What is Aggregate Stop-Loss Insurance

Aggregate stop-loss insurance is a policy designed to limit claim coverage (losses) to a specific amount. This type of coverage is to ensure that catastrophic claims (specific stop-loss) or numerous claims (aggregate stop-loss), do not upset the financial reserves of a self-funded plan. Aggregate stop-loss protects the employer against higher-than-expected claims. If total claims exceed the aggregate limit, the stop-loss insurance carrier reimburses the employer.

BREAKING DOWN Aggregate Stop-Loss Insurance

Aggregate stop-loss insurance is held for self-funded insurance plans in which an employer assumes the financial risk for providing healthcare benefits to its employees. In practical terms, self-funded employers pay for each claim as it is presented instead of paying a fixed premium to an insurance carrier for a fully insured plan. Stop-loss insurance is similar to purchasing high-deductible insurance. The employer remains responsible for claims expenses under the deductible amount.

This coverage protects against higher than anticipated claim activity for the plan as a whole.  Once the total paid claims exceed the threshold for the plan, the carrier reimburses the employer for the overage.  

Aggregate stop-loss insurance can either be added to an existing insurance plan or purchased independently. It is calculated based on a certain percentage of projected costs (called attachment points) – usually 125 percent of anticipated claims for the year.

The aggregate stop loss threshold fluctuates throughout the year based on enrollment and is established based on something known as the “aggregate attachment factor.”

Aggregate Stop-Loss Insurance Calculations

To calculate annual attachment point, multiply monthly enrollment by the "aggregate retention factor” and aggregated for each month in the policy year. Policy retention factors are influenced by the claim and premium experience of the group, expected medical costs in the geographic area, the contract terms, and medical trend increase is.

The attachment factor is calculated as follows: 

  1. The stop loss carrier determines the average expected monthly claims per employee per month (PEPM), based on the employers loss history.  For example, $250 PEPM
  2. That figure is then multiplied by a percentage (typically 125 percent).  For example; $250 x 1.25 = $312.50
  3. $312.50 is established as the aggregate attachment factor

The factor is then multiplied by the enrollment on a monthly basis to establish the aggregate deductible (attachment point).  For example: 

  1. Assuming that an employer has 500 employees enrolled in his plan in the initial month. Then $312.50 x 500 = $156,250. $156,250 is the aggregate deductible for the month
  2. Assuming the enrollment stays the same for the year, we can project the annual aggregate by multiplying the monthly product by 12.  $156,250 x 12 = $1,875,000 

Assuming enrollment stays level, the maximum out of pocket claims for this employer would be $1,875,000.  However, the actual aggregate deductible will fluctuate monthly based on enrollment. Aggregate policies usually come with $1,000,000 annual limits, less frequently a $2,000,000 limit or up to an unlimited annual limit.