What is a stop-loss provision in health insurance?
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UPDATED: Sep 3, 2021
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- If you are insured by a health insurance policy in which no stop-loss provision is evident, you may be responsible for paying a certain percentage of your own medical expenses indefinitely
- All deductibles and copayments affiliated with your health insurance policy must first be met before any stop provision kicks in
- If a stop-loss provision does come into effect, the person that is insured will no longer need to pay for any qualifying medical expenses out of pocket
- A stop-loss provision is essentially a policy whereby a deductible is the core component
In many cases, particularly with the advent of the Affordable Care Act, health insurers have implemented a policy to charge the insured for a certain percentage of many of the expenses associated with their medical care. Many refer to this as coinsurance, a term that many readers might already be familiar with.
Essentially, coinsurance is designed to come into effect only after the person that is insured has met the deductible stipulated by his or her policy. As such, coinsurance would specify an amount that, after it has been reached, the health insurance company would either pay for all medical expenses in full or at least a pre-set percentage from that moment on. This could be 90% leaving you with a relatively small amount. Especially if you’re going out of network, a loss carrier might put this percentage much lower, insuring just 40% or 50% of your costs in extreme cases. Even though 10% may seem small, it can quickly add up if you’re in a serious accident or if you’re diagnosed with something like cancer, which could quickly accrue hundreds of thousands in medical bills.
An example might help readers to better understand how this works. Imagine that you have a health insurance policy with a $10,000 deductible and a coinsurance of $2,500. In order to even to get to the coinsurance, you would need to first pay for the first $10,000 in your annual medical expenses.
If you have stop loss provisions, this split stops at a set point. For example, a plan with a $10,000 deductible might put the stop loss at $25,000. So your maximum combined out of pocket would be $25,000 after which your insurer would be responsible for all costs as long as you keep paying your premium.
If you’re getting your insurance on the open market, you can expect your rates to rise significantly after any big claims. For employers paying for group plans, the idea is generally that the number of employees insured balances out the costs for everyone. The larger the group, the more likely catastrophic claims are to be balanced out by healthy users with few or no claims.
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How does a stop loss provision protect me?
What is the purpose of a stop-loss provision in a health insurance plan? Stop-loss provision offers protection against serious losses. Employers who are paying for benefit plans for their employees but wish to decline 100% of the liability/losses buy stop-loss insurance. Instead, the insurance company will be liable for the losses that surpass deductibles.
This is also available for a certain premium to the self-insured employer. Generally, the idea of self-insurance is you pay a set amount per employee into a fund that will pay claims throughout the years. Companies hire administrators to handle claims. If you’re working with a large enough employee group, the costs could balance out saving the company money on loss premiums, especially if there are employees with catastrophic histories.
Unfortunately, if employers do not specifically pay for additional coverage on the company health plan, they could be responsible for employee medical costs that exceed the amounts deposited each month.
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What should you understand about your deductibles?
It is important that you understand how deductibles work within the scope of your health insurance policy in order to better comprehend the function of a stop loss provision. With that in mind, consider the following principles:
- A Health Savings Account can effectively lower your tax bill, and it is also useful in covering much of your annual deductible.
- Not every health insurance policy issued today has a deductible. So it is important to compare policies in order to see how this applies to your situation.
- No reimbursements will be issued on a health insurance policy unless and until the deductible has been met. Exceptions apply, of course, such as for essential health benefits covered under the Affordable Care Act. Prescriptions and certain other things may also fall under their own rules even if you have a standard deductible with your loss insurer.
As you compare health insurance policies today, you will likely be given the option to choose your own deductible. Take care here to choose one that best fits your own personal circumstances. If you are fairly healthy and you do not typically use your health insurance very much, if at all, then you might well get away with a policy that has a high deductible. The premiums will likely be much lower. While nobody likes to think about the worst happening, you should also choose a policy with a deductible you can afford if something disastrous happens.
Just keep in mind that you will need to meet that deductible before and stop loss provision kicks in. Alternatively, if you do tend to visit the doctor or hospital with a bit more frequency, it might behoove you to choose a policy with a lower deductible or no deductible on routine office visits.
Your premiums may be substantially higher under such a scenario, but you will encounter a situation where your health insurance company will pick up the bill for the excess.
A Health Savings Account is a viable option for most Americans to effectively lessen the financial burden of their deductible, and to save on taxes at the same time. Most employers will provide you with this option, which is essentially a tax-sheltered savings account that you can use for your medical expenses.
The money must be used for approved medical purposes, and this includes items that require you to use your deductible. Typically, you can only contribute a set amount per year, and it has to be used by the end of the year. Some plans allow you to go up to the amount needed to cover your maximum out of pocket expenses on a health plan.
When do health loss coverage deductibles not apply?
As mentioned, many health insurance policies today have a coinsurance attached to it. In order for you to even begin paying that portion of your medical expenses, you will need to satisfy your deductible. The positive end to this is that not every expense you incur will need to be paid out-of-pocket with or without a deductible.
This is especially true in the Obamacare era where certain essential health benefits are required to be covered 100 percent by health insurers. Here are two general guidelines to consider as you compare most comprehensive medical plans available in the marketplace today:
- No First Dollar Coverage – Under this situation, your health insurance policy will not pay out a benefit for covered medical expenses until you pay your share first. There are certain exceptions to this, and those will be detailed in your specific policy terms.
- First Dollar Coverage – When this type of coverage is in effect, your policy will begin to pay out immediately for all covered medical expenses. This is often referred to as a zero deductible policy.
Many health insurers today will cover admission to a hospital and a certain level of surgical expenses, with or without a deductible. That means that you would not be asked to first satisfy any of the expenses prior to your medical insurance provider picking up the tab.
Many times, your monthly premium entitles you to visit an in-network doctor for a small copay with no deductible involved. Depending on your insurer and the way it’s billed, some specialists may be included in your bigger deductible plan.
Regulators have put in stop-loss provisions as a protection for insured individuals to help better plan for medical expenses. Without them, individuals could be on the hook for thousands of dollars in medical bills, even though they have a comprehensive medical insurance policy.
The Affordable Care Act has lessened the burden of deductibles to an extent by requiring insurers to cover essential health benefits at 100 percent, but this still leaves a host of other expenses that must be accounted for.
You will want to check your health insurance policy to make sure it has a stop loss provision. If it does not, and that concerns you, you will want to consider that as you compare policies during the next open enrollment period. You do have the option to change insurers should you choose to do so.
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