What is stop loss coverage?
Stop-loss is an insurance product that works like the coinsurance maximum that is in all fully insured deductible health plans. It provides protection against catastrophic or unpredictable losses. Generally purchased by employers who have decided to self fund their employee benefit plans but do not want to assume 100% of the liability for losses from the plan. Under a stop loss policy, the insurer or carrier becomes liable for losses that exceed certain limits, called deductibles.
Who is insured?
A major difference between stop loss coverage and conventional employee benefit coverage is that stop-loss insures only the employer. Stop loss coverage does not insure employees.
What stop loss coverage are available?
Stop loss comes in two types, known as aggregate and specific. Aggregate stop loss provides a ceiling on the 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. Specific stop loss is the excess risk coverage that provides protection for the employer against a high claim on any one individual. This is protection against the abnormal severity of a single claim rather the abnormal frequency of claims in total. Specific stop loss ia also known as Individual stop loss. As a rule, all but the largest employers will want to protect their plan with both types of coverage.
How is stop loss coverage written?
Stop loss coverage is most commonly written through a trust, or trust arrangement. Under a conventional group insurance arrangement, the policy is issued to the employer. With a trust arrangement, 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. Trust means the legal entity through which stop loss coverage is provided to participating employers. The Trustee is the bank which is acting as policyholder for the stop loss coverage. The Policy is the document issued to the trustee. The participating employer is the one who purchases stop loss coverage through the trust. and finally, the "Participation Certificate" is the document issued to the participating employer and is similar in content to the policy issued to the trustee.