Stop-loss insurance for self-funded health plans: specific, aggregate and the fine print

Medical stop-loss insurance reimburses a self-funded employer's health plan when claims pass a stated threshold. Specific stop-loss caps what the plan pays for any one person in a contract year; aggregate stop-loss caps total claims for the whole group. It is not health insurance for employees. The policy is purchased by the employer or the plan, pays the plan, and does not change what employees are entitled to under the plan document.

Specific stop-loss

Specific coverage applies a per-person deductible, also called the specific retention or attachment point. The plan pays each member's claims up to that amount, and the stop-loss carrier reimburses eligible claims above it, up to the policy's per-person limit (which is often unlimited, or a stated high figure, in the contract).

Hypothetically, say the specific deductible is $75,000. One member has $310,000 of eligible claims in the contract year. The plan pays $75,000; the carrier reimburses $235,000, subject to the policy's terms and the claim being a covered expense under both the plan and the stop-loss policy. For a group of 50 lives, a single transplant, a premature birth with a long NICU stay, or a gene therapy can exceed such a deductible by itself.

Pick the deductible by asking what claim the company could pay out of operating cash without a bad quarter. Small employers use lower deductibles than large ones; each step down raises the stop-loss premium.

Lasers

A laser is an individual-specific exclusion or higher deductible that the carrier attaches to a named member with a known high-cost condition, for example "$150,000 specific deductible for Member A". It is legitimate underwriting but easy to overlook. Read the quote for the phrase "individual deductible" or "lasered" and see the policy for the list. Ask at renewal whether new lasers will be added for members with claims over a stated amount.

Aggregate stop-loss

Aggregate coverage protects against too many mid-sized claims. It sets an attachment as a percentage (commonly around 125%) of expected claims for the group's enrolled lives, and the carrier reimburses total eligible claims above that. Expected claims are computed from a monthly factor times enrollment, so the attachment point moves with headcount, and the specific-stop-loss reimbursements are generally netted out first. Some aggregate policies include a minimum or maximum, and some include an annual corridor.

Aggregate is less commonly purchased by large groups, which can absorb fluctuation, but small employers and level-funded plans rarely go without it (level-funded health plans: how they work, who they suit and the catches).

Contract basis: where the fine print lives

Stop-loss policies define which claims they cover by when the claim was incurred (date of service) and when it was paid. The names are shorthand for the period pairs.

Whether you need "run-in" depends on whether you are leaving an earlier stop-loss with a different basis. When a plan terminates or the employer changes carrier, run-out claims, which are incurred before but paid after termination, can remain the employer's responsibility unless coverage for them was bought. A very common surprise is switching from a 12/15 basis to a 12/12 basis and learning that a December claim paid in February is excluded.

What the policy covers and excludes

• Plan alignment. Stop-loss reimburses only claims the plan actually pays under its terms. If the plan document is silent or conflicts with the stop-loss policy, the carrier may deny reimbursement. Many stop-loss disputes begin with a plan document that was not updated for a change. Because of this "follow the plan" gap, ask the carrier for a draft policy and compare it with the plan document before the effective date.
• Eligible expenses. Medical, prescription drug and in some contracts dental or vision. Confirm that the specific coverage includes pharmacy and any specialty drugs.
• Exclusions. Typically expenses not covered by the plan, experimental treatment as defined by the policy, and claims resulting from non-compliance with plan procedures. Review any exclusion for gene or cell therapy, which has been an active negotiating point in recent years.
• Eligibility. Coverage is tied to employees and dependents enrolled under the plan. Employee eligibility definitions should match.
• Actively-at-work and disclosure. The carrier relies on information in the application, including known large claimants. A misstatement can void or limit coverage for that person.

How to file and get paid

The TPA submits reimbursement requests with supporting claim detail once a covered claim exceeds the deductible, often through a monthly or quarterly process. Under many policies the stop-loss carrier has the right to review claims, require case management or utilization review, and in some contracts to demand pre-notification of any member whose claims approach 50% of the attachment point. Missing a notification obligation can reduce a recovery.

Reimbursement is made to the plan. The employer funds the first dollars, and reimbursements arrive after the claims have been paid, which affects cash flow. Hold enough in the claims account to wait the reimbursement cycle.

Premium and renewal

Stop-loss premium is quoted per employee per month for specific and per employee per month for aggregate, and it is underwritten on the group's census, claims history, benefit design, network and the PBM contract. Renewals reflect large claims, trend in specialty drugs and the effect of lasers. Premium varies enough by group that quotes should come in at least from competing carriers or MGAs. As an employer, ask for rate guarantees (some carriers offer two-year terms), and avoid accepting a renewal with materially different terms without a side-by-side comparison. Medical trend and drug costs push these renewals; see PBMs, GLP-1 drugs and employer health costs.

Groups that want to share stop-loss risk with other employers sometimes join a group captive (group captives for medical stop-loss: how employer health captives work). That adds collateral, joint-risk and governance commitments that go well beyond a standard policy.

Regulation

Stop-loss is insurance regulated by the states, which differ on whether and how small employers can buy it. Some states set minimum specific attachment points for small groups, or minimum aggregate attachments, or require stop-loss policies to be issued only to groups with a minimum size. Because those rules change, confirm with your state's insurance department or workers' comp and benefits requirements by state. The self-funded plan itself is an ERISA plan. The U.S. Department of Labor's EBSA oversees fiduciary conduct, reporting and disclosure for it, and the plan sponsor remains responsible for choosing and monitoring the TPA. For the broader decision, see fully insured vs self-funded health plans: which fits your business.

A checklist before binding

1. Compare specific deductibles at three levels and see the premium step between each.
2. Confirm aggregate attachment factors and the monthly expected claims schedule.
3. Verify the contract basis and whether run-in or run-out coverage is needed.
4. List any lasers by member and ask for renewal laser language.
5. Match plan document and stop-loss policy language, especially eligibility and exclusions.
6. Get the notification and claims-reporting deadlines in writing.
7. Review reimbursement timing and the carrier's financial strength with the AM Best rating (AM Best rating).

Use the group health insurance cost and affordability calculator to turn the expected claims fund, administration and stop-loss premium into a worst-case annual figure.

Key takeaways

• Specific stop-loss caps each person's claims to the plan; aggregate caps the group's total, usually around 125% of expected claims.
• Contract basis (12/12, 12/15, run-in, run-out) decides whether late-paid claims are covered at all.
• Lasers and plan-document mismatches are the two most common reasons for reduced or denied reimbursements.
• States regulate stop-loss sold to small employers differently, so confirm local rules before choosing a low-deductible design.