Definition
Stop-loss insurance is a form of reinsurance purchased by self-funded employers to cap their financial exposure from high-cost claims. It comes in two forms: specific stop-loss, which reimburses the employer when any single member's claims exceed a defined threshold (the specific deductible or attachment point, often $50,000–$250,000), and aggregate stop-loss, which reimburses the employer if the plan's total claims for the year exceed a set percentage of expected costs. Together, they define the maximum out-of-pocket risk the employer carries.
What This Means for Employers
Stop-loss is what makes self-funding financially viable for most employers. Without it, a single catastrophic claim year could create severe cash flow problems. The stop-loss attachment point is a critical design decision — setting it too low increases your premium unnecessarily; setting it too high increases your risk exposure. A knowledgeable benefits advisor will analyze your historical claims data and workforce demographics to recommend an appropriate structure. Stop-loss carriers also vary significantly in their claims practices, so the reputation and financial strength of your stop-loss carrier matters.
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