Can you explain what ‘stop loss’ means?

UPDATED: Feb 26, 2014

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Asked February 26, 2014

1 Answer

In many cases, Stop Loss insurance is a type of insurance policy used by employers who choose to self-insure their employees, but it is also used in some group health insurance plans. The exact details of Stop Loss insurance vary by insurer, the type of business being insured, and the needs of the employer, but the basics are the same for all uses, even in group health insurance.

When an employer self-insures, meaning they choose to provide their own health insurance rather than offering group health coverage, Stop Loss coverage can be a huge financial aid to the employer. If employee health costs suddenly skyrocket, such as an illness sweeping through the employee ranks, Stop Loss will cover everything above the contracted Stop Loss amount, reducing costs for the employer.

Stop Loss may be purchased to cover different needs. One company may buy Stop Loss coverage to limit medical costs related to employee families to a specific amount, for instance. It can also be used to limit the costs associated with a specific type of health care, such as a Stop Loss policy to limit the costs of injuries to employees in high-risk occupations. Finally, the employer may buy a Stop Loss policy to cover injuries after the self-insurance reaches a predetermined dollar amount, which could be the different between a profitable business and one that goes under because of the high cost of medical needs.

In group health insurance, Stop Loss is a way to limit how much the insured has to pay out of pocket. For example, if you have Stop Loss coverage that kicks in at $10,000, you would have to pay any out of pocket costs up that amount, and the Stop Loss coverage would pay for any additional costs related to the same treatment. Where Stop Loss is used in group insurance, it is generally designed for use on an annual basis where the patient has to pay the limit amount in each given year and will be covered by Stop Loss after that amount has been spent.

Answered February 26, 2014 by Anonymous

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