What is aggregate stop‑loss insurance (plain definition)
– Aggregate stop‑loss insurance is a policy bought by an employer that limits the employer’s total exposure to medical claims under a self‑funded health plan. It reimburses the employer if the sum of covered claims for a period exceeds a pre‑set aggregate threshold. This protects plan sponsors from an unusually large total of claims (as opposed to a single very large claim).
Short definitions of related terms
– Self‑funded plan: an employer‑sponsored health plan where the employer pays claims as they arise instead of buying a fully insured product with a fixed premium.
– Specific (or individual) stop‑loss: coverage that protects the employer from one very large claim for a single person.
– Attachment point (or attachment multiplier): the percentage or multiple of projected claims used to set the aggregate threshold.
– Aggregate attachment factor: the variable percentage applied to estimated per‑employee claims to determine the employer’s deductible before stop‑loss reimbursement begins.
Why employers use aggregate stop‑loss
– Caps total claims paid by the employer in a period, protecting reserves from being exhausted by many claims across the group.
– Lets employers run a self‑funded plan (which can save money and offer flexibility) while limiting catastrophic financial risk.
– Often used by small and mid‑sized employers to enable self‑funding without taking on unlimited downside.
Key characteristics to remember
– It protects the employer, not individual employees; participants still submit claims through the plan.
– The aggregate threshold is usually expressed as a function of projected claims (for example, 125% of expected claims).
– Thresholds and deductibles can be monthly or annual; monthly deductibles can vary with enrollment, while annual deductibles are typically the sum or a slightly reduced aggregate of monthly amounts.
– Premiums for stop‑loss coverage tend to be relatively low because the employer continues to bear most routine claim costs.
Checklist — what you need to set an aggregate stop‑loss level
1. Estimate average expected claims per enrolled employee for the chosen period (commonly $200–$500/month depending on the employer).
2. Choose an attachment multiplier (commonly between 125% and 175%).
3. Determine enrollment for each period (monthly or for the year).
4. Decide whether the aggregate deductible will be calculated monthly or annually.
5. Confirm policy terms: what counts toward claims, reimbursable amounts, waiting periods, and whether specific stop‑loss is also purchased.
Step‑by‑step calculation (basic formula)
1. Select estimated average claim per employee per period (E).
2. Choose an attachment multiplier (M), e.g., 1.25 for 125%.
3. Compute per‑employee attachment: A = E × M.
4. Multiply by number of enrolled employees in the period (N): Period deductible = A × N.
5. If using annual measurement, sum the period deductibles across the year (or use the insurer’s annual aggregation method).
Worked numeric example
– Assume:
– Estimated average claims per employee = $200 per month (E = $200).
– Attachment multiplier = 125% (M = 1.25).
– Enrollment in Month 1 = 100 employees (N = 100).
– Per‑employee attachment: A = $200 × 1.25 = $250 per employee for the month.
– Month‑1 aggregate deductible: $250 × 100 = $25,000.
– Interpretation: if total covered claims for Month 1 exceed $25,000, the stop‑loss insurer would reimburse the amount above that threshold according to the policy terms. If the policy uses an annual attachment instead, you would compute each month and sum (or apply the insurer’s annual rule).
Practical notes and assumptions
– The example assumes the insurer uses a simple per‑employee, per‑month method; actual contracts may adjust for part‑time employees, eligibility changes, or have corridors, carry‑forwards, or different definitions of “covered claim.”
– Attachment multipliers vary by market, group demographics, industry, and past claims experience. Insurers price stop‑loss using historical claims and actuarial assumptions.
– Many employers combine specific and aggregate stop‑loss—specific for single extreme losses and aggregate for total program volatility.
Sources for further reading
– Investopedia — Aggregate Stop‑Loss Insurance: https://www.investopedia.com/terms/a/aggregate-stop-loss-insurance.asp
– Kaiser Family Foundation — Employer Health Benefits Survey (2018, section on stop‑loss): https://www.kff.org/report-section/ehbs-2018-section-11-stop-loss/
– U.S. Department of Labor (Employee Benefits Security Administration) — resources on self‑funded health plans: https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/self-funded-plans
Educational disclaimer
This explainer is for educational purposes only and is not individualized legal, tax, or investment advice. Policy terms and local regulations vary; consult a qualified benefits consultant, actuary, or attorney to evaluate stop‑loss options for a specific employer situation.