Stop Loss Insurance

Stop loss insurance is a type of insurance policy carried by a self-funded health plan that protects against catastrophic medical expenses. In a traditional fully-insured health plan, the financial obligation for future medical claims payment is transferred to a third-party insurance company in exchange for monthly premiums paid to the insurance company. In a self-funded health plan, the employer or employer group sponsoring the health plan retains the financial obligation to pay future medical claims for the health plan. However, the stop loss insurance policy protects against claims expenses that exceed a predetermined amount. This predetermined amount marks the point at which the medical claims would be considered excessive and potentially catastrophic. This predetermined amount where a stop loss policy begins to pay for medical claims is known as the “attachment point.”

Stop loss coverage for a single participant’s excessive medical costs is known as “individual stop loss.” Stop loss coverage for many participants’ medical costs exceeding the attachment point is known as “aggregate stop loss.” There are a variety of insurance companies across the United States that offer medical stop loss coverage. The criteria (e.g. number of enrollees and/or claim history) they seek for self-funded plans they would insured varies among stop loss insurers.

Stop loss insurance is sometimes referred to as “excess insurance” since it covers expenses in excess of a predetermined amount.