Understanding Stop-Loss Insurance

Employers who offer their employees a health benefits plan may want to consider adopting a stop-loss policy to obtain reimbursement for losses stemming from frequent or expensive claims.

Let’s first look at why a benefits plan is important for business growth. Running a successful business requires a team of capable and reliable workers, and attracting such a workforce often requires that employers offer attractive perks to the job, including a robust and comprehensive health insurance plan. Many small and midsize employers are adopting self-funded captive insurance plans, much like those that over 90% of large corporations have been using for decades.

These plans give employers much more control and personalization of their benefits policy compared to the fixed cost of a fully insured group health insurance plan. But self-funding by definition means that the employer is taking over the responsibility for delivering the plan’s health care benefits. So, while having a benefits package in place is important, employers must also mitigate risk and keep potential losses from claims in mind.

That’s where a stop-loss insurance plan comes in. With the delivery of stop-loss insurance coverage though a group captive plan, even small and midsize businesses, which typically don’t have the financial backing that large corporations do, can absorb losses from a bad claims year.

What is Stop-Loss Insurance?

Stop-loss insurance is designed for employers who self-fund their health benefit plans for their employees but want to hedge against the risk of assuming 100% liability for losses that stem from catastrophic claims. With a stop-loss employee health insurance policy, the insurer is liable for any losses that go over a set employer deductible limit. For small and midsize businesses, this limit can be as low as $10,000. With stop-loss insurance coverage, employers can protect their financial reserves and their bottom line. There are two types of stop-loss insurance coverage: specific stop-loss and aggregate stop-loss.

Specific Stop-Loss Insurance

Also known as “individual stop-loss,” this type of insurance provides risk coverage against high-value claims on an individual. Rather than providing protection against an atypical number of claims, specific stop-loss insurance protects employers against an unusually high claim from a single person.

Aggregate Stop-Loss Insurance

This type of stop-loss insurance covers the total claims of all covered members, rather than individual claims, in a plan year. Aggregate coverage limits losses to a certain amount over a contractual period. If the total claims go above the aggregate limit, the insurer would reimburse the company. Some self-funding insurance plans leave all the liability for medical costs in the hands of employers. But with a stop-loss component in place, employers are protected against unusually high claims from individuals and/or a high claims frequency of claims for all covered employees.

How Stop-Loss Insurance Works

Imagine if several employees at a company contract a virus, resulting in a large number of claims. Or two or three employees develop a major disease or illness, like cancer or kidney disease, that results in hundreds of thousands of dollars each in medical care. A stop-loss insurance plan protects the employer in both cases from these losses. Essentially, stop-loss insurance is a tool used by employers to mitigate against the risk of catastrophic financial loss. Losses are capped at a certain amount, and any costs in excess of contracted limits are covered by the stop-loss insurer.

Stop-Loss Coverage and Group Captive Insurance

If you’re considering group captive insurance, It’s important to understand the mechanics of stop-loss coverage. For a better view of how the two work together, let’s first take a brief look at group captives and why they make sense for small and midsize companies.

You are, no doubt, aware of the rapidly increasing cost of health insurance. Employers who have a health benefits plan in place for their employees are often forced to pay exorbitant fixed-cost premiums, especially during years where the number of claims is particularly high.

This leaves employers with constantly increasing premiums, deductibles, and copays on plans offered to employees. For this reason, an increasing number of employers are looking for better alternatives to traditional fixed cost health insurance, and self-funded employee benefits plans are gaining in popularity — especially as part of a group medical captive. With a group captive, self-funded insurance plans enable employers to band together and share risk, making it an attractive option for small and mid-size companies who do not have the scale to self-fund on their own. Self-funding through a group captive also offers a lot more plan flexibility and control, which, in turn, can help companies realize significant cost savings.

Stop-loss coverage is a critical component of a self-funded health insurance plan. The stop-loss policy covers claims above the plan’s retained claims. The claims fund of a self-funded employer will pay claims up to the predetermined deductible for each of the company’s covered employees. The role of the stop-loss is to cover all claims above these deductible levels. When stop-loss coverage is added to a group captive plan, it spreads the risk of catastrophic claims over all members of the captive, decreasing volatility and costs for all.

Why Choose Roundstone For Group Captive Insurance?

For over a decade, Roundstone has been offering small and midsize employers a better alternative to conventional health benefit products with its group medical captive solution. Following are just a few benefits that coverage with Roundstone can offer your company.

Freedom of Choice

Though no two companies are alike, it’s standard practice for insurers to offer a limited number of options for companies to choose from. At Roundstone, we recognize that every company is unique. We take the time to get to know your company and its specific needs and use that information to help you create a customized plan that’s tailored specifically to your business. A more customized health benefits program will benefit your current employees, and it will likely be more attractive to potential new hires as well.

Affordable Health Insurance

As we mentioned, medical care and health insurance are both on the rise, with double-digit increases over the past few years, leaving employers paying out sizable contributions. And while many Americans depend on their employers’ health benefits packages for medical care coverage, many smaller-scale companies simply can’t manage the increased expense on their own. Even as rising health care costs far outpace increases in wages, many companies are forced to shift these premium increases onto their workforce through an increased share of their premiums as well as higher deductibles and copays. But doing so can have a negative impact on attracting and retaining good workers. Many employees are either unable or unwilling to assume the added financial burden. Many abandon their current employment in search of a job that provides more comprehensive care that doesn’t leave them with ever-increasing out-of-pocket costs. A group captive insurance plan from Roundstone is a viable solution for small and midsize employers. Over the past five years, all of our group captive clients saved money compared to fully insured alternatives, and two-thirds saved 20% per year. At the same time, their workers are benefiting from more affordable health care that covers more of what they need.

Premium Reimbursement

With Roundstone, a portion of a company’s stop-loss premium is part of a shared risk pool with other group participants. If you have any stop-loss premiums that were not spent by year end, those funds are returned to the participating members with a distribution check. This is in addition to the unused small-claims funds your company gets to keep each year.

Transparency

It’s common for employers not to know what their current health care plan covers and where their claims dollars go. They simply receive an invoice from their insurers and are typically left in the dark about what was covered and for how much. Many insurance carriers consider this information a trade secret, so employers are left in the dark about how their insurance dollars are spent. With a group captive insurance solution from Roundstone, you will have total data transparency and control over your insurance spend. Rather than making a futile attempt to obtain claims data from your insurance company, your participation in a group captive insurance plan through Roundstone will allow you to have direct access to the data you need to understand exactly how your claims dollars are spent. More specifically, you’ll have access to the CSI Dashboard, an analytics platform that will clearly detail and lay out your claims data. This platform can also help pinpoint where improvements can be made to contain costs.

Control

A fully customized plan means you’ll have total control over the exact plan that is best suited for your company. You’ll have control over things such as the third-party administrator (TPA) and pharmacy benefits manager (PBM) you work with and where to allocate your funds based on how your workforce uses their benefits. You’ll also have control over how most of your money is spent, as only 15% of your premium is fixed, meaning you have a say in how the other 85% is spent. This is in stark contrast to fully insured plans, which typically come with costs that are 100% fixed. With Roundstone’s group captive insurance solutions, you’ll have plenty of cost-control options and expert assistance to help identify them.

Expertise

Roundstone has been committed to captive insurance members for over 10 years. We’re an Inc. 500 company with the expertise in the health insurance industry to help you create a cost-effective, custom solution that will benefit both you and your employees.

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