Welcome to blog #1 of the Benefits Plan Basics series. This series explains key benefit terms to help you understand your employee benefits plan or what your advisor is talking about during your renewal. Reach out to an HMA advisor today to learn more about the following subject or with any other questions you have regarding benefits.
Today we’re talking about Stop-loss. Stop-loss coverage is catastrophic insurance coverage that may be built into the Extended Healthcare (EHC) portion of your employee benefits plan.
How Does Stop-loss Work?
Stop-loss coverage removes liability from your claims experience after an individual spends a set amount (the Stop-loss level). The cost of stop-loss is either based on a set monthly premium for the number of single/family employees you have on your EHC plan or it is based on a percentage of claims.
If your stop-loss level was $10,000, all claims within the yearly experience period for an individual above $10,000 would not add liability to the plan. For sake of the example, we will continue to use the $10,000 as an example stop-loss level throughout this article, but the actual amount for a group will vary based on the group size and usually ranges between $5,000 (only common now on older plans) to $15,000 (where the market is starting to move).
Stop-loss on an Insured Plan
For an insured plan, this means that all individual claims within the yearly experience period above $10,000 do not affect claims experience on renewal. Insurers base a business’ renewal cost for EHC on claims experience, inflation/trend and administrative costs. If one of your employees ends up on a high-cost drug that is $40,000 a year, your claims experience at renewal would only be $10,000 for that drug claim. This can keep your cost significantly lower as you have moved the catastrophic risk of a high claim over to the insurer.
Stop-loss for Administrative Services Only (ASO)
For an administrative services only (ASO) plan, all EHC claims within the yearly experience period above $10,000 are taken on by the insurer rather than paid out of your company’s benefit account. ASO plans work on a pay-as-you-go or budgeted basis where your business pays for claims rather than an insurer. For either style of ASO plan, once an individual on your EHC plan has over $10,000 of claims, any additional claims will get covered by the insurer instead of by your business.
Adding Stop-loss to Your Benefits Plan
If you are starting a new benefits plan that has stop-loss coverage built-in, the insurer you end up with will likely choose your level of coverage (i.e. $10,000, $12,500, $15,000). Once you have claims experience, stop-loss becomes a conversation at renewal. The higher your stop-loss level, the lower your monthly Stop-loss premium will be. When facing the decision to increase your stop-loss, there needs to be significant savings, as you are adding more risk to your plan.