insurance

Stop-Loss Insurance

Insurance purchased by self-insured employers to protect against catastrophically high medical claims from employees. It kicks in when claims exceed a predetermined threshold, limiting the employer's financial exposure.

Example

“The company purchased stop-loss insurance with a $100,000 attachment point to protect against employees with expensive medical conditions.”

Memory Tip

Think of a dam that 'stops' water from causing a flood - stop-loss 'stops' medical costs from flooding your company's budget.

Why It Matters

This insurance makes self-funded health plans viable for employers, potentially reducing healthcare costs through better cost control. It protects companies from bankruptcy due to unexpected high medical claims while allowing them to keep savings from healthy years.

Common Misconception

Many employers think stop-loss insurance covers all their employees' medical expenses. It only covers amounts above the attachment point, meaning employers still pay all claims up to the threshold level, and the insurance only covers the excess amounts.

In Practice

A company with 200 employees buys stop-loss insurance with a $75,000 specific attachment point and $2 million aggregate attachment point. If an employee has $200,000 in medical bills, the company pays the first $75,000 and stop-loss covers the remaining $125,000. If total company claims reach $2.2 million when normally expected to be $1.8 million, stop-loss would cover $400,000 of the excess aggregate amount.

Etymology

The term 'stop-loss' originated in investment trading in the early 1900s, meaning to limit losses at a predetermined point. It was adapted to insurance in the 1970s as more employers began self-funding their health plans.

Common Misspellings

stop loss insurencestoploss insurancestop-loss insurrancestop los insurance

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