Question 1

What is stop-loss insurance?

Accepted Answer

Stop-loss insurance (also called excess loss insurance) protects self-funded employers from catastrophic health claims. It reimburses the employer when claims exceed a predetermined threshold. There are two types: specific stop-loss covers individual high-cost claimants above a set deductible (e.g., $150,000 per person per year), and aggregate stop-loss covers total plan claims that exceed a set percentage of expected costs (typically 115–125%). Stop-loss is not health insurance — it is a financial protection product for the employer.

Question 2

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

Accepted Answer

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 $150,000 specific deductible, the employer pays the first $150,000 of any individual's claims; the stop-loss carrier pays everything above that. Aggregate stop-loss reimburses the employer when total plan claims exceed the aggregate attachment point — typically 115–125% of expected annual claims. Most self-funded employers carry both types.

Question 3

What is a specific deductible and how do I choose the right one?

Accepted Answer

The specific deductible (also called the attachment point) is the per-person threshold above which your stop-loss carrier pays claims. Common specific deductibles range from $50,000 to $500,000+. A lower deductible means more claims are covered by stop-loss but premiums are higher. A higher deductible means lower premiums but more risk. The right deductible depends on your group size, financial capacity, and risk tolerance. Groups under 200 employees typically use $75,000–$150,000; larger groups can absorb $150,000–$300,000+.

Question 4

What is a laser in stop-loss insurance?

Accepted Answer

A laser is a carrier-imposed higher specific deductible on a known high-cost individual. If a plan member has a chronic condition or known upcoming high-cost treatment (e.g., cancer, transplant, hemophilia), the stop-loss carrier may propose a laser at renewal — for example, raising that individual's specific deductible from $150,000 to $500,000 or even unlimited. Lasers are the most contentious aspect of stop-loss renewal. Negotiate no-new-laser provisions and maximum laser caps in your original contract.

Question 5

What is the aggregate attachment point?

Accepted Answer

The aggregate attachment point is the total claims threshold above which your aggregate stop-loss carrier pays. It is typically set at 115–125% of your expected annual claims. For example, if your expected annual claims are $2,000,000, your aggregate attachment point might be $2,300,000 (115%). If total claims reach $2,500,000, the stop-loss carrier reimburses the $200,000 above the attachment point. The aggregate attachment point protects against a catastrophic year where multiple members have high claims simultaneously.

Question 6

What is the difference between run-in and run-out stop-loss?

Accepted Answer

Run-out (also called incurred-and-paid) stop-loss covers claims incurred during the plan year but paid after year-end, during a run-out period (typically 3–6 months). Run-in (also called paid) stop-loss covers claims paid during the plan year regardless of when they were incurred. Run-out contracts provide broader protection because they capture all claims from the plan year, even if payment is delayed. Run-in contracts are less expensive but may miss late-submitted claims. Run-out is generally preferred for employers who want comprehensive coverage.

Question 7

What A.M. Best rating should I require for stop-loss carriers?

Accepted Answer

Require a minimum A.M. Best financial strength rating of A- (Excellent) from all stop-loss carriers. A.M. Best ratings assess an insurer's financial strength and ability to pay claims. Carriers rated below A- carry meaningful insolvency risk — if your carrier fails, you may not be reimbursed for large claims. Most reputable stop-loss carriers carry A or A+ ratings. Never accept a carrier rated below A- regardless of how attractive their pricing appears.

Question 8

What is advance funding in stop-loss?

Accepted Answer

Advance funding (also called advance reimbursement) means the stop-loss carrier pays large claims before the employer reimburses them, rather than requiring the employer to pay first and then seek reimbursement. Without advance funding, the employer must have sufficient cash reserves to pay a $500,000 claim and wait 30–60 days for reimbursement. Advance funding eliminates this cash flow burden. It is especially important for smaller employers and should be negotiated as a contract term.

Question 9

How often should I re-bid my stop-loss coverage?

Accepted Answer

Re-bid your stop-loss coverage every year at renewal. Unlike PBM contracts (which are typically 3-year agreements), stop-loss is an annual contract and the market is competitive. Even if you plan to stay with your current carrier, getting quotes from 3–5 alternatives gives you negotiating leverage on rate increases and contract terms. Employers who accept renewal terms without re-bidding typically pay 15–25% more than those who run a competitive process.

Question 10

What is terminal liability coverage?

Accepted Answer

Terminal liability coverage (also called extended reporting period coverage) protects the employer when a self-funded plan terminates. When a plan ends — because the employer switches to fully insured, changes carriers, or closes — there are often claims that were incurred during the plan but not yet paid. Terminal liability coverage ensures these run-out claims are covered. Without it, the employer is responsible for all claims incurred before termination but submitted after. Always negotiate terminal liability provisions when setting up a self-funded plan.

Question 11

Can stop-loss carriers refuse to renew my coverage?

Accepted Answer

Yes. Stop-loss is not guaranteed renewable — carriers can decline to renew, add lasers, or significantly increase rates at renewal. This is one of the key risks of self-funding. Mitigate it by: (1) Negotiating no-new-laser provisions in your original contract; (2) Maintaining a competitive renewal process so you have alternatives; (3) Implementing care management programs to reduce high-cost claimant risk; (4) Working with a stop-loss broker who has strong carrier relationships. Carriers are less likely to non-renew accounts with good loss ratios and proactive care management.

Question 12

How much does stop-loss insurance cost?

Accepted Answer

Stop-loss premiums typically represent 8–15% of total plan costs for self-funded employers, though this varies significantly by group size, specific deductible level, and claims history. A 200-employee group with a $150,000 specific deductible might pay $200,000–$400,000/year in stop-loss premiums. The premium-to-risk tradeoff is the central stop-loss decision: a lower specific deductible costs more in premiums but reduces your exposure on large claims. Use the Stop-Loss Sizing Tool to model the tradeoff at different attachment points.

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