Employers have a choice in how they fund their medical benefit plans. One choice is a fully-insured arrangement. In a fully-insured arrangement, the employer pays a fixed monthly premium to an insurance company. In exchange for this fixed premium, the insurance company assumes the cost of medical care provided to the employer’s employees. If actual claims are lower than expected, the insurer keeps the difference. If actual claims are higher than expected, the insurer pays the difference.
A second option is a self-funded plan, which is the most widely-used form of managing employee healthcare coverage. In a self-funded arrangement, medical costs are paid by the employer. The employer typically pays a fee to a plan administrator, who performs functions such as claim processing and securing discounted services from health care providers. The employer takes on the risk of claim fluctuation, paying the actual claims incurred by enrolled employees and their dependents.
Any employer that chooses to self-fund its medical plan needs stop-loss insurance. Medical stop-loss insurance protects an employer from unexpected claims, whether from a single employee or its entire workforce. Under a stop-loss insurance policy, the employer is not responsible for claims that exceed certain pre-set limits for the policy year. If expenses exceed these limits, the stop-loss carrier assumes the liability.
There are generally two types of stop-loss insurance:
Specific Stop-Loss Insurance, sometimes referred to as “individual stop-loss insurance”, protects against large catastrophic claims. The coverage reimburses the employer for any qualifying claims, made by an employee or dependent, that exceed an individual deductible for the policy year.
Aggregate Stop-Loss Insurance protects against high claim volume. The coverage reimburses the employer if the total claims of all employees exceed an overall deductible for the policy year.
Stop-loss insurance is critical to protect a company’s finances. Because events such as cancer treatment or surgery can cost hundreds of thousands of dollars, the potential for financial devastation is great. At the very least, they can cause a serious strain on cash flow, particularly for smaller firms. That’s why it’s so important to get stop-loss insurance.
For more information on health benefits, contact RMC Group at 239-298-8210 or health@rmcgp.com.
