The Value of Stop Loss

“Stop-loss” coverage is quickly becoming one of the main areas of focus when analyzing plan components of extended health programs. Stop-loss coverage is basically insurance on your group insurance program. The size of your account (usually measured in premium dollars) sets the stage for the level of stop-loss limits. A modest sized program of 25 or more employees would typically have a stop-loss limit of $10,000. At the end of your review period, the insurance looks at all the claims of your group and identifies any claims that exceed $10,000. For example, an employee had $17,500 in claims. Under the protection of the stop-loss provision only $10,000 of the claim is used in the renewal calculation with the remaining $7,500 to be covered under the stop-loss provision.

Why is “Stop-loss” coverage important?

As many of you have seen, medical plans are constantly being hit with a variety of costs unheard of just a few short years ago. The world of employee benefits plans is constantly changing and is being inundated with a multitude of costs, downloading of government services, changes in eligibility, etc. By far the biggest impact to plan sponsors is the rising cost of drugs. Many of the new medications being added to the plan show very promising results; however, these advances do not come without a price. Gone are the days when one or two employees’ claims were over $1,000 in medical expenses. We regularly see claims in the $20,000 plus range and this increase has been dramatic. By having stop-loss protection only a portion of your claim is charged to the experience, helping to temper rates.

What is the future of “Stop-loss”?

As stop-loss coverage continues to be used more and more, at some point in time the insurers will have to make a choice between increasing the cost of stop-loss coverage or raising the limit on the coverage to shift more of cost to the plan sponsor.

In future articles we will look at some potential options to cover maintaining plan costs. Should you have any question regarding stop-loss as it relates to your plan, please contact your Employee Benefits Consultant.

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