Stop loss, also known as excess insurance, is a type of insurance policy that protects against catastrophic losses. It is commonly used by businesses to protect themselves from high healthcare costs associated with their employees' medical expenses. Here are some key features of a stop loss insurance policy:
- Coverage limits: Stop loss policies provide coverage for catastrophic losses that exceed a predetermined limit. For example, a business may purchase a policy with a stop loss limit of $100,000 per individual employee.
- Aggregate limit: Stop loss policies may also have an aggregate limit, which is the maximum amount the policy will pay out for all covered losses during a specific period of time.
- Self-insured plans: Stop loss policies are typically purchased by businesses that self-insure their employee health benefits. In a self-insured plan, the employer assumes the risk of paying for their employees' medical expenses, rather than purchasing a traditional health insurance plan.
- Cost savings: By self-insuring and purchasing a stop loss policy, businesses can save money on their healthcare costs by only paying for the medical expenses that exceed the stop loss limit.
- Customizable: Stop loss policies can be tailored to meet the specific needs of the business, including coverage limits, aggregate limits, and the types of medical expenses covered.
Example: Let's say a company self-insures its employee health benefits and purchases a stop loss policy with a $100,000 limit per individual employee and a $1 million aggregate limit for all employees. If an employee incurs medical expenses of $200,000, the stop loss policy would cover the excess amount of $100,000. If multiple employees incur high medical expenses during the policy period, the policy would cover the excess amount up to the aggregate limit of $1 million. The business would be responsible for paying all medical expenses up to the stop loss limit, and would only be protected from catastrophic losses that exceed the limit.
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