stop-loss insurance is calculated based on several factors, including an estimated value of claims per month, the number of employees registered and a garnishment multiplier, which typically represents about 125% of anticipated claims.
Understanding global stop-loss insurance
Comprehensive stop loss insurance is held for self-funded insurance plans for which an employer assumes the financial risk of providing health care benefits to its employees. Concretely, self-funded employers pay each claim as it is presented instead of paying a fixed premium to an insurance company for a fully insured plan. Stop-loss insurance is similar to buying high deductible insurance. The employer remains responsible for claim costs under the deductible amount.
Stop-loss insurance differs from conventional employee benefit insurance. The stop-loss only covers the employer and does not offer any direct coverage to employees and participants in the health plan.
How cumulative loss insurance is used
Comprehensive stop-loss insurance is used by employers to cover risk against a high value of claims. Comprehensive stop loss insurance includes a maximum level for claims. When a maximum threshold is exceeded, the employer no longer needs to make payments and can receive certain reimbursements.
Comprehensive stop-loss insurance can be added to an existing insurance plan or purchased independently. The threshold is calculated on the basis of a certain percentage of the projected costs (called fixing points), generally 125% of the claims planned for the year.
An overall stop loss threshold is generally variable and not fixed. This is due to the fact that the threshold varies as a percentage of the registered employees of an employer. The variable threshold is based on an aggregated attachment factor which is an important element in the calculation of a stop loss level.
As is the case with high deductible plans, most stop-loss plans will have relatively low premiums. In fact, the employer should cover more than 100% of the value of the requests he receives.
According to the 2020 Henry J. Kaiser Family Foundation Employer Health Benefits Employer Survey, insurers are now offering health plans with a self-funded option for small and medium employers; these health plans include stop-loss insurance with low attachment points.
Comprehensive loss insurance calculations
The global attachment associated with a stop loss plan is calculated as follows:
The employer and the stop-loss insurance provider estimate the average dollar value of expected claims per employee per month. This value will depend on the employer’s estimate, but often ranges from $ 200 to $ 500 per month.
Suppose the stop loss plan uses a value of $ 200. This value would then be multiplied by the stop loss attachment multiplier, which is generally between 125% and 175%. Using a claim estimate of $ 200 and a loss attachment multiplier of 1.25, the monthly deductible would be $ 250 per month per employee ($ 200 x 1.25 = $ 250).
This deductible must then be multiplied by membership in the employer’s plan for the month. Assuming an employer has 100 employees in the first month of coverage, their total deductible would be $ 25,000 for the month ($ 250 x 100).
Registration can potentially vary by month. Due to the variance in registrations, the overall coverage for excess losses may have a monthly or annual deductible.
With a monthly deductible, the amount an employer has to pay could change each month. With an annual deductible, the amount that the employer must pay would be added for the year and generally based on the estimates of the first month of coverage. Many stop loss plans will offer an annual deductible slightly less than the sum of the 12-month deductibles.