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What if we get hit with a few gigantic claims or just a high total dollar level of claims? Is a self-funded employer stuck?

The same question would apply in an insurance arrangement if customers’ claims were larger than money the insurer had on hand to pay for them. The answer is that self-funded plans and insurance companies do the same thing to protect themselves and the plan participants. They buy re-insurance…which has the logical name “Stop-Loss” in self-funding.

Stop-Loss, like self-funding, provides considerable opportunity for plans & sponsoring employers to custom design that coverage. Some employers have strong cash flow & reserves, so they are willing to absorb a higher trigger for Stop-Loss to begin reimbursing the plan for expenses covered by the Stop-Loss policy. Most Stop-Loss policies give self-funded employers a double trigger to give protection in two different scenarios. One is the “Aggregate Attachment Point” trigger: if the total dollars of all the claims exceed a set point. In addition, for further protection, let’s say that everyone had been very healthy, but one person had a hugely expensive cost. That’s when the “Specific Attachment Point” would trigger reimbursements, even though it is only one person and the total of that one claim may not trigger the Aggregate attachment point. This gives the plan & employer more protection and peace of mind than just an insurance company deductible. Meanwhile, many of the conditions and levels of coverage in Stop-Loss may be negotiated in advance to best fit the plan/employer’s situation.

As a note, one of the marketing terms mentioned that is sometimes used for self-funding is “partially-insured”. This term was used more when Stop-Loss was a new concept, and the term was to let employers & plans know that there was back-up insurance. As Stop-Loss has become more prominent, the “partially-insured” term has been getting less use, because some employers & plans think it means that the overall coverage is just a warmed-over insurance policy.

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