What is Aggregate Stop-Loss Insurance?
Aggregate stop-loss insurance is a type of insurance that protects the insured if the total number of claims under a specific coverage in their policy ends up being higher than anticipated. The aggregate stop-loss insurance is usually added to employer insurance policies that cover employees that opt into the policy.
The stop-loss coverage usually includes the medical and dental benefits many full-time employees enjoy as a part of their employment. It can sometimes include short-term disability and vision care expenses incurred by employees. The specifics are negotiated at the time of policy design.
Why Would an Employer Need Insurance on their Insurance?
In the real world, unforeseen circumstances often do happen. If too many employees needed emergency medical coverage or dental coverage at your company, it could potentially be the case that the employer for that particular year did not take out enough coverage and could find themselves in a difficult legal situation.
For example, if too many employees were eating sweets and needed to get cavities filled at the dentist, it could end up being the case that aggregate stop-loss insurance would’ve been necessary to ensure adequate coverage! An employer wishes to protect themselves, while at the same time offering their employees the best possible coverage. Aggregate stop-loss insurance is another tool in their arsenal to make sure that happens.
How It Works
Aggregate stop-loss insurance provides a ceiling of sorts for employer-based insurance and the liabilities employers may face. It will, in effect, limit an employer’s exposure to liability risk.
Modeling and Aggregate Stop-Loss Insurance
Financial modeling is an effective way to determine a stop-loss premium. The model uses predictive analytics to determine premium charges in order to prevent stop-loss coverage costs. Financial modeling is critical in the insurance industry, as it helps to determine what premiums need to be charged and for whom.
When Can Aggregate Stop-Loss Work?
Three conditions generally must be met for aggregate stop-loss to work. They include:
- The claim must be one that is part of a benefit that is covered under a group health plan.
- The claim occurred during the period that was covered under the stop-loss policy.
- The employer is seeking reimbursement for an eligible employee.
Determining a Fit for Aggregate Stop-Loss
Aggregate stop-loss plans aren’t for every company. If a company is insuring over 3,000 employees, then it may be suitable to purchase insurance that does not include the feature. This is because there are enough employees for the plan to follow a predictable model, whereas, at a smaller company, there is a higher likelihood for variance if a catastrophic claim occurs.
The type of occupation that insured employees operate under also plays a factor in determining whether to get stop-loss insurance. Employees working in a more injury-prone field put themselves at a higher risk for any type of injury, including those that present a large claim that may need a stop-loss feature as a part of the plan. If enough employees get injured on the job in such a field, then it can expose the employer to liability beyond that of a standard insurance plan.
The geographic region that the employees operate under is also of concern when determining an appropriate fit for stop-loss coverage. Some countries are riskier to do business in, and individuals who live there demonstrate poorer health overall than average. This can lead to a larger volume of claims against an insurance policy that may require stop-loss in order to be effective.
When Can a Claim be Denied?
A claim can be denied under stop-loss for a variety of reasons, including:
- A late enrollment by a participant making a claim. Even if an employee’s plan allows late enrollment, the stop-loss carrier can refuse coverage.
- Personal or special leaves of absence are often not covered by stop-loss.
- Third-party administrators (TPA) may deny a claim, which may result in a court battle where clinical evidence may need to be provided (e.g., if a treatment is perhaps considered experimental).
- A file feed error where an employer potentially omits signing up one or more employees to a plan that is covered by a stop-loss carrier.
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