What is stop-loss insurance for self-funded health plans?

Stop-loss insurance (also called excess loss insurance) protects self-funded employers from catastrophic medical claims. It comes in two forms: specific stop-loss covers individual claims above a set deductible (typically $50,000–$250,000 per person per year), and aggregate stop-loss caps total plan liability at a percentage of expected claims (typically 120–125%). Stop-loss is not health insurance — it reimburses the employer after claims are paid.

What is the difference between specific and aggregate stop-loss?

Specific stop-loss (also called individual stop-loss) reimburses the employer when a single member's claims exceed the specific deductible in a plan year. For example, with a $100,000 specific deductible, the employer pays the first $100,000 of claims for any individual; the stop-loss carrier pays the rest. Aggregate stop-loss reimburses the employer when total plan claims exceed the aggregate attachment point — typically 120–125% of expected claims — protecting against a bad claims year across the entire population.

How do I choose the right specific deductible for stop-loss?

The specific deductible (also called the attachment point) is the most important stop-loss decision. Lower deductibles provide more protection but cost more in premium. Higher deductibles reduce premium but increase employer risk. Most employers with 100–500 employees set specific deductibles at $75,000–$150,000. The right level depends on your financial reserves, risk tolerance, and the premium savings from a higher deductible. Your stop-loss broker should model multiple deductible options.

What is a laser in stop-loss insurance?

A laser is a stop-loss provision that excludes or limits coverage for a specific high-risk individual — typically someone with a known expensive condition like cancer or organ failure. The stop-loss carrier may laser an individual by raising their specific deductible (e.g., from $100,000 to $500,000) or excluding their claims entirely. Lasers are common at renewal when a member has had high claims. Negotiating laser limits and laser-free contracts is an important part of stop-loss procurement.

How do I evaluate stop-loss carriers?

Evaluate stop-loss carriers on: financial strength (A.M. Best rating of A- or better), claims payment history and speed, laser practices at renewal, contract terms (run-in/run-out provisions, terminal liability), network of reinsurance, and premium competitiveness. Issue a stop-loss RFP every 2–3 years to ensure competitive pricing. Your TPA or stop-loss broker should have relationships with multiple carriers to get competitive quotes.

Risk Management

Stop-Loss Insurance for Self-Funded Plans

Stop-loss insurance is the safety net that makes self-funding viable. Without it, a single catastrophic claim — a premature birth, a cancer diagnosis, a transplant — could devastate your plan. Here's how it works and how to structure it correctly.

Specific vs. aggregate stop-loss

Specific stop-loss

Covers individual claims that exceed a set deductible (the "specific deductible" or "attachment point"). Once a single member's claims exceed this threshold in a plan year, the stop-loss carrier pays the excess. Common deductibles range from $50,000 to $250,000+ depending on group size.

A member incurs $400,000 in cancer treatment costs. With a $100,000 specific deductible, the employer pays $100,000 and the stop-loss carrier pays $300,000.

Aggregate stop-loss

Caps total plan claims at a percentage of expected annual costs — typically 115–125%. If total claims exceed this threshold, the stop-loss carrier pays the excess. Aggregate stop-loss protects against a bad year across the entire population.

Expected claims: $2M. Aggregate attachment at 120%: $2.4M. If total claims reach $2.8M, the stop-loss carrier pays $400,000.

Lasers: the risk you need to understand

A laser is a carrier-imposed higher specific deductible on a known high-cost individual. If a member has a chronic condition or known upcoming high-cost treatment, the stop-loss carrier may "laser" that person — meaning you bear more risk for their claims than for other members.

Lasers are common at renewal. Negotiating laser limits (caps on how high a laser can be set) and laser-free contracts is an important part of stop-loss procurement. Your stop-loss broker should be actively managing this.

Key contract terms to negotiate

Run-in vs. run-out: Run-in (paid contract) covers claims paid during the policy year regardless of when incurred. Run-out (incurred contract) covers claims incurred during the policy year. Run-in contracts are generally more favorable for employers.

Laser limits: Cap on how high a carrier can set a laser on any individual. Negotiate a maximum laser amount (e.g., no laser above $300,000).

No-new-laser guarantee: Carrier agrees not to add new lasers at renewal for members already on the plan.

Advance funding: Carrier advances claim payments before reimbursement, improving cash flow for the employer.

How to size your specific deductible

The specific deductible is the single most important stop-loss decision. Set it too low and you pay excessive premiums; set it too high and you're exposed to more risk than you can absorb. The right deductible depends on group size, claims history, risk tolerance, and cash reserves.

As a rule of thumb, specific deductibles are typically set at 3–5× average monthly claims PEPM. Use our stop-loss sizing calculator to model the right range for your group.

Related tools

Stop-Loss Comparison Tool

Compare stop-loss carriers on contract terms, rates, and lasering history.

Stop-Loss Contract IQ™

AI-powered review of your stop-loss contract for red flags and hidden terms.

Stop-Loss Sizing Calculator

Model specific deductible levels against your claims history and risk tolerance.

Use the stop-loss sizing calculator ← Back to hub