A guide to stop-loss insurance - includes related article

Business & Health, May, 1990 by Joyce Frieden

Stop-loss premiums are paid in two ways. The "aggregate stop-loss" policy premium is paid monthly or in advance for the year; a typical annual premium might run from $4,000 to $10,000. "Specific stop-loss" policy premiums are usually figured on a per-employee basis and paid monthly; for example, an employer with a $30 per employee premium and 100 employees would pay $3,000 a month. For a Midwestern firm with 100 employees, a "12/12" policy, and a $15,000 deductible, a typical rate on a specific stop-loss policy would be $30 per month per employee and $80 per month per employee with dependents, according to McErlane.

What to look for

When choosing a stop-loss carrier, experts recommend addressing the following issues:

* Select a carrier that has been in the business for a while and knows the marketplace. If you use a third-party administrator, the TPA itself is often a good resource when choosing a stop-loss carrier, McErlane says. "Select a TPA that has a good relationship with one or more stop-loss carriers, that knows the reputations of the carriers, and can help select the right carrier for you, which may not necessarily be the cheapest."

Beware of carriers offering cheap rates who then don't renew the policy the following year, warns Robert Comeau, senior vice president of the group division at Guarantee Mutual Life Co., Omaha, a stop-loss carrier.

* Make sure you understand the reimbursement nature of stop-loss insurance. In most cases, the employer must pay the claim before submitting it to the stop-loss carrier for reimbursement.

Although a $50,000 claim might not be a problem for a larger firm to pay up front, for a small employer, it could be a huge burden. Many stop-loss carriers can arrange to assist with large payments. Check out what's possible.

If claims exceed the year-to-date aggregate limit, for example, the stop-loss carrier might advance funds to the employer to pay the claims, and let the employer pay the money back as cash flow improves. The stop-loss carrier will then reimburse the company. Specific stop-loss claims are usually reimbursed during the plan year, while the aggregate claim is usually processed at year's end.

* Know your claims history. Companies with particularly volatile claims histories, or those with numerous catastrophic claims, are probably better off fully insured through an indemnity health plan, HMO, or PPO, experts say. If their experience is unpredictable, going self-insured could be a disaster.

* Ask about turnaround time on claims. Once all the necessary claims information is submitted, 90 percent of claims should be handled by the carrier in 12 working days, experts say.

* Get the carrier's rating. Your TPA should be able to tell you what rating the stop-loss carrier has received from A.M. Best Co. Best rates insurers based on their management records and financial strength; the highest rating available is A plus.

* Know your numbers. How many employees does your company have? "A lot of times, employers don't have an accurate census of the employees," says Joel Thomison, associate actuary at Aetna, a stop-loss carrier. He notes that because of turnover, attrition, or a multiplicity of labor unions, getting an exact count can be difficult.