For decades, many public sector health plan sponsors that self-insure their medical and prescription drug coverage have purchased stop-loss insurance to avoid the financial impact caused by unanticipated high claims costs. Stop-loss insurance transfers the risk of large claims from the plan sponsor to an insurance carrier that reimburses the sponsor for claims that exceed certain thresholds. This helps plans maintain financial stability.
Two developments underscore the importance of taking a fresh look at stop-loss coverage. First, the Affordable Care Act has eliminated annual and lifetime dollar limits on essential health benefits. Second, the prevalence of high-cost claims has risen dramatically and the dollar level of those claims has increased.
Purchasing stop-loss insurance is a complicated process. Premium rates are obviously important in comparing policies, but plan sponsors must also understand what their stop-loss insurance policies cover before they can make informed decisions regarding the best-value coverage that will help meet their objectives.
This Public Sector Letter reviews the basics of stop-loss insurance and how plan sponsors can use it to better manage the added risk and increased cost to plans that have made plan design changes to comply with the Affordable Care Act. It also looks at recent innovations and best practices for purchasing stop-loss insurance.
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