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Today’s self-funded employers face a challenging balancing act: ensuring high-quality healthcare access for their employees while mitigating ever-growing plan and claims costs. Without the right protections in place, a single catastrophic claim can derail budgets and threaten the long-term sustainability of the plan.
Stop loss insurance is the solution.
By protecting self-funded employers from unanticipated claims costs, stop loss insurance is a pivotal resource for managing financial risk and protecting a business’s bottom line.
Whether you’re exploring self-funded insurance as an alternative plan design for your business, or you’re looking to enhance your stop loss coverage to better protect your financial interests, understanding how this insurance program works — and what options are available to you — will be instrumental in selecting the right plan for your needs.
Get started with this informational guide, in which we cover everything you need to know about stop loss insurance in today’s healthcare ecosystem.
Table of Contents
- What is Stop Loss Insurance?
- Specific Stop Loss
- Aggregate Stop Loss
- Why Stop Loss Insurance is Important for Self-Funded Employers
- Is Stop Loss Insurance Right for You?
- Maximize Your Stop Loss Investment with an Optimized Healthcare Approach
- Explore Stop Loss Solutions with Vālenz Health®
What is Stop Loss Insurance?
Stop loss is a type of financial insurance solution that protects self-insured employers from unexpectedly high medical costs, which they are primarily responsible for in a self-funded insurance model.
Stop loss policies are typically underwritten based on historical claims data and business needs, which are used to anticipate (and prepare for) claims costs in the year ahead. The stop loss section of the insurance comes into play when unanticipated employee claims arise — for example, an employee getting diagnosed with a rare form of cancer or requiring emergency surgery after an accident.
In most cases, self-funded employers pay a fixed premium cost every month for their stop loss insurance. Employers also pay monthly claim costs in accordance with their health insurance plans. When an employer pays claim costs beyond the pre-established threshold set in the stop loss policy, the stop loss insurer reimburses those costs.
Stop loss policies can be designed for employee benefit plans for all sizes and risk characteristics. Underwriters with deep expertise in stop-loss underwriting (like those at Vālenz Health®) can identify the best plan options for your unique needs to limit your financial liability and eliminate the risk often perceived as the primary obstacle to self-funding.
Most stop loss insurance policies will fall into one of two categories: specific stop loss and aggregate stop loss coverage.
Specific Stop Loss
Specific stop loss insurance (also known as individual stop loss insurance) covers individual employee claims above a certain dollar threshold. This threshold is usually determined by the risk tolerance of the employer, the number of covered individuals in a plan, historical claims, and other factors.
By design, specific stop loss only covers individuals in a self-funded plan, protecting against high-cost diagnosis (such as late-stage cancer or organ transplants). This makes it a good option for most employers, as a select number of employees are typically responsible for the majority of high-cost claims.
However, because specific stop loss policies are limited to individuals, they leave employers on the hook for unanticipated costs from all employees — which is why some employers also opt for aggregate stop loss policies for maximum protection.
Aggregate Stop Loss
In contrast to specific stop loss, aggregate stop loss covers all plan member claims above the specific stop loss threshold to limit an employer’s maximum financial risk. An employer’s liability is set at a certain level (typically, 125% of the expected yearly claims), and stop loss insurance reimburses expenses beyond that level — regardless of which employees accrue those claims.
For these reasons, aggregate stop loss insurance is popular among medium- to large-sized companies that cover employees with varying healthcare expenses. While the cost of aggregate stop loss is lower than specific stop loss, it provides more comprehensive coverage for employers looking to minimize their financial liability amidst ever-rising healthcare costs.
Aggregate stop loss can also be valuable for smaller companies that can reap the benefits of a properly designed aggregate stop loss policy. At Valenz, we offer aggregate-only coverage for employers of 11–100 lives that caps cash flow liability to a fixed, easily budgeted monthly amount, eliminating the uncertainty and risk for smaller business owners and easing the transition into self-funding.
Learn more about our level funding stop loss options by contacting a team member today.
Why Stop Loss Insurance is Important for Self-Funded Employers
Rising healthcare costs are putting ever more pressure on plan payers, including self-funded employers. Thanks to increased employee claims, advancements in expensive gene and cell therapies, and overall industry inflation, the frequency of medical stop loss claims has increased by 39% since 2022.
And the costs of the claims themselves are only going up.
What was once considered a catastrophic and rare claim in the healthcare industry has become much more commonplace. Million-dollar stop-loss claims have increased by 55% since 2018, with occurrences of claims over $5 million increasing by 292% in the same time frame.
All of this creates an incredibly expensive environment for self-funded employers, reinforcing the necessity of comprehensive, well-designed stop loss insurance plans to minimize financial liability.
By planning for (and mitigating) the risk of high costs, self-funded employers can better protect their bottom line. In turn, those savings can be reinvested into their employee healthcare model — supporting features like member literacy and engagement, which can be critical in preventing those high costs from occurring in the first place.
Is Stop Loss Insurance Right for You?
s you explore your options and design the ideal healthcare plan for your business, don’t let stop loss be an afterthought. Instead, consider stop loss insurance an integral part of your plan design, especially if you meet the following criteria:
- You use a self-funded healthcare plan: Stop loss policies are specifically designed for self-funded plans, in which employers bear the financial burden of their employees’ healthcare costs.
- You want to minimize your financial risk: With healthcare costs rapidly rising, stop loss insurance predicts your financial liability for anticipated employee claim costs and protects you from unexpected, catastrophic claims that are becoming more common year after year.
- You value flexibility: Like self-funded healthcare plans themselves, stop loss policies can be designed specifically to your business needs and goals, providing you more flexibility in costs than traditional fully funded plans.
- You are committed to a better employee experience: Employers who actively invest in their members’ healthcare plans by encouraging proactive engagement and preventive care can reduce overall claim costs. Stop loss plans (such as those underwritten by Valenz) reward those overall cost savings by returning any surplus to employers when those payments are less than year-end aggregate deductibles.
Maximize Your Stop Loss Investment with an Optimized Healthcare Approach
While stop loss coverage is essential for protecting against large claims, it’s just one piece of a much bigger puzzle. To optimize performance and reduce the cost of care, self-funded employers need more than insurance — they need integration.
That’s where ValenzONE comes in.
By uniting data-driven stop loss underwriting with proactive care management, cost and quality navigation, and robust payment integrity tools, ValenzONE delivers an integrated approach that improves outcomes with measurable savings.
Learn more about our healthcare plan optimizer by contacting a team member today.
Explore Stop Loss Solutions with Vālenz Health®
Stop loss healthcare insurance is a foundational requirement for today’s self-insured employers. It’s one of the most effective ways to reduce financial liability in the face of ever-growing healthcare costs, protecting your business from catastrophic claims while ensuring access to affordable benefits for your employees.
But not all stop loss policies are created equally. For maximum savings, you need a partner who will engage early and often with enhanced analytics to assess financial risk and pinpoint solutions for cost containment — and the skilled underwriters at Valenz can make it happen.
With policies to protect against any single large claim or an unusual accumulation of smaller claims, Valenz streamlines your stop loss administration and delivers average premium savings of up to 50% using fully integrated cost-containment solutions.
Learn how we can design a stop loss policy that best meets your needs and goals by contacting our experts below.