Self Insurance and Stop Loss Coverage

Stop loss coverage is a type of insurance that protects self-insured companies from catastrophic claims. In a self-insured plan, the employer pays for the medical expenses of their employees instead of paying premiums to an insurance company. However, self-insurance also means that the employer is taking on the financial risk of high claims.

Stop loss coverage provides a safety net for self-insured companies. It works by setting a maximum limit on the amount of money that an employer will be responsible for paying out in medical expenses for their employees. Once the employer reaches this limit, the stop loss coverage kicks in and covers the remaining expenses.

Stop loss coverage can be broken down into two categories: specific stop loss and aggregate stop loss.

Specific stop loss coverage protects employers from the costs of a single catastrophic claim that exceeds a pre-determined threshold. For example, if an employee requires a very expensive surgery, specific stop loss coverage will protect the employer from having to pay the full cost of the procedure.

Aggregate stop loss coverage, on the other hand, protects employers from the total claims of all employees exceeding a certain threshold. This type of coverage is important because even if the employer is able to cover the cost of individual high claims, the total cost of all claims could still exceed their budget.

One of the biggest advantages of stop loss coverage is that it can help employers save money on their healthcare costs. By self-insuring and having stop loss coverage, employers can avoid paying the administrative costs and profits associated with traditional insurance plans. In addition, employers have more control over their healthcare plans, allowing them to tailor coverage to the specific needs of their employees.

Moreover, self-insuring with stop loss coverage can turn HR into a profit center. Any unused funds in the self-insurance pool can be rolled over to the following year, which can be used for other HR initiatives, such as professional development opportunities or employee wellness programs.

Of course, self-insuring with stop loss coverage does come with risk. Employers must have the financial stability to cover the cost of high claims before the stop loss coverage kicks in. However, the potential rewards of self-insurance and stop loss coverage make it a viable option for many companies.

In conclusion, stop loss coverage is an important component of self-insured healthcare plans. It provides a safety net for self-insured employers and can help them save money on healthcare costs. While there is some risk involved, the potential rewards of self-insurance with stop loss coverage make it a viable option for companies looking to take control of their healthcare plans and turn HR into a profit center.