In this post-health care reform environment, benefit advisers - and their employer clients - face a new world order. For instance, with new restrictions on capping lifetime maximum benefits, the burden of managing the potential financial risk posed by even one employee's catastrophic illness looms large.

Stop-loss insurance may be a way to address this challenge.

The Patient Protection and Affordable Care Act prohibits lifetime dollar limits on "essential health benefits" effective for plan years beginning on or after Sept. 23, 2010. The provision applies to all employer group health plans, both fully insured and self-funded.

Employers are waiting for further guidance from the U.S. Department of Health and Human Services on specifically what types of benefits are included in the "essential health benefit" categories.

Self-funded companies have some time to adjust, since the law allows them to impose annual per-employee limits on benefits through Jan. 1, 2014. But advisers should be contacting their clients now to discuss how to best structure their health benefit plans in light of the changes.

Companies are already responding in two ways:

1) Self-insured employers - even the largest ones - are reassessing their stop-loss insurance coverage to address their potential financial exposure since they can no longer cap lifetime benefits for employee health care coverage.

2) Fully insured companies are considering switching to self-insurance with stop-loss coverage as a financially attractive alternative.


The benefits of stop loss

Stop-loss insurance, which is commonly sold by brokers and third-party administrators, allows employers which self-insure for medical coverage to limit their financial exposure in the event one or more plan participants suffer a high-cost illness.

Under a stop-loss policy, benefits are paid once costs exceed the company's stop-loss deductible. Plans can be designed to meet a company's financial budget, with premiums typically decreasing as the deductible is raised.

Stop-loss coverage helps employers manage the risk of paying the entire amount of claims for illnesses and conditions such as hemophilia, transplants, cancer, premature babies and acute trauma.

The costs of these conditions can be highly unpredictable.

For instance, the average billed cost for a transplant episode is $427,000, but depending on the circumstances, it can rise to $1 million or more.

Prior to the new law, many large self-insured companies set aside sufficient reserves to fund medical claims and included lifetime maximum caps per covered life of $1 million in their benefit plans. The cap, in essence, acted as a ceiling on their liability.

Now, no longer able to impose such limits, these employers want protection in the event of catastrophic claims that could run into the millions of dollars.


What to do

Mid-sized and smaller firms are also reassessing their options, according to Sandy Walters, a broker and administrator at Baltimore-based Kelly & Associates Insurance Group, which has more than 13,000 corporate clients nationally.

"In response to health reform, we see a definite increase in requests from clients wanting to explore the possibility of alternative funding in order to better control their risks," he says.

"Worried about their future health care costs, many are asking about risk-sharing arrangements like self-funding up to a maximum benefit limit, combined with stop-loss coverage to absorb excess risk."

Besides the new restrictions on lifetime maximum benefits, employer interest in self-insurance is driven by concerns that PPACA may impose fees on health insurers and limit insured plan design flexibility.

Walters, who says that three-fourths of his employer clients with at least 200 lives are currently self-insured, notes that since self-insured plans are governed by federal law, they are generally not subject to any state-mandated benefits laws and also allow greater control over plan design.


Size matters

While every case depends on the specific circumstances, of course, groups of 50 or more may be the most suitable candidates for self-funding and stop-loss insurance.

Benefit advisers can assist their employer clients by diligently researching the financial strength of the stop-loss carriers their clients are considering and by comparing a client's benefit plan with the stop-loss contract to ensure that they are aligned on coverage, definitions and exclusions.

Without question, getting up to speed quickly on self-funding and stop-loss insurance will be a competitive differentiator in the rapidly evolving health care market.

As employer interest in these options rises, brokers and benefit advisers who can offer guidance will be viewed as valuable partners.

Reach Haag, national vp of sales for stop loss, OptumHealth Financial Services, at (704) 442-4102, or

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