Aggregate Stop-Loss Insurance

Aggregate Stop-Loss Insurance

Aggregate stop-loss insurance protects employers that self-fund employee health benefits by limiting total claim exposure for a plan year. It reimburses the employer if cumulative claims exceed a predetermined aggregate attachment point (threshold). This differs from specific stop-loss, which covers unusually large claims for an individual enrollee.

Key takeaways

• Designed for self-funded plans to limit total claim payouts above an aggregate threshold.
• Employer remains responsible for claims below the attachment point (similar to a high-deductible plan).
• Attachment points are typically set as a percentage of projected claims (commonly around 125%) and may be calculated monthly or annually.
• Aggregate coverage protects against many small-to-medium claims that together exceed expectations, not just one catastrophic claim.

How it works

• Self-funded employers pay claims as they occur rather than paying a fixed premium to insureants.
• Stop-loss insurance sits above the employer’s retained risk. It reimburses the employer once total claims cross the aggregate attachment point.
• Aggregate stop-loss can be added to an existing plan or purchased separately. It covers the plan sponsor (the employer), not employees directly.
• Thresholds are often variable, tied to enrollment and an aggregate attachment factor, so the required employer liability may change over time.

Calculating the aggregate attachment point

A common method:
1. Estimate average expected claims per employee per month (E). Typical estimates range from $200–$500.
2. Apply an attachment multiplier (M), usually between 125% and 175% (e.g., 1.25).
3. Multiply by the number of enrolled employees that month (N).

Monthly attachment point = E × M × N

Example:
* E = $200 per employee per month
M = 1.25
N = 100 employees
Monthly attachment = $200 × 1.25 × 100 = $25,000

Enrollment often varies monthly, so plans may use a monthly deductible that changes with enrollment or an annual deductible summed across months. Annual deductibles are commonly set slightly lower than the sum of month-by-month deductibles.

Considerations for employers

• Pros:
• Limits the financial impact of unexpectedly high total claims.
• Typically lower premiums than fully insured plans because the employer retains primary risk.
• Cons:
• Employer is liable for all claims below the attachment point.
• Attachment points, enrollment swings, exclusions, and plan design materially affect protection and cost.
• Suitable for employers willing and able to assume some claims risk but seeking protection against aggregate outcomes that could threaten plan finances.

Reference

Henry J. Kaiser Family Foundation, Employer Health Benefits Survey (2018)