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What is Stop-Loss Insurance? A Comprehensive Legal Overview
Definition & Meaning
Stop-loss insurance is a type of coverage designed to protect self-insured employers from significant financial losses due to high medical claims from their employees. This insurance helps manage the risk of catastrophic health expenses by providing two main types of coverage:
Specific stop-loss coverage: This kicks in when an individual employee's medical claim exceeds a predetermined threshold set by the employer. Once this limit is reached, the stop-loss policy covers additional claims up to a specified lifetime maximum for that employee.
Aggregate stop-loss coverage: This type activates when the total health claims for all employees surpass a certain threshold, typically set at 125% of the employer's estimated annual health claims cost.
Table of content
Legal Use & context
Stop-loss insurance is primarily relevant in the context of employee health benefits and insurance law. It is commonly used by employers who opt for self-insurance to mitigate the financial risks associated with high medical costs. Legal professionals may encounter this term in various areas, including:
Employment law
Insurance law
Health care law
Employers can use legal templates from US Legal Forms to create necessary documents related to stop-loss insurance, ensuring compliance with applicable regulations.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Here are a couple of realistic scenarios involving stop-loss insurance:
Example 1: An employer sets a specific stop-loss threshold of $100,000. If an employee incurs medical expenses totaling $150,000, the employer pays the first $100,000, and the stop-loss insurance covers the remaining $50,000.
Example 2: An employer anticipates total annual claims of $500,000. They choose an aggregate stop-loss threshold of $625,000 (125% of estimated claims). If total claims reach $700,000, the stop-loss insurance would cover the excess $75,000.
State-by-state differences
Examples of state differences (not exhaustive):
State
Stop-Loss Insurance Regulations
California
Requires specific disclosures for stop-loss policies.
Texas
Limits the maximum attachment point for aggregate stop-loss coverage.
New York
Regulates the minimum retention levels for specific stop-loss coverage.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Difference
Health Insurance
A contract that provides financial coverage for medical expenses.
Health insurance covers routine and preventive care, while stop-loss insurance specifically protects self-insured employers from high claims.
Reinsurance
Insurance purchased by an insurance company to manage risk.
Reinsurance is for insurers, while stop-loss insurance is for self-insured employers.
Common misunderstandings
What to do if this term applies to you
If you are an employer considering self-insurance and stop-loss insurance, follow these steps:
Evaluate your company's health claims history to determine appropriate thresholds.
Consult with an insurance professional to understand the best coverage options for your needs.
Consider using legal templates from US Legal Forms to draft necessary documents.
If your situation is complex, seek advice from a legal professional to ensure compliance with applicable laws.
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