What is Traditional Stop Loss?
Traditional stop loss, many times referred to as “Specific & Aggregate” coverage, is an insurance product that provides protection against catastrophic or unpredictable losses. It is purchased by employers who self-fund their employee benefit plans, but do not want to assume 100% of the liability for losses that exceed certain limits called deductibles.
Types of Stop Loss Coverage:
- Specific Stop Loss provides protection for the employer against a high claim for any one individual. This is protection against abnormal severity of a single claim rather than abnormal frequency of claims in total. Specific Stop Loss is also referred to as Individual Stop Loss.
- Aggregate Stop Loss provides protection in the form of a ceiling on the dollar amount of eligible expenses than an employer would pay in total during a contract period. The carrier reimburses the employer after the end of the contract period for Aggregate claims.
When Are Claims Paid?
Stop loss coverage is provided on a reimbursement basis. The group is responsible for payment of all losses under a self-funded plan. With the purchase of stop loss coverage, the group is still responsible for all losses including those that exceed the deductible. After the losses have been paid, the employer will be reimbursed for the amount of the loss that exceeds the deductible. All reimbursements are paid directly to the employer, never to an employee or to a provider of services or supplies.
When and How Are Reimbursements Paid?
Specific claims are generally submitted and processed as soon as the deductible is met. Aggregate claims are usually processed only after the close of the contract period. Occasionally, there are requests for a "monthly accommodation" on the Aggregate. This means the year-to-date Aggregate claims are compared to the year-to-date aggregate deductible to determine if any amount is payable. Funds could change hands during the year. The ultimate amount of the claim should remain the same. There is a business risk in this situation rather than an insurance risk as the employer may have to pay back advances if it turns out that claims in a later month would not have been reimbursed.