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Understanding Stop Loss Health Insurance

Self-insured health insurance plans are becoming more and more popular today as companies look to mitigate the rising costs of offering their employees benefits.  

A major downfall of these plans, though, is that they can actually end up being of significantly higher cost should employee claims end up being high. One way that employers can help protect against this is through stop-loss health insurance. 

Below, we dive into what stop loss health insurance is so employers know how it works and whether it would be a good fit for them. 

What is Self-Funded Insurance? 

Self-funded insurance is exactly what it sounds like. Companies will fund the health insurance plans they own out of their own pocket, rather than relying on the traditional group health insurance model.  

These companies can either create a fund that’s dedicated to paying medical costs for employees and their families, or even use their monthly cashflow to pay them. 

For employees, the difference in policy doesn’t have much of an effect. The receive their benefits in the same way as a traditional plan. 

Instead of patient invoices being sent to a third-party insurance company, though, the employer would receive these and be responsible for paying them. Businesses receive some financial relief from these plans since they’re exempt from many state regulations and accompanying taxes. 

However, they do take on considerable risk, as they have to pay for all the claims out of their own pocket. 

Stop Loss Insurance 

With self-funded health insurance, businesses take on a considerable risk. While these plans can result in major savings if employees are relatively healthy, it could go the other way if they’re not. 

If claims get out of hand, for instance, it could have a catastrophic effect on the business, as it’s forced to figure out a way to pay for them. Some employers could even be forced to shut their doors in extreme situations.  

This is where stop loss insurance comes in. It’s a risk management and financial tool that businesses can sign up for to protect them. 

Stop loss insurance ultimately caps the business’ out-of-pocket expenses at an agreed-to amount. Any costs that exceed the threshold will be paid for by the stop loss policy. 

While employers must pay the extra costs upfront, they will be reimbursed for them by the stop loss insurance policy. Most stop loss insurance plans will have limits, but they do at least provide some protection for businesses that opt for self-funded health insurance plans.  

Two Types of Stop Loss Insurance 

There are two different types of stop loss insurance that can help businesses limit their liability. 

Individual or specific coverage will protect the employer against claims that are large and/or catastrophic. If one individual’s qualifying health insurance claims become so high that they alone exceed the dollar limit for the policy year, then the stop loss insurance coverage will kick in.  

The other type of stop loss insurance is known as total claims or aggregate. It protects businesses against an unexpectedly high volume of claims overall, or multiple claims that are quite expensive. 

The stop loss insurance will kick in any time that a business’ costs for all medical claims of its employees exceed the limit that’s pre-set for the contract year. 

It’s possible that businesses could choose just one of these stop loss insurance coverages. However, many employers view both of these coverages as equally important. Combining the two can provide the maximum amount of financial protection, since how often a health plan is used can be highly unpredictable from one year to the next. 

Secure Stop Loss Insurance with Beckham Insurance Group 

Self-funded health insurance plans are becoming increasingly popular, especially among small- and medium-sized businesses. With health insurance costs continuing to rise each year, they are a great way to potentially lower the cost of offering employee health insurance coverage. 

At the same time, there is a lot of risk that businesses take on by opting for self-funded health insurance plans, since they are responsible for paying the costs of all qualifying employee claims. A great way to mitigate these costs is by purchasing stop loss health insurance. 

If you’re in the South Carolina or Georgia region, partner with Beckham Insurance Group to see your options. Our team of experienced professionals can educate you about self-funded health insurance plans and how purchasing a stop loss policy can help to mitigate your risks. 

Contact us today to learn more.