Stop Loss Insurance, also known as Excess Loss Insurance, is a type of policy catering primarily to self-insured employers, health plans, or health care providers. It serves as a risk management tool designed to protect against unexpectedly high claims.
Purpose
The primary goal of Stop Loss/Excess Loss insurance is to limit liability in the event that the claims exceed a predetermined threshold. This can apply to two main aspects:
Specific Stop Loss: This protects against high claims from any individual policyholder or patient, ensuring that a single claim does not financially overwhelm the plan.
Aggregate Stop Loss: This covers the total sum of claims over the course of the coverage period for a group, preventing financial instability due to the cumulative cost of multiple claims.
Regulation
Stop Loss/Excess Loss Insurance is subject to both federal and state regulations. In the United States, rules governing these policies can vary, so it’s important to check local laws. Parallels could be noted in regulations such as the Employee Retirement Income Security Act (ERISA), primarily when dealing with employee health benefit plans.
Importance for Self-insured Entities
For entities that choose self-insurance, managing potential high losses through Stop Loss coverage is crucial. It shields the entity from catastrophic financial implications related to singular or multiple high-cost claims.
Conclusion
Choosing the right Stop Loss/Excess Loss Insurance involves understanding specific needs and assessing potential risks. Employers, healthcare managers, and policy makers should integrate this coverage as a key component of their risk management strategy to ensure financial stability and sustained health service delivery.
