Contain Healthcare Costs with Medical Stop Loss Insurance

July 17, 2019

A surgeon operating on a patient

As healthcare costs continue to spiral, single- and multi-employer Taft-Hartley plan sponsors, and self-insured plans, which cover 50% of the nation’s insured workers, are taking strong measures to contain their costs.

Did you know that just one employee’s catastrophic illness could potentially wipe out an organization’s entire medical reserve? If that happens, the plan sponsor would need to fully replenish its reserve funds, and if that can’t be accomplishment, face a serious financial problem. Medical stop loss insurance is intended as a vital protection for plan sponsors who are more vulnerable than ever today given our aging workforce, increased incidence of catastrophic and chronic medical conditions, and the escalating cost of healthcare. Through the right medical stop loss coverage, plan sponsors can gain protection from catastrophic medical and pharmaceutical claims.

What Type of Medical Stop Loss Coverage is Available?

Medical stop loss insurance is available in two types with multiple options. Specific Stop Loss protects an employer/plan sponsor from individual claimants exceeding a certain threshold. Once that limit has been reached, the stop loss policy reimburses the plan for all eligible claims.  Aggregate Stop Loss protects an employer/plan sponsor from total claims which exceed a given corridor typically set at 125% of expected claims. While some plan sponsors opt for one of these types of stop loss insurance, many elect to have both types with different options based on their historical claims paying activity.

Stop Loss is Vital When These Medical Conditions Exist

There are certain medical conditions that clearly warrant the need for medical stop loss insurance based on the costs associated with treating them. In its “Employer Stop Loss Market Overview,” Milliman cited findings relating to conditions with the highest costs. They were Malignant Neoplasm (cancer), Leukemia/Lymphoma/Multiple Myeloma (cancer) and Chronic/End-Stage Renal Disease (kidney disease). Other very costly catastrophic medical conditions include those stemming from congenital anomalies, premature births, transplants, congestive heart failure, cerebrovascular disease (brain blood vessels), pulmonary collapse/respiratory failure, and septicemia (infection). Of course, there are many other medical conditions that incur extraordinary costs which stop loss insurance helps address.

What Features Are Important in Stop Loss Insurance?

One of the most important considerations when purchasing stop loss insurance, whether from the carrier, a broker or third party administrator, is flexibility and customization. The coverage should be tailored to meet a plan’s requirements. For Specific Stop Loss, seek out coverage that offers a flexible claims basis with a wide range of run-in, run-out and paid options. There should be both an aggregate specific deductible, as well as terminal liability option offered. For Aggregate Stop Loss, seek out coverage with a limit of liability up to $1 million with the option of higher amounts under certain conditions, as well as a monthly aggregate accommodation and terminal liability option. Ideally, the policy’s corridor if set at 125%, should also offer other corridors by exception.

Make Sure the Carrier is an Experienced Writer of the Stop Loss Insurance

The carrier should be able to demonstrate a proven track record for excellent claims management, and timely disclosure decisions. It also is beneficial if the carrier has access to quality transplant networks, URAC-accredited medical management services, and high quality third party administration services. Only consider carriers that have consistently achieved the A.M. Best “A” (Excellent) rating attesting to their strong fiscal condition.