Stop-Loss Insurance: Not Just for Self-Funded Plans Anymore

When a company chooses to self-fund its employee health benefits, purchasing stop-loss insurance is usually part of the strategy. Stop-loss insurance prevents significant financial losses in the event an employer mis-calculates its anticipated healthcare expenditures for the coming year.

It turns out that stop-loss insurance is not just for self-funded plans anymore. According to recent news reports, even employers with traditional group insurance are starting to look at stop-loss policies to limit the potential risks of growing healthcare costs to the bottom line.

More About Stop-Loss Insurance

Stop-loss insurance is critical to running a successful self-funded health plan. StarMed, a Nevada company that specializes in administering employer-sponsored minimal essential coverage (MEC) plans, explains that self-funding without stop-loss insurance in place is risky.

Self-funded health plans are funded through a combination of employer contributions and employee payroll deductions. In order to know how much to set aside and collect from employees, a company needs to estimate its costs for the coming year. Only then can they set rates. But what if a company underestimates its costs?

Underestimating leaves a company with no other choice but to make up the difference out of their profits or through some other revenue source. Stop-loss insurance eliminates that difficult choice. As an indemnity product, stop-loss insurance makes up for the difference when a company underestimates how much it spends on affordable healthcare insurance in a given year.

Big Price Hikes for 2024

Employers with traditional group insurance plans are suddenly talking about stop-loss insurance in anticipation of big price hikes for 2024. Employer-sponsored health insurance is expected to climb by 6.5% on average. Some plans could see much higher rate increases next year.

Managing rate increases is always tricky for employers. But at a time when inflation is decimating family budgets, employers do not want to pass on higher rates through increased payroll deductions. Yet they worry about their own ability to absorb the costs themselves. Enter stop-loss insurance.

A stop-loss policy for a company with a traditional group insurance plan would work the same as it does for companies with self-funded health plans. A company set aside a certain amount of money they expect will cover their healthcare expenses for the coming year. If they underestimate those expenses, stop-loss insurance will cover the difference.

A Sad State of Affairs

If nothing else, employers having to consider stop-loss insurance even with a traditional group insurance plan is a perfect illustration of the sad state of affairs we now find ourselves in.

Healthcare costs continue to rise faster than inflation. It has been that way for decades. Meanwhile, wages are not keeping up. Employers are caught in the middle between managing health insurance premiums and boosting employee pay. Few can actually do both.

The frustrating thing is that it doesn’t have to be this way. Healthcare in America is so expensive because government and the healthcare sector – including both providers and payers – keep doing things that artificially drive prices up. If government would get out of healthcare and transfer control from insurance companies to individual consumers, things would change dramatically.

A Workable Solution for Now

Companies struggling to keep their health plans alive can find some relief in stop-loss insurance, at least for now. Purchasing stop-loss insurance will be a workable solution for the next couple of years. But at some point, its effectiveness will wane.

Meanwhile, consumers will be left at the mercy of government and the healthcare sector. Until consumers stand up and refuse to not go along with it any further, little will change. That is usually the way it works.