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What Is Aggregate Stop-Loss Insurance? Definition & Meaning

Updated: November 24, 2022

There are a number of different insurances that are useful for small business owners. But the one thing they all have in common is the level of safety they give you in the event of a crisis striking.

In this article, we’re going to talk about aggregate stop-loss insurance. We’ll take you through the definition and the meaning of this insurance, and highlight its importance.

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    KEY TAKEAWAYS

    • Aggregate stop-loss insurance is designed as a form of protection for employers.
    • It specifically aims to protect employers with a self-funded plan from payouts for claims that are significantly higher than they may have anticipated. 
    • It works in a similar way to any high-deductible insurance plan. 
    • Under an aggregate stop-loss insurance, the employer will remain responsible for any claims that fall under the deductible amount.

    What Is Aggregate Stop-Loss Insurance?

    Aggregate stop-loss insurance is a type of insurance that is designed to protect employers with a self-funded insurance plan. Specifically, it protects them from payouts for claims that are higher than anticipated. It is usually added to any employer insurance policy that covers employees that have opted into the policy. 

    It is similar to any high-deductible insurance plan. This means that the employer remains responsible for any claims that are below the deductible amount. But once it reaches a certain level, the insurance kicks in for anything above the deductible. The insurance will then either cover the claim or reimburse the employer once the claim has been paid. 

    Stop-loss insurance is different from the normal, run-of-the-mill employee benefits insurance. This is because it only covers the employer. Meaning it doesn’t provide any direct coverage to employees or other health plan participants. 

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    Why Is Aggregate Stop-Loss Insurance Important?

    Aggregate stop-loss insurance is essentially insurance on insurance. This is because if a large number of employees suddenly need medical coverage, or if there is a very large claim, the employer may not be able to afford it. 

    It’s a way for employers to cover themselves financially, while still being able to offer the best healthcare coverage possible. 

    The 4 Steps to Calculating the Aggregate Attachment for Stop-Loss Insurance Policies

    You can calculate the aggregate attachment that is associated with a stop-loss plan through these 4 steps:

    1. The employer and insurance provider first estimate the average value of the anticipated claims. These are claims that are expected by their employees on a monthly basis. The value of this will depend on the circumstances of the employer. But the aggregate claims usually range from between $200 a month to $500 per month.
    2. The value of the monthly cost would then be multiplied by the stop-loss attachment multiplier. This tends to range from between 125% to 175%. 
    3. This deductible then has to be multiplied by the number of covered employees that the employer has for the month. Depending on the business, enrollment can vary per month. Due to this variance, the aggregate stop-loss coverage can either have a monthly deductible or an annual one. 
    4. If an employer has a monthly deductible, the amount that is owed per month can change. With an annual deductible, the amount needed to be paid is summed for the year. This is usually based on estimates from the initial month of coverage. 
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    An Example of Calculating Aggregate Stop-Loss Insurance Policies

    Let’s say that the employer that runs Company X is looking to start an aggregate stop-loss insurance plan with an insurance company. The value of their monthly expected claims are set by the insurance company as $250 per month. Their stop-loss attachment multiplier is 150%. With this information, we can calculate the monthly deductible per month per employee. 

    $250 x 1.5 = $375

    This means that the price per month per employee for the stop-loss insurance policies for this company would be $375.

    Summary

    It is always useful to be protected from the worst-case scenario. By making the most of aggregate stop-loss insurance, you can be sure that you’ll never have to pay a bank-breaking claim from your employees. Anyone with claims experience will know that it is important to know exactly what your provider will cover before you invest in this insurance. That way, you can make a more informed decision.

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    FAQs on Aggregate Stop-Loss Insurance

    What Is the Difference Between Aggregate and Specific Stop-Loss?

    Aggregate stop-loss coverage protects a self-funded employer against large, unexpected costs that may put their business in financial risk. Specific stop-loss puts a cap on the amount that the employer will pay for one individual employee’s claim.

    What Are Aggregate Losses?

    Aggregate losses are the total amounts of money that you have paid during the benefit policy period. This is for all of your covered persons under the Employee Benefit Plan.

    What Is the Difference Between Stop-Loss and Reinsurance?

    A stop-loss is actually a type of non-proportional reinsurance. Similar to the excess of loss policy. It is designed to protect the main insurer from any over-the-top expenses.

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