Understanding Stop Loss Medical Insurance

Posted on Friday September 28, 2012

Stop loss insurance has been around for a while but, until recently was not commonly discussed. Recent changes in regulations regarding healthcare insurance have businesses looking at more viable options when it comes to providing healthcare benefits to their employees; self-insuring and medical stop loss insurance are becoming more popular. It helps to have an understanding of the terms “stop loss insurance” and “medical stop loss.” Essentially, stop loss insurance is a form of insurance coverage for businesses that self-insure their in-house employee benefit plans. Many companies are unable to pay the costly premiums required by health insurance companies for employee health care expenses; instead they choose to self-insure those expenses by funding a medical account that pay employees’ health claims while contracting with an administration company to handle the details of the health plan for each employee.

Medical stop loss insurance protects the employer in the event that an unexpectedly high number of employees need expensive medical care; such an occurrence could potentially wipe out a company’s medical fund causing them to tap into existing cash flows to cover the gap. Employers who choose to use stop loss insurance will decide on a predetermined amount that is paid from the medical fund after which the stop loss insurance will pay the rest. For example: there has been an outbreak that causes the majority of a company’s employees to visit the doctor for ongoing treatment that ultimately costs the company $100,000. The company has medical stop loss insurance and the predetermined amount is $10,000; that means that in this instance the company would pay the first $10,000 dollars of the $100,000 in medical fees from their self-insured account and the stop loss insurance would pay the $90,000 difference.

Medical stop loss insurance is a great way for a company to protect its financial stability; however, it is important to determine if this is an ideal option for your business. This is a perfect solution for a business that has a relatively healthy employee pool that is expected to need minimal health care services. Although, an employee pool that is less healthy and requires more frequent medical care may require a cost and benefit analysis before making a final decision.

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