What Is Aggregate Stop-Loss Insurance?

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

Understanding Aggregate Stop-Loss Insurance

Aggregate stop-loss insurance is held for self-funded insurance plans for which an employer assumes the financial risk of 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.

Stop-loss insurance differs from conventional employee benefit insurance; stop-loss only covers the employer and provides no direct coverage to employees and health plan participants.

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. The cost is calculated based on a certain percentage of projected costs (called attachment points)—usually 125% 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 the annual attachment point, multiply the monthly enrollment by the aggregate retention factor 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 trends.

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 employer's loss history. For example, $250 PEPM.
  2. The resulting figure is then multiplied by a percentage (typically 125%). For example; $250 x 1.25 = $312.50.
  3. $312.50 is 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 a health 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. 

Key Takeaways

  • Aggregate stop-loss insurance is designed to protect an employer who self-fund their employee health plan from higher-than-anticipated claims.
  • Stop-loss insurance is similar to high-deductible insurance, and the employer remains responsible for claims below the deductible amount.
  • The cost for aggregate stop-loss insurance is calculated based on a certain percentage of attachment points—usually 125% of anticipated claims for the year.

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 an annual limit of $1,000,000 or, less frequently, a $2,000,000 limit, or no limit.

According to the Henry J. Kaiser Family Foundation 2018 Employer Health Benefits Survey, insurers now offer health plans with a self-funded option for small or medium-sized employers; these health plans incorporate stop-loss insurance with low attachment points.