Stop-loss insurance (also known as excess insurance) is an insurance coverage that provides protection against catastrophic or unpredictable losses. It is purchased by employers who have elected to self-insure their health insurance plans, but do not want to assume 100% of the liability for losses arising from the aggregate claims. Under a stop-loss policy, the insurance company becomes liable for losses that exceed certain limits called deductibles.
Specific stop-loss is the form of excess risk coverage that provides protection for the employer against a high dollar claim on any one individual. This is protection against abnormal severity of a single claim rather than abnormal frequency of claims in total. Specific stop-loss is also known as individual stop-loss.
Aggregate stop-loss provides a ceiling on the total dollar amount of eligible expenses that an employer would pay during a contract period. The carrier reimburses the employer after the end of the contract period for aggregate claims that exceed the underwritten threshold (typically 25% more than underwritten).
Aggregating stop loss works in conjunction with Specific stop loss. Employers can choose to accept an aggregate amount of additional risk above and beyond the limits set per individual by the specific. The coverage allows an employer to reduce the cost of his specific stop loss premiums by accepting such risk. Only those dollars for any one surpassing their specific threshold are applied toward the Aggregating stop loss limit.
Frequently stop-loss coverage is written through a trust. Under a conventional group insurance arrangement, the policy is issued to the employer. With a trust, however, the trustee is the policyholder. Employers who apply and are accepted for stop-loss insurance are participating employers in the trust.
Each participating employer is given a participation certificate that outlines the benefits provided by the policy issued to the trustee.
Terminal Liability Protection works in conjunction with Aggregate Stop Loss. This coverage option allows for protection against Run Out claims after the contract has been terminated or ended. Run out claims occur because there are still claim costs that have yet to be submitted by hospitals and providers. Terminal Liability Protection covers a group against such claims for typically a six month period after a contract has been terminated or has moved to a different Third Party Administrator (TPA).