Controlling Your Self-Insured Exposure With Stop Loss Insurance

As a self-insured company, stop loss insurance reinforces your commitment to pay your own claims. Choosing to self-insure your company’s loss exposures isn’t an easy decision. It usually comes after a diligent annual risk management review. Each year you identify your risks, analyze them, and evaluate their potential for generating a financial loss. To manage your risks, you choose options such as insurance, safety programs, and self-funding. It’s important to consider stop loss insurance as well.

Your claim history usually informs your risk management process. Claim consistency helps you implement key insurance decisions as it makes future losses somewhat predictable. Because catastrophic losses are often sudden and unexpected, they disrupt that predictability. When a catastrophic loss begins generating high-dollar claims, it often presents an unexpected financial challenge. This dynamic makes stop loss insurance a necessity for self-insured businesses.

How Stop Loss Coverage Works

Insurers write stop loss policies as a companion coverage to self-funded plans. The policies often provide insurance based on expenses covered by the insured’s healthcare plan. An insurer might also choose to exclude certain medical expenses. For coverage compatibility, the insured and the insurer resolve any coverage differences before they issue a stop loss policy.

You may purchase two types of stop loss coverage.

• Individual: Provides coverage that limits the annual amount a self-funded plan pays on behalf of a specific individual
• Aggregate: Provides coverage that limits the annual amount paid out for all covered employees

A stop loss insurance policy provides a financial cushion to prevent financial devastation. After you reach a pre-determined loss limit, the stop loss insurer reimburses the amounts you paid for covered claims that exceed that limit. This arrangement allows your company to remain self-insured while limiting the dollar amount of claims you pay each year.

Catastrophic Losses are Unpredictable

When you made the risk management decision to self-insure your employee’s health care losses, you could never have anticipated 2020’s catastrophic outcome. COVID-19 is a rare 100-year event. It’s causing a dramatic rise in health care costs nationwide.

An April 23, 2020 study by the CUNY Graduate School of Public Health and Health Policy found that the average COVID-19 treatment averages four times the cost of influenza treatment. The study predicts that if 20% of Americans become infected with the virus, direct healthcare costs could reach a minimum of $163.4 billion.

As the virus affects the lungs, heart, brain, and other vital organs and systems, longterm treatment costs could exceed these predictions. Paid COVID-19 related claims will eventually include mental health and substance abuse treatment as well. The Kaiser Family Foundation report, “The Implications of COVID-19 for Mental Health and Substance Use,” documents an increase in anxiety, depression, and other mental health issues.

Over 55% of Americans with health insurance have employment-based healthcare plans. Those who are affected by the virus will rely on those plans to pay for testing, treatment, hospitalizations, telemedicine visits, and continuing care. These costs are contributing to an ongoing medical and financial catastrophe. It’s particularly challenging for companies with self-funded programs without stop loss coverage.

Stop Loss Insurance Covers Other Catastrophic Losses

The risk won’t end once Coronavirus recedes. Medical conditions such as cancer, heart disease, and catastrophic auto accident injuries, generate high-dollar claims as well. They cause a significant financial impact when your company is self-insured and doesn’t have stop loss insurance.

Contact Health Consultants Group

To learn more about Stop Loss Insurance and how it fits into your self-insurance strategy, call us at (800) 367-2482 to schedule a consultation.