Specific vs. Aggregate Stop-Loss

Peace of mind

Stop-loss insurance is what makes self-funding a managed risk rather than an open-ended one. It is not health insurance for employees and has nothing to do with the actual benefits you provide them. It is insurance for the plan and protects the employer when claims exceed certain limits.

There are two kinds of stop-loss insurance, and they protect the employer in two different ways.

Specific stop-loss: protection against one catastrophic claimant

Specific stop-loss (also called individual stop-loss) responds when a single covered person’s claims exceed a set deductible during the contract period.

For example, if the specific deductible, also called the “attachment point,” is set at $75,000 and one member incurs $400,000 in claims, the plan pays the first $75,000 from employer funds and the stop-loss carrier reimburses the balance, subject to contract terms.

Specific deductibles vary widely by group size and appetite for risk. Smaller groups typically carry lower specific deductibles because a single large claim represents a larger share of the total budget; larger groups can absorb more and often carry higher deductibles in exchange for lower stop-loss premium.

Aggregate stop-loss: protection against everything running high at once

Aggregate stop-loss responds when total plan claims paid towards specific stop-loss deductibles across the entire population exceed an expected level, typically expressed as a percentage of expected claims — 125% is a common corridor.

The carrier calculates expected claims for the year based on enrollment and rating factors. The aggregate attachment point sits above that. If total claims for the year exceed the attachment point, aggregate stop-loss reimburses the excess.

Aggregate will step in when many participants incur high claims or overall extremely high utilization occurs.

Aggregate coverage is generally less expensive than specific coverage, because breaching the aggregate attachment is less common than having one large claimant.

How they work together

Most self-funded plans carry both. They are complementary, not alternative:

• Specific handles severity — one person, very large claim

• Aggregate handles frequency — many people, moderately large claims, in volume

Claim amounts the employer is responsible for up to the specific stop-loss deductible count towards the aggregate stop-loss calculation. Amounts already paid by the specific stop-loss are not double-covered by the aggregate.

The contract terms that matter more than the price

Stop-loss coverage should not be shopped on premium alone. Contractual provisions frequently matter more.

Contract period definitions determine which claims are covered

• 12/12 — claims incurred and paid within the twelve-month contract period

• 12/15 — claims incurred in twelve months, paid within fifteen (3-month run-out)

• 24/12 — claims incurred over twenty-four months, paid within twelve (12-month run-in)

• Paid — claims paid during the contract period regardless of when incurred

The gap between “incurred” and “paid” is where uncovered liability hides. A claim incurred in month eleven but not adjudicated until month fourteen may or may not be covered depending on contract terms.

Run-in and run-out address the transition into and out of a self-funded arrangement. Run-in covers claims incurred before the contract began but paid during it. Run-out covers claims incurred during the contract but paid after it ends. An employer moving from one arrangement to another can end up exposed in the transition if these are not addressed.

Terminal liability provisions extend the runway for claims paid after termination — relevant if the plan is ending or changing carriers.

Lasering occurs when a stop-loss carrier assigns a higher specific deductible to a known high-cost claimant, or excludes that employee entirely from stop-loss coverage. If a group has an individual with an ongoing condition, the carrier may set that person’s deductible well above the plan’s standard level. Whether lasers are permitted, and whether there is a no-new-laser provision at renewal, materially affects the employer’s real exposure and the cost of coverage.

Why this is the part to read carefully

Two stop-loss quotes can look nearly identical in premium and be substantially different in what they actually cover. The difference shows up in the year when something goes wrong — which is the only year it matters.

This article is general information about stop-loss insurance structures. It is not advice, a recommendation, or a proposal for any specific employer or plan. Contract terms vary by carrier and by case.