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You should not self-fund your health insurance plan without this

When I talk to employers that are hesitant about self-funding their health insurance plan, it's usually because they think it's too risky.

And that feeling of risk always boils down to 1 thing...the what if scenarios with a large claim.

  • "What if someone needs a transplant or one of those uber-expensive drugs I keep hearing about? How can we afford that?"

Sure, when you are fully-insured you pay the same premium each month, even if you have a large claim. What you may not know is the key to self-funding your health insurance plan is buying a fully-insured policy for large claims, and it's called stop loss insurance.

And if you are an employer that is considering self-funding, the first step is understanding how the two types of stop loss insurance work. Learn how both work in the video below:

Today's topic is: How does stop-loss insurance work so for those of you that don't know stop loss insurance is what employers purchase to mitigate the risk of high cost claimants I like to think of it like a fully insured policy for your large claims so here's how it works first there's two types of stop-loss insurance specific and aggregate I like to think in worst case scenarios so specific stop loss Insurance sets a worst case scenario for what an employer would have to pay in claims for every individual of a health plan in a given 12-month period every individual means every employee every spouse and every single child on the health plan so let's say my employer picked a specific deductible or threshold of fifty thousand dollars what that means for them is that they're responsible for the first fifty thousand dollars of every individual's claims on the health plan so if I had seventy five thousand dollars in claims or I hit a million dollars in claims in a 12-month period my employer only pays fifty thousand dollars and if I had a thousand dollars in claims in a 12-month period my employer would only pay a thousand dollars the stop loss Insurance picks up the rest if it's over 50 000 and they don't pick up anything in is under fifty thousand but fifty thousand dollars is the worst case scenario an employer would pay for that individual in that given 12-month period aggregate stop loss coverage sets a worst case scenario for the aggregate of all of the individual claims in a 12-month period up to that specific deductible amount stop loss carrier really dictates more so underwrites what the worst case scenario is based on the data that they have they use the data they have to predict what they expect the employer to pay out in that 12-month period and then they add 25 on top of that expected amount to set that worst case scenario so let's say they expect an employer to pay out a million dollars in claims for a 12-month period basically the worst case scenario is 25 percent higher than that or 1 0.25 million dollars so let's say my employer is expected to pay out a million dollars in claims but they have 1.5 million dollars in claims for that 12-month period while at the end of the year they'll get a reimbursement from the stop-loss carrier of two hundred and fifty thousand dollars because they're over the worst case scenario by that amount but let's say at the end of the 12-month period they only have 1.2 million dollars in claims they're not going to get any reimbursement in that case because they're under doors case scenario for most employers stop loss insurance is what makes self-funding a feasible option for them and if you have an interest in self-funding I have one piece of advice which is make sure that you are Consulting with a self-funded expert when it comes to stop loss Insurance because the success of your health plan will depend on it.

About the Author

Mike Kroupa, Self-Funding Insurance Expert

I grew up in a house that was constantly under construction and the experience helped me uncover one of my passions, remodeling. After running a successful remodeling business with my brother during college, I decided I wanted to keep this as a hobby. Instead, I took my advisor’s recommendation and started down the actuarial path, which ultimately led me to insurance.
Since then, I have focused my career teaching employers how to better manage their health insurance plans. I found myself frustrated year after year of doing the same thing because it didn’t feel like I was making an impact. Healthcare costs were continuing to increase, and it felt like the only options employers were left with was increasing deductibles, increasing contributions, and switching carriers.

There was a turning point for me in 2020 as I found Health Rosetta, an ecosystem for scaling adoption of practical fixes to our health care system. As my clients started adopting these fixes, I found myself getting passionate about what I was doing for the first time. Then I realized my hobby of remodeling was driving the passion because I was remodeling health plans. Even better, I was having an impact because patients (employees, spouses and children) were getting the best care they ever have and saving a lot of money in the process.

Get in contact with Mike: 

Phone: 630.738.1835     Email: mkroupa@gocgo.com     LinkedIn: Mike Kroupa

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