Aggregate Stop Loss Insurance
Aggregate stop-loss insurance is a type of insurance policy designed to protect an employer who self-insures their employees’ health benefits against excessive or unexpectedly high total claims costs. In self-insured plans, employers bear the financial risk of providing health insurance coverage to their employees and directly pay for medical claims incurred by employees and their dependents.
The aggregate stop-loss insurance policy sets a threshold, known as the aggregate attachment point, which represents the maximum amount the employer is responsible for paying in claims during the policy period, typically one year. If the total claims costs exceed this threshold, the stop-loss insurance policy reimburses the employer for the amount above the aggregate attachment point.
Example of an Aggregate Stop Loss Insurance
Let’s consider a hypothetical example of a company that has a self-funded health insurance plan for its employees:
Company ABC has 100 employees and decides to self-insure its employees’ health benefits. They expect the total claims cost for the year to be around $800,000. To protect themselves from the financial risk of unexpectedly high claims, Company ABC purchases an aggregate stop-loss insurance policy with an aggregate attachment point of $900,000.
During the policy year, the employees of Company ABC incur medical claims totaling $1,050,000, which is significantly higher than the expected $800,000. Since the total claims cost exceeds the aggregate attachment point of $900,000, the stop-loss insurance policy will reimburse Company ABC for the excess amount of $150,000 ($1,050,000 – $900,000).
By having the aggregate stop-loss insurance policy in place, Company ABC limits its financial risk and ensures that it can continue providing health benefits to its employees, even when faced with higher-than-expected claims costs.