- Stop-loss insurance protects against catastrophic claims, helping manage the risk for companies using a self-funded health insurance model.
- Different types of stop-loss insurance offer financial safeguards against individual and aggregate high-cost claims.
- As part of a group captive insurance plan, stop-loss insurance allows you to benefit from self-funding while joining with other like-sized businesses.
- Roundstone offers self-funded group captive plans to small and midsize companies to help provide affordable medical insurance and a better life for all.
Employers who offer their employees a self-insured health benefits plan may want to consider adopting a stop-loss policy to obtain reimbursement for losses stemming from frequent or catastrophic claims. Let’s first look at why an employer benefits plan is important for business growth.
Running a successful business requires a team of capable and reliable workers, and attracting such a workforce often requires that employers offer attractive perks to the job, including a comprehensive health insurance plan.
Many small and midsize employers are adopting self-funded insurance plans, much like those that over 80% of large corporations have been using for decades. These plans give employers much more control and personalization of their benefits policy compared to the fixed cost of a fully-insured group health insurance plan.
But self-funding by definition means that the employer pays directly for the plan’s health care benefits. So, while having a benefits package in place is important, employers must also mitigate risk and keep potential losses from large claims in mind.
That’s where a stop-loss insurance plan comes in. With the delivery of stop-loss insurance coverage through a self-insured group captive plan, even small and midsize businesses, which typically don’t have the financial backing that large corporations do, can absorb losses from a bad claims year. A stop-loss captive levels risk so small to midsize businesses can confidently take advantage of the savings of a self-funded health insurance plan.
What Is Stop-Loss Insurance?
Stop-loss insurance is designed for employers who self-fund their health benefit plans for their employees but want to hedge against the risk of assuming 100% liability for losses that stem from catastrophic claims. With a self-funded stop-loss employee health insurance policy, insurers are liable for any losses that go over the set employer deductible limit.
For small and midsize businesses, this limit can be as low as $10,000. With stop-loss insurance coverage, employers can protect their financial reserves and their bottom line. There are two types of stop-loss insurance for employers: specific stop-loss and aggregate stop-loss.
Specific Stop-Loss Insurance
Also known as “individual stop-loss,” this type of insurance provides risk coverage against high-value claims on an individual. Rather than providing protection against an atypical number of claims, specific stop-loss insurance protects employers against an unusually high claim from a single person.
Aggregate Stop-Loss Insurance
This type of stop-loss insurance covers the total claims of all covered members, rather than individual claims, in a plan year. Aggregate coverage limits losses to a certain amount over a contractual period. If the total claim goes above the aggregate limit, the insurer will reimburse the company.
Some self-funded insurance plans leave all the liability for medical costs in the hands of employers. But with a stop-loss component in place, employers are protected against unusually high or catastrophic claims from individuals and/or a high claims frequency of claims for all covered employees.
How Stop-Loss Insurance Works
Imagine if several employees at a company contract a virus, resulting in a large number of claims, or two or three employees develop a major disease or illness, like cancer or kidney disease. A single cancer claim can cost around $41,800 for initial care and $105,500 in the last year of care.
This can result in hundreds of thousands of dollars in medical care across your company. A group stop-loss insurance plan protects the employer in both cases from these losses.
Essentially, stop-loss insurance is a tool used by employers to mitigate against the risk of catastrophic financial loss. Losses are capped at a certain amount, and any costs in excess of contracted limits are covered by the stop-loss insurer.
Stop-Loss Coverage and Self-Funded Group Captive Insurance
If you’re considering self-funded group captive insurance, it’s important to understand the mechanics of stop-loss coverage. For a better view of how the two work together, let’s take a brief look at self-insured group captives and why they make sense for small and midsize companies.
Rising Insurance Costs
You are, no doubt, aware of the rapidly increasing cost of health insurance. Employers who have a health benefits plan in place for their employees are often forced to pay exorbitant fixed-cost premiums, especially during years when the number of claims is particularly high.
This leaves employers burdened with constantly increasing premiums, deductibles, and copays on plans offered to employees. For this reason, an increasing number of employers are looking for better alternatives to traditional fixed-cost health insurance, and self-funded employee benefits plans are gaining in popularity — especially as part of a group medical captive.
Sharing the Risk
With a group captive, self-funded insurance plans enable employers to band together and share risk, making it an attractive option for small and mid-size companies who do not have the scale to self-insure on their own. Self-funding through a group captive also offers more plan flexibility and control, which can help companies realize significant cost savings.
Stop-loss coverage is a critical component of a self-funded health insurance plan. The stop-loss policy covers claims above the plan’s specified limit. The claims fund of a self-funded employer will pay claims up to the predetermined deductible for each of the company’s covered employees.
The role of the stop-loss is to cover all claims above these deductible levels. When stop-loss coverage is added to a group captive plan, it spreads the risk of catastrophic claims over all members of the captive, decreasing volatility and costs for all.
Why Choose Roundstone For Self-Funded Group Captive Insurance?
For over a decade, Roundstone has been offering small and midsize employers a better alternative to conventional health benefit products with its self-insured group medical captive solution. The following are just a few benefits that coverage with Roundstone can offer your company.
Freedom of Choice
Though no two companies are alike, it’s standard practice for insurers to offer a limited number of options for companies to choose from. At Roundstone, we recognize that every company is unique. We take the time to get to know your company and its specific needs and use that information to help you create a customized plan that’s tailored specifically to your business. You have complete freedom of control when it comes to plan design, choosing a TPA or PBM, and implementing cost containment solutions.
A more customized health benefits program will benefit your current employees, and it will likely be more attractive to potential new hires as well.
Affordable Health Insurance
Medical care and health insurance are both on the rise, with double-digit increases over the past few years, leaving employers paying out sizable contributions. And while many Americans depend on their employers’ health benefits packages for medical care coverage, many smaller-scale companies simply can’t manage the increased expense on their own.
Even as rising healthcare costs far outpace increases in wages, many companies are forced to shift these premium increases onto their workforce through an increased share of their premiums as well as higher deductibles and copays. However, doing so can have a negative impact on attracting and retaining good workers.
Roundstone’s self-funded health insurance plans through a stop-loss captive save employers 20% on average over fully insured plans. Through self-insurance, employers are able to provide high-quality care at a lower price.
With Roundstone, savings are guaranteed. In the first five years, you’ll save money over a fully insured plan or we make up the difference. In fact, two-thirds of Roundstone customers save enough in their first four years to completely pay for their fifth year of claims. And 100% save money, full stop.
Lower Out-of-Pocket Costs
Many employees are either unable or unwilling to assume the added financial burden. Many abandon their current employment in search of a job that provides more comprehensive care that doesn’t leave them with ever-increasing out-of-pocket costs. A self-funded group captive insurance plan from Roundstone is a viable solution for small and midsize employers.
With Roundstone, a portion of a company’s stop-loss premium is part of a shared risk pool with other group participants. If you have any stop-loss premiums that were not spent by year-end, those funds are returned to the participating members with a distribution check. This is in addition to the unused small-claims funds your company gets to keep each year.
Unfortunately, it’s common for employers not to know what their current health care plan covers and where their claims dollars go. They simply receive an invoice from their insurers and are typically left in the dark about what was covered and for how much. Many insurance carriers consider this information a trade secret, so employers are left in the dark about how their insurance dollars are spent.
With a group captive insurance solution from Roundstone, you will have total data transparency and control over your insurance spend. Rather than making a futile attempt to obtain claims data from your insurance company, your participation in a self-funded group captive insurance plan through Roundstone will allow you to have direct access to the data you need to understand exactly how your claims dollars are spent. This valuable data can be used to tweak your plan throughout the year, optimizing savings while simultaneously improving care quality.
More specifically, you’ll have access to the CSI Dashboard, an analytics platform that will clearly detail and lay out your claims data. This platform can also help identify where improvements can be made to contain costs.
A fully customized plan means you’ll have total control over the exact plan that is best suited for your company. You’ll have control over things such as the third-party administrator (TPA) and pharmacy benefits manager (PBM) you work with and where to allocate your funds based on how your workforce uses their benefits. You’ll also have control over how most of your money is spent, as only 15% of your premium is fixed, meaning you have a say in how the other 85% is spent. Through data-driven cost containment solutions, you can lower your spend, optimize savings, and improve the quality of care delivered.
This is in contrast to fully insured plans, which typically come with costs that are 100% fixed. With Roundstone’s group captive insurance solutions, you’ll have plenty of cost-control options and expert assistance to help identify them.
Roundstone has been committed to captive insurance members for over 18 years. We’re an Inc. 500 company with the expertise in the health insurance industry to help you create a cost-effective, custom solution that will benefit both you and your employees.
Want to find out if you’re a good fit for a self-funded plan? Download our checklist to help you decide.
For answers to common questions about stop-loss insurance, see our FAQ below.
Request a Proposal
It’s easy to learn more about the benefits of self-funded group captive health insurance for your company. Contact us for a benchmark review today. We’re happy to discuss your options so your company can start right away protecting the health of both your employees and your business.
Stop-Loss Insurance FAQs
1. What is stop-loss health insurance, and how does it work?
Stop-loss health insurance is like a safety net for self-funded employers who pay for their employees’ medical claims. If an employee’s medical expenses exceed a certain amount, this insurance covers the extra costs. It helps employers manage unexpectedly high medical costs.
2. Who typically purchases stop-loss insurance, employers or employees?
Employers buy stop-loss insurance to protect themselves from huge medical claims related to their employee health benefits plans.
3. What is the difference between specific and aggregate stop-loss insurance?
Specific stop-loss insurance covers the cost of a single employee’s expensive claim. Aggregate stop-loss insurance protects against the combined cost of everyone’s claims over a set amount within the policy year. This provides protection against increases in individual and group-level costs.
4. What are the advantages of self-funding with stop-loss insurance?
Self-funding with stop-loss insurance gives employers greater control and security over their health benefits. This can save your company money long term since you only pay for the healthcare services your employees actually use.
5. What are the key factors that influence the cost of stop-loss insurance?
Stop-loss insurance costs depend on the group’s size, how much the deductible is, and how healthy your employees are. A customized solution can help you provide coverage that addresses the specific needs of your employees while controlling costs.
6. Is stop-loss insurance suitable for small businesses, or is it primarily for larger organizations?
Both large and small companies can benefit from stop-loss insurance as long as they have self-funded health plans. Roundstone’s solution works best for companies that have between 25 and 1,000 employees.
7. Can you provide examples of how stop-loss insurance helps manage healthcare costs?
As an example, if a self-insured company has set a $50,000 stop-loss limit per employee and one employee incurs $100,000 in medical bills due to a major surgery, the stop-loss insurance would cover the excess $50,000.
Similarly, if the company has an aggregate limit of $300,000 but the total of claims from all employees is $375,000 for the year, stop-loss would cover the additional $75,000.
8. What is the waiting period for stop-loss coverage to take effect?
There is no waiting period for stop-loss coverage to take effect. It is effective as of the policy effective date.
9. Are there any exclusions or limitations in stop-loss insurance policies?
Stop Loss covers what a group’s self-funded plan specifies in their plan docs.
10. How can I find a reputable stop-loss insurance provider for my company’s needs?
To find a reputable stop-loss insurance provider, consider exploring options with Roundstone. Roundstone provides stop-loss insurance as part of our Group Medical Captive.