Stop-Loss 101

Dean self-funded product

May 11, 2021

When a company chooses a self-funded product like Dean Administrative Services (Dean ASO), it decides to assume the financial risk of their health plan in exchange for more flexibility and upfront cost savings.

However, with stop-loss insurance, the company can still have flexibility and cost-savings of a self-funded plan while managing the financial risk associated with self-funded plans.

Essentially, stop-loss coverage guarantees that an employer will not pay over a certain amount in claims for their employees in a given year. Partnering with Dean ASO allows employers access to our stop-loss product if desired, eliminating the need to work through third-party vendors to customize your plan like with many other self-funded carriers.

With Dean ASO, an employer is covered from A to Z. Of course, we are also flexible, the employer group may choose to work with any stop-loss carrier of their choice.

There are two main types of stop-loss: specific and aggregate.

Specific deductibles are designed to protect the employer from bearing all the costs of an individual's catastrophic claim. The stop-loss carrier would reimburse the covered group for each individual member’s claims that exceed the specific deductible. For example, if the stop-loss specific deductible was set at $50,000 and an employee had a catastrophic accident with claims totaling $150,000, the stop-loss carrier would reimburse the covered group for $100,000.

Aggregate deductibles are designed to protect the plan sponsor from bearing the cost of ALL members' claims within a year. If claims surpass the aggregate deductible, the stop-loss carrier would reimburse the plan sponsor for all claims above the set benchmark.

For example, let’s say an employer group incurs $1.5 million in annual claims. The employer group’s expected annual claims were set at $1 million and their aggregate corridor was set to 125% of expected claims, the attachment point was $1.25 million. The stop-loss carrier would reimburse the employer $250,000 under the aggregate coverage. An aggregate corridor is the difference between expected claims amount and the attachment point is where aggregate stop-loss coverage begins to reimburse for claim exceeding the set amount.

Self-funding does not require stop-loss coverage; it is simply an additional tool used to help a business mitigate risk when they choose a self-funded plan. Additionally, a covered group is not limited in which stop-loss coverage that they elect. They could select specific, aggregate or both.

The beauty of self-funded plans is that on top of carving out a plan’s benefits to be tailored to a company, the employer can also create a custom stop-loss package that fits the level of financial risk a company can safely assume.

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