In the complex landscape of healthcare financing, self-funded health plans have gained popularity for their flexibility and cost-saving potential. One essential tool in this arsenal is the Stop Loss Contract. In this blog post, we'll cover the basics of Stop Loss Contract terms and explore four enhancements for self-funded health plans.

A Stop Loss Contract is a risk management tool that protects self-funded employers from excessive financial losses due to high claims. In simple terms, it sets a predetermined threshold beyond which the insurance carrier steps in to cover catastrophic claims. Understanding key terms is vital for making informed decisions.

Stop Loss Contract Terms 101:

1. Specific Stop Loss: Defines the maximum amount the employer is liable for an individual claimant within a policy period. For example, if the specific stop loss is $50,000, the employer will be responsible for all claim amounts up to that threshold for each "specific" individual covered, and the insurer covers any amount beyond.
2. Aggregate Stop Loss: Caps the total (or aggregate) claims amount for the entire covered group in a policy period. This limit protects employers from cumulative high claims from the entire employee population.
3. Specific Deductible: The amount the employer must pay out-of-pocket for each individual before the stop loss coverage kicks in or the limit at which the insurance company becomes liable for paying medical claims.
4. Aggregate Attachment Point: This number represents the maximum claim liability for the entire group. It is the plan’s expected claims plus a margin factor (usually 25%). Once this cap is reached, the aggregate stop loss policy indemnifies the group for all eligible claims.
5. Policy Period: Specifies the timeframe during which claims must occur to be eligible for stop loss coverage. This period can also include run out and run in claims. This is where you see numbers such as 12/12, 15/12, 12/18 etc. With the two numbers representing claims incurred and claims paid respectively.
6. Terminal Liability: Addresses claims incurred but not reported before the end of the policy period. Protects employers from unforeseen liabilities associated with late-reported claims.

4 Enhancements for Stop Loss Contracts:

1. No New Laser Provision: Traditional stop loss contracts often include "lasers" – individual exclusions or higher deductibles for high-cost claimants. Seek contracts without new lasers to avoid unexpected financial burdens for specific individuals.
2. Monthly Aggregate Accommodation: Some contracts offer monthly aggregate accommodation, allowing for more frequent monitoring and adjustments of liability. This enhances flexibility and responsiveness to changing claim patterns, and keeps the employer from incurring large fluctuations in claims paid.
3. Run-in and run-out: Incorporating a "run-in" period in your stop loss contract protects you from claims incurred prior to the start of your plan but not yet paid. For example a 15/12 contract provides 3 months of run-in coverage. Likewise, a stop loss contract with run-out coverage protects the plan from claims that are incurred during the plan year, but aren’t processed and paid by the end of the plan year. It generally includes coverage for claims that are incurred during the plan year, provided they are processed no later than three to six months after the end of the plan year (12/15 or 12/18)
4. Terminal Liability Cap: Implements a cap on terminal liability to mitigate the risk of unforeseen liabilities associated with late-reported claims. This provides a clearer financial picture at the end of the policy period.

Stop Loss Contracts play a pivotal role in safeguarding self-funded health plans from financial volatility. By understanding the key terms and embracing enhancements tailored to your organization's needs, you can optimize your risk management strategy and ensure a more stable and predictable healthcare financing experience. As the landscape of employee benefits continues to evolve, staying informed about innovative enhancements will be crucial for maintaining a healthy bottom line while providing quality healthcare coverage to your employees.