How Stop-Loss Insurance Works
Stop-loss insurance is the financial protection that makes self-funding viable for most employers. It caps your exposure to catastrophic claims — both for individual members and for the plan as a whole. Without it, self-funding is a gamble. With it, it's a calculated risk.
The two types of stop-loss coverage
Specific stop-loss
Covers individual claims above your specific deductible (attachment point). Once a single member's claims exceed the deductible in a plan year, the carrier pays the excess. Protects against catastrophic individual claims.
Aggregate stop-loss
Caps total plan claims at a percentage of expected annual costs (typically 115–125%). If total claims exceed this threshold, the carrier pays the excess. Protects against a bad year across the entire population.
How reimbursement works
When a claim exceeds your specific deductible, you pay the claim in full and then submit for reimbursement from the stop-loss carrier. Most carriers reimburse within 30–60 days. Some carriers offer "advance funding" — paying the claim directly so you don't need to front the cash.