The cost of health care is rising and many employers are seeking flexible, cost-efficient options that will give them more control over their health benefits strategy. Choosing to self-fund medical plan benefits is one solution that continues to grow. In fact, three out of every five U.S. workers are already covered under a self-funded plan.

Under a self-funded arrangement, when plan members utilize their benefits, the employer pays the claims. The employer selects a health plan administrator to handle claims administration. To protect itself from unexpected, high-dollar claims that could arise from serious health issues such as transplants, cancer, or premature births, the employer purchases stop-loss insurance. There are two types: specific stop-loss, which limits the employer’s liability to a set dollar amount (known as the specific deductible) per person, per plan year. There is also aggregate stop-loss, which limits an employer’s overall claims liability for the year.

How does an employer choose the right stop-loss option? Often, the size of the employer guides critical parts of the decision-making process.

Size matters

Larger employers tend to focus on successful and innovative programs or services that can reduce their benefits plan costs. Cost-containment programs, such as case management services and access to centers of excellence facilities for costly procedures, translate to lower costs for the employer and improved patient outcomes. Other programs, such as a hospital bill audit or claims negotiation services, can help ensure that charges are accurate and that any available opportunities for savings are explored.

Smaller employers often view cash flow as an important consideration, especially if they are new to self-funding. If a catastrophic claim occurs or if the overall cost of claims is higher than they expected, the time between claim payment and reimbursement from their stop-loss carrier can be an important factor. Cash-flow options can help:

  • Advance funding can deliver the stop-loss reimbursement to the employer before the employer makes payment of the claim, eliminating the timing gap.
  • Aggregate monthly accommodation can help in that the employer doesn’t have to wait until the end of the plan year to get a reimbursement.

Typically, larger employers have higher risk tolerance than smaller employers. For example, an employer with 200 employees may have a specific deductible of $85,000, while an employer with 1,000 employees may have a specific deductible of $200,000. Why? Larger groups can absorb more of the risk associated with the cost of their medical benefits.
Making stop-loss coverage decisions can be challenging. Employers and brokers deserve access to reliable, helpful stop-loss data to make it easier. Sun Life recently introduced the Stop-Loss Benchmark tool. Utilizing data from 30,000 unique plans, this report provides valuable information on industry trends based on the demographics and risk profile of a particular group, and it helps each employer understand what’s working for groups like them.

What’s the most critical factor in selecting a stop-loss carrier, regardless of employer size? It’s choosing a trustworthy partner that is easy to do business with. Ask questions about a carrier’s approach and history. Understand its level of experience, expertise and financial strength. Does it offer innovative and valuable risk protection programs and flexible product solutions? The right answers will help you to select the right partner for you and your clients.

Nieland is vice president of stop-loss at Sun Life Financial U.S.

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