Stop-loss insurance is the policy that protects an employer who self-funds its health plan from claims that run higher than expected. It does not cover employees directly. It reimburses the employer when one person’s claims, or the group’s claims in total, pass a set dollar amount.
Key takeaways
- It insures the employer, not the employee. Employees are covered by the health plan; stop-loss protects the plan’s sponsor from catastrophic cost.
- There are two kinds. Specific stop-loss caps the cost of any one person. Aggregate stop-loss caps the total claims of the whole group.
- The contract terms matter as much as the price. Claim timing, lasers and renewal protections decide whether the policy pays when you need it.
- Level-funded plans have it built in. If you are on a level-funded plan, you already own stop-loss, bundled into your monthly payment.
Why self-funded employers buy it
In a fully insured plan, the insurance carrier takes the claims risk. In a self-funded plan, the employer pays employees’ claims directly, usually through an administrator, and keeps whatever it does not spend. That upside comes with exposure: one premature birth, cancer diagnosis or transplant can cost more than a small or mid-size employer budgets for a whole year. Stop-loss insurance turns that open-ended exposure into a known maximum.
Specific stop-loss
Specific stop-loss, sometimes called individual stop-loss, sets a deductible per covered person, often called the specific deductible or attachment point. When one person’s eligible claims in the contract year pass that amount, the stop-loss carrier reimburses the plan for claims above it.
Example: with a $75,000 specific deductible, if one employee’s claims reach $300,000 in the year, the employer’s plan pays the first $75,000 and the stop-loss carrier reimburses the remaining $225,000. A lower deductible means more protection and a higher premium; a higher deductible means the reverse.
Aggregate stop-loss
Aggregate stop-loss protects against the total, not the single large claim. The carrier sets an aggregate attachment point based on the group’s expected claims, commonly around 120 to 125 percent of that expectation. If the group’s total eligible claims for the year exceed it, the carrier reimburses the excess. This covers the year when many people use more care than usual, none of them large enough to hit the specific deductible.
| Specific stop-loss | Aggregate stop-loss | |
|---|---|---|
| Protects against | One very large claimant | Total claims running high across the group |
| Measured | Per covered person | Whole group, for the contract year |
| Attachment point | A fixed dollar deductible per person | A percentage of expected annual claims |
| Most employers | Almost always buy it | Often buy it, especially smaller groups |
Contract terms to read before you sign
Incurred and paid dates
Stop-loss contracts are written by when claims are incurred and when they are paid. A 12/12 contract covers claims incurred and paid within the same 12 months. A 12/15 contract covers claims incurred in the 12 months and paid within 15, which protects claims still being processed at year end. A 24/12 contract picks up claims incurred in the prior 12 months that are paid during the contract year, which matters when moving from a fully insured plan. A mismatch here is the most common way an employer discovers a gap after the fact.
Lasers
A laser sets a higher specific deductible for one named person whose claims the carrier expects to be high, for example someone in active cancer treatment. It lowers the premium, but it shifts that person’s cost back to the employer. Ask whether a renewal can add new lasers, and look for a no-new-laser provision.
Renewal protection
Some contracts cap how much the premium can rise at renewal, or guarantee terms if claims are within an agreed range. Those protections are worth weighing against a cheaper first-year price. Our stop-loss negotiation service is built around exactly these terms.
How stop-loss fits each funding model
- Traditional self-funding: the employer buys stop-loss separately, alongside an administrator, a network and a pharmacy benefit manager. See our alternative funding and stop-loss page.
- Level funding: a carrier bundles administration, expected claims and stop-loss into a fixed monthly payment, with a possible refund if claims come in low. See level-funded health plans.
- Group captives: several employers share a layer of risk above their own deductibles and buy stop-loss together. See group captives and our comparison of a stop-loss captive versus level funding.
What to compare between quotes
- The specific deductible and whether it is the same for every covered person
- The aggregate attachment point and how expected claims were set
- The contract basis (12/12, 12/15, 24/12) against your plan’s history
- Named lasers now, and whether new ones can be added at renewal
- What counts as an eligible claim, including pharmacy and out-of-network claims
- How fast reimbursements are paid, and whether advance funding is available for a large claim
Good claims and stop-loss reporting is what lets you answer these questions with your own data instead of the carrier’s assumptions.
More plain-English benefits explainers
- What Is an ASO Health Plan?: how administrative services only, self-funded plans work
- Medical Loss Ratio Rebates: what employers must do with the check
- What Is Commercial Health Insurance?: private coverage versus government programs
- What Is a PBM?: how pharmacy benefit managers make money
- What Is an Applicable Large Employer?: the 50-employee test and what it triggers
- What Is an HSA?: the tax-free account paired with a high-deductible plan
Frequently asked questions
What is stop-loss insurance in simple terms?
It is insurance for an employer that self-funds its health plan. It reimburses the employer when one person’s claims, or the group’s total claims, go past an agreed amount.
What is the difference between specific and aggregate stop-loss?
Specific stop-loss caps the cost of any one covered person. Aggregate stop-loss caps the total claims of the whole group for the contract year.
Does stop-loss insurance cover employees?
No. Employees are covered by the health plan. Stop-loss is a contract between the employer, or the plan, and the stop-loss carrier.
What is a laser in stop-loss insurance?
A laser is a higher specific deductible set for one named person whose claims are expected to be high. It lowers the premium but leaves more of that person’s cost with the employer.
Do level-funded plans include stop-loss?
Yes. A level-funded plan bundles stop-loss coverage with administration and expected claims into one monthly payment.
Is your stop-loss working as hard as it should?
CFH Insurance Consultants is an independent employee benefits firm. We are licensed insurance brokers, and for proper coverage of an account we work in teams of five. We will read your current contract terms against your claims history, show you where the gaps are, and bring back competing stop-loss quotes on the same basis so you are comparing like with like. Start here, call 248.370.8853, or book a 30-minute call.
This article is general information, not legal or tax advice. Stop-loss contracts vary by carrier and state; the terms of your own policy govern what it pays.
