If you’re considering self-funding your company’s health benefits, you’ve probably come across the term stop-loss insurance. It’s the financial safety net that protects your business from catastrophic claims. But how much does stop-loss insurance cost — and what affects those costs?
This guide breaks down the key pricing factors, typical premium ranges, and how you can reduce your stop-loss insurance costs without sacrificing protection. Whether you’re a small business or a large employer, understanding these details can help you make a smarter decision when choosing a self-funded health plan.
What is Stop-Loss Insurance?
Stop-loss insurance is a type of coverage that limits an employer’s liability in a self-funded health plan. It reimburses the employer when health claims exceed a certain threshold — either for an individual employee or for the entire group.
There are two main types:
- Specific stop-loss covers high claims from an individual employee.
- Aggregate stop-loss covers total claims across the group once they exceed a set percentage of expected costs (usually 125%).
Unlike traditional group health insurance, stop-loss doesn’t pay healthcare providers directly — it reimburses the employer.
Breakdown of Stop-Loss Insurance Cost
On average, stop-loss premiums can range between $50 and $150 per employee per month (PEPM) for specific coverage. Aggregate coverage adds an additional $5–$15 PEPM, depending on your risk profile and group size.
Here’s a simplified example for a 100-employee group:
- Specific Premium: $90 PEPM
- Aggregate Premium: $10 PEPM
- Monthly Total: $100 x 100 employees = $10,000/month
- Annual Cost: ~$120,000
Premiums can be significantly lower for large employers or groups with low risk — or higher for small businesses with high claims volatility.
How to Reduce Stop-Loss Insurance Cost
Looking to lower your premiums? Here are several strategies:
Key Factors That Influence Stop-Loss Insurance Cost
Several factors go into calculating your stop-loss premium. Here are the most important:
1. Group Size
Larger groups tend to pay lower per-employee premiums. Why? Because risk is spread over more people, reducing the chance that one claim will dramatically affect the total cost.
2. Attachment Point (Deductible)
The higher your deductible, the lower your premium — but the more financial risk your company takes on. Common specific deductibles range from $25,000 to $500,000, with smaller employers typically choosing lower levels.
3. Claims History
If your company has a track record of high claims, expect to pay more. Carriers review your prior 2–3 years of data to assess risk.
4. Industry
Some industries (like construction or manufacturing) carry more health risks than others (like tech or finance), which can raise premiums.
5. Demographics
The age, gender, and health status of your employees affect expected claims and pricing.
6. Contract Type
The reimbursement contract type (12/12, 12/15, 24/12, etc.) determines which claims are eligible for reimbursement. Longer tail contracts usually cost more but provide better coverage.
Below is a visual breakdown of the top factors that influence stop-loss insurance cost, from group size to contract type.
🔍 Key Factors That Influence Stop-Loss Insurance Cost
Group Size
Larger groups enjoy lower per-employee premiums due to risk spread.
Deductible Level
Higher deductibles reduce premium cost but increase risk exposure.
Claims History
Past high claims may raise your stop-loss premiums significantly.
Industry
Industries with higher risk (like construction) see higher premiums.
Demographics
Older or higher-risk populations lead to more expensive coverage.
Contract Type
12/12 vs. 24/12 contracts affect claim eligibility and pricing.
1. Raise the Deductible
A higher specific deductible lowers the premium, but make sure you can absorb more claims risk.
2. Implement Cost-Containment Strategies
Using programs like reference-based pricing, telemedicine, or direct primary care can reduce claims — which helps control future premiums.
3. Partner with an Independent TPA or Benefits Consultant
They can negotiate competitive pricing and identify underwritten policies that fit your group’s risk profile.
4. Consider Level-Funded Plans
For smaller employers, level-funded plans bundle stop-loss with administrative services and provide predictable monthly costs.
5. Maintain Healthy Plan Performance
Encourage preventive care and wellness initiatives. Carriers reward good experience with better renewal terms.
Is Higher Stop-Loss Cost Worth It?
Frequently Asked Questions (FAQs)
Does Stop-Loss Insurance Cost More Over Time?
It can. If your group experiences large claims, you may see a rate increase at renewal. However, stop-loss is often more stable than fully insured group health plans over multiple years, especially with active plan management.
How Often Do Stop-Loss Rates Change?
Rates are typically set for a 12-month term and reviewed annually. Claims performance, market trends, and your group’s demographics will influence renewal pricing.
Can Stop-Loss Premiums Be Negotiated?
Yes. Especially if you work with a broker or consultant who can shop around among multiple carriers. Larger groups often have more leverage to negotiate terms and pricing.
What is the Average Premium Per Employee?
The average PEPM for specific stop-loss coverage is around $100, but it varies based on group size, claims history, and deductible level.
Conclusion
Stop-loss insurance offers essential protection for employers who want to take control of their healthcare costs without exposing themselves to catastrophic financial risk. While the cost can vary widely, understanding the factors behind stop-loss pricing empowers you to design a self-funded plan that fits your budget and your team’s needs.
By optimizing your deductible, managing claims, and choosing the right partners, you can reduce your stop-loss insurance cost — and protect your business from high-dollar surprises.
References
- Society for Human Resource Management (SHRM). Medical Stop-Loss Premiums Nearly 10% Higher in 2022
https://www.shrm.org/topics-tools/news/benefits-compensation/medical-stop-loss-premiums-nearly-10-2022 - BenefitsPro. Medical Stop-Loss Premiums Rise 11.5% for Self-Funded Plans
https://www.benefitspro.com/2024/07/19/medical-stop-loss-premiums-rise-11-5-for-self-funded-plans/ - Self-Insurance Institute of America (SIIA). Self-Funding 101: Understanding the Basics
https://www.siia.org/i4a/pages/index.cfm?pageID=4546 - US Bureau of Labor Statistics (BLS). Employee Benefits in the United States
https://www.bls.gov/ncs/ebs/ - National Association of Insurance Commissioners (NAIC). Stop-Loss Insurance Regulatory Overview
https://content.naic.org/cipr-topics/stop-loss-insurance
