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What is aggregate stop-loss insurance?

Aggregate stop-loss insurance is a type of insurance coverage that provides protection to self-insured employers or entities against high claims costs. It helps limit the financial risk associated with unexpected and excessive claim expenses. Here’s an explanation of aggregate stop-loss insurance:

1. Self-insured entities: Self-insured employers or entities choose to assume the financial risk of providing healthcare benefits to their employees or members instead of purchasing traditional fully insured health insurance policies. This means that they pay for their employees’ medical claims directly, rather than paying premiums to an insurance company.

2. Claims risk and excessive costs: When self-insured entities take on the responsibility of paying claims, they face the risk of high medical expenses due to unexpected and excessive claim costs. These costs can arise from a small number of individuals with exceptionally high medical bills or a large number of moderate claims that collectively exceed the entity’s budget or risk tolerance.

3. Aggregate stop-loss insurance coverage: To mitigate the risk of incurring substantial losses from high claim costs, self-insured entities can purchase aggregate stop-loss insurance coverage. This insurance provides protection against the accumulation of claims costs that exceed a predetermined threshold, known as the “attachment point.”

4. Attachment point and reimbursement: The attachment point is the specified threshold at which the aggregate stop-loss insurance coverage begins to reimburse the self-insured entity for claims costs. For example, if the attachment point is set at $200,000, the insurance coverage will start reimbursing the entity for claims costs that exceed this amount.

5. Limit and coverage period: Aggregate stop-loss insurance policies also have a limit, which is the maximum amount the insurance company will reimburse for claims costs during the coverage period. This limit is typically set above the attachment point. For instance, if the limit is $1 million, the insurance company will reimburse the entity for aggregate claims costs above the attachment point up to the limit.

6. Coverage period: Aggregate stop-loss insurance coverage is typically provided for a specific period, such as one year. The coverage period allows self-insured entities to manage their claims costs and budget more effectively, knowing that their financial risk is limited within the coverage period.

7. Risk management and financial protection: By obtaining aggregate stop-loss insurance, self-insured entities transfer a portion of their financial risk to the insurance company. This insurance coverage helps protect them against unexpected and excessive claims costs, ensuring that they can manage their healthcare benefit expenses more predictably and maintain financial stability.

Aggregate stop-loss insurance is a valuable risk management tool for self-insured entities, as it provides financial protection and helps control the impact of high claim costs. It allows these entities to take advantage of the cost savings and flexibility of self-insurance while minimizing the potential financial risks associated with large and unforeseen medical expenses.

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