Self-funding your company’s health plan puts you in control—of your costs, your coverage, and your employees’ care. It’s a smart move for employers who want flexibility and long-term savings, especially as healthcare costs continue to climb.
But even the best strategies come with unpredictability. That’s where stop-loss insurance steps in. Think of it as a financial safety net that protects your business from unexpectedly high claims—without giving up the advantages of self-funding.
In this article, we’ll explain exactly how stop-loss insurance works, why it’s essential for self-funded health plans, what it costs, and how to choose the right coverage for your team.
What is Stop-Loss Insurance?
Stop-loss insurance (also called excess insurance) is a coverage product that protects self-funded employers from large, unpredictable healthcare claims. While you pay for the majority of employee claims out of pocket, stop-loss insurance covers the overflow if claims exceed a predetermined limit.
It’s important to note: this is not health insurance for employees. Your employees still receive care through the plan you design. Stop-loss is insurance for your company—ensuring your financial exposure remains predictable and manageable.
Benefits of Stop-Loss Insurance
Pairing stop-loss insurance with a self-funded health plan unlocks significant advantages:
- Protects your bottom line: Stop-loss sets a cap on your liability—so even in a high-claims year, your business won’t be financially blindsided.
- Supports cash flow planning: You can better forecast healthcare expenses knowing that large claims have a coverage backstop.
- Preserves plan flexibility: Unlike traditional fully insured plans, self-funded plans let you customize coverage—stop-loss helps you do that with confidence.
- Makes self-funding viable for smaller employers: With stop-loss in place, even organizations with as few as 25–50 employees can self-fund responsibly.
In short, stop-loss insurance enables employers to harness the cost-saving potential of self-funding—while maintaining financial security.
Types of Stop-Loss Insurance
There are two main types of stop-loss insurance:
1. Specific Stop-Loss
Also known as individual stop-loss, this coverage kicks in when a single enrollee’s medical claims exceed a certain threshold. For example, if your specific deductible is $50,000 and an employee has $300,000 in claims, the stop-loss policy covers the $250,000 difference.
Best for: Protecting against high-cost claimants like cancer treatments, NICU stays, or transplants.
2. Aggregate Stop-Loss
Aggregate stop-loss protects your plan from unusually high total claims across your whole group. If your collective claims exceed a pre-set dollar amount—typically a percentage of expected costs—this policy reimburses the overage.
Best for: Guarding against the risk of an unexpectedly expensive year overall, especially in smaller or newer groups.
Most self-funded employers use both types for well-rounded protection.
| Feature | Specific Stop-Loss | Aggregate Stop-Loss |
|---|---|---|
| What it covers | High-cost claims from an individual member | Cumulative claims from your entire group |
| When it applies | When one member’s claims exceed the set deductible | When total claims exceed your plan’s annual limit |
| Risk protected against | Unexpected catastrophic claims | Higher-than-expected plan-wide costs |
| Applies to | Each individual separately | All plan members combined |
How Does Stop-Loss Insurance Work?
Here’s a simplified breakdown:
- You design a self-funded plan.
Your business sets the benefits and pays employee claims as they arise. - You select stop-loss coverage levels.
For specific stop-loss, you pick a deductible (e.g., $40,000 per person). For aggregate stop-loss, the cap is based on expected annual claims plus a buffer. - Claims occur.
Routine claims are paid directly by your plan administrator or TPA. - High claims are reimbursed.
If a single person exceeds the specific threshold—or the group exceeds the aggregate cap—your stop-loss carrier reimburses the excess.
Stop-loss policies are typically written for 12 months and renew annually. You can also choose “run-in” or “run-out” provisions to cover claims incurred in one period but paid in another.
Employer pays routine claims.
Large claim triggers stop-loss.
Excess amount is covered.
Cash returned for excess cost.
Stop-Loss Insurance Cost
The cost of stop-loss insurance varies by:
- Group size and demographics
- Claims history
- Deductible levels chosen
- Contract terms (12/12, 12/15, 24/12, etc.)
- Market conditions and carrier rates
As a general range, stop-loss premiums cost $60–$100 per employee per month, depending on the risk profile and coverage design.
The good news? Many employers still see 10–25% savings overall compared to fully insured plans—even after factoring in stop-loss premiums.
How to Choose the Right Stop-Loss Coverage
When selecting a stop-loss policy, consider:
- Risk tolerance: Higher deductibles lower premiums but increase your exposure.
- Cash flow: Can your business cover a few high claims before reimbursement?
- Group stability: Healthier, more stable populations often justify higher thresholds.
- Broker/TPA experience: Work with partners who understand how to negotiate terms and manage claims effectively.
- Contract terms: Watch for coverage windows (e.g., 12/12 vs. 12/15)—these impact which claims are eligible for reimbursement.
Pro tip: The “cheapest” stop-loss policy isn’t always the best. Focus on value, reimbursement speed, and carrier reputation.
Common Myths and Misconceptions
Frequently Asked Questions (FAQs)
Is Stop-Loss Insurance Considered Health Insurance?
No. It’s considered employer-level insurance, not employee coverage. It doesn’t fall under ACA essential benefit rules.
Can Small Businesses Use Stop-Loss Insurance?
Absolutely. Many small employers use level-funded or partially self-funded plans paired with stop-loss to manage cost and risk.
How Do You Cancel or Change a Stop-Loss Policy?
Policies can be reviewed and changed at renewal. Canceling mid-year could leave your plan exposed, so always transition with care.
How Quickly Are Claims Reimbursed Under Stop-Loss Insurance?
Reimbursement timelines vary but typically range from 15 to 30 days after claim submission. Some carriers offer expedited payments for large claims.
Conclusion
Self-funding your health plan doesn’t have to mean flying without a parachute. Stop-loss insurance gives you the confidence to self-fund smarter—not riskier.
By capping your exposure and shielding your plan from big surprises, stop-loss coverage empowers you to take advantage of the savings, flexibility, and customization self-funding offers—without the stress.
References
- Health Care Administrators Association (HCAA). “Self-Funding and Stop-Loss Basics.” https://www.hcaa.org/page/selffundingstoploss
- Roundstone Insurance. “Understanding Stop-Loss Insurance.” https://roundstoneinsurance.com/blog/understanding-stop-loss-insurance/
- SANA Benefits. “Stop-Loss Insurance Explained.” https://www.sanabenefits.com/blog/stop-loss-insurance/
