Medical Stop Loss FAQ

Q. What is medical stop loss coverage?A. Medical stop loss is an insurance product that provides protection against catastrophic or unpredictable losses. It is purchased by employers who have decided to self-fund their employee benefit health plans, but do not want to assume 100% of the liability for losses arising from the plans. Under a medical stop loss policy, the insurance company becomes liable for eligible losses that exceed certain limits called deductibles.

Q. Who is insured?A. A significant difference between medical stop loss and conventional employee benefit insurance is that medical stop loss insures only the employer. Medical stop Loss does not insure employees.

Q. What medical stop loss coverages are available?A. Medical Stop Loss is available in two forms: specific and aggregate.

• Specific stop loss is the form of excess risk coverage that provides protection for the employer against high claims 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 dollar amount of eligible expenses that an employer would pay, in total, during a contract period. The carrier reimburses the employer after the end of the contract period for aggregate claims. A number of variations are available for each of these two products. Generally, all but the largest employers will want to protect their plan with both specific and aggregate stop loss coverage. Occasionally, circumstances may be such that Specific Stop Loss by itself will fulfill the employer's need for protection.

Q. What is the role of the employer's plan document?A. The employer's plan document defines the benefits offered to the employees and is critical in determining the pricing of the stop loss policy. Because the employer has great latitude in designing the plan, there may be elements in the document that are not included under the medical stop loss coverage. The covered portions of the plan document must be reviewed by the medical stop loss underwriter in order to affect the stop loss coverage. Changes in the plan document after its initial approval must also be reviewed before their inclusion in the stop loss coverage.

Q. How is loss defined?A. Expenses are determined to be eligible for reimbursement based upon two criteria:

• The expenses must be eligible under the Employer's Benefit Plan as underwritten.
• The loss must be covered under the covered expenses definition in the Stop Loss policy.