What is a Specific Deductible in individual stop-loss?

December 8, 2023

With the increasing frequency of high-cost drugs and procedures, the thought of going self-funded can be daunting. On the one hand, you get more control over your claims, only paying what is incurred. On the other hand, you can have higher month-to-month volatility depending on the types of claims. This is where an individual stop-loss policy can provide more financial stability and protection from catastrophic, high-cost claims.

To recap, an individual stop-loss policy is a reinsurance policy available to self-insured groups that provides financial protection against catastrophic claims.

Now that your refresher is complete, let’s learn about specific deductibles!

Your specific stop-loss policy places an individual specific deductible for every covered Member. When a Member accumulates claims over the individual specific deductible, the stop-loss carrier pays all claims over the individual specific deductible for the remainder of the policy period. Individual specific deductible levels vary significantly across groups, ranging from $30,000 to $1,000,000.

For example, let’s say ABC Company has elected a $50,000 specific deductible. In this scenario, the group is responsible for all claims for each covered plan member up to $50,000. In the event that one of them has over $50,000 in accumulated claims, the stop-loss carrier then takes on the financial liability and will pay all subsequent claims in the policy period.

Here’s how that might work:

Member 1 has one claim for a total of $100,000.

  • ABC Company is responsible for $50,000, and the stop-loss carrier is responsible for $50,000.

Member 2 has three claims for a total of $47,000.

  • ABC Company is responsible for $47,000, and the stop-loss carrier is responsible for $0 because the accumulated claim total is under $50,000.

Member 3 has seven claims for a total of $90,000.

  • ABC Company is responsible for $50,000, and the stop-loss carrier is responsible for $40,000.

This deductible is set in advance and is an important term of your stop-loss contract. It is an essential component of any self-funded plan because it protects the employer from costly claims stemming from any one individual. Groups can elect the deductible level that works for them, and we can help.

Your business needs individualized attention in order to set the specific deductible that is right for you. We recommend that if you have specific questions about what deductible will serve your needs and those of your employees, you speak to your benefits consultant, who has the on-the-ground expertise necessary to make sure that you are taking all factors into account.

In addition, we recommend speaking to a licensed tax professional in advance of making any decisions that may affect your plan. Since local and state regulations may affect this, we rely on our nationwide network of vetted benefits consultants, who have guided thousands of employers to a better way for their benefits.

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