Stop-Loss Insurance: Specific and Aggregate

Types of Stop-Loss Coverage

Stop-loss insurance protects self-insured employers from unexpectedly high health claims. Specific (individual) stop-loss reimburses the employer when any single employee's claims exceed a specified deductible (attachment point) during the policy period. Aggregate stop-loss reimburses the employer when total plan claims exceed a specified percentage (typically 120-125%) of expected claims. Many self-insured employers purchase both types. The specific stop-loss deductible depends on the employer's risk tolerance and financial capacity, with common levels ranging from $50,000 to $500,000 or more per individual.

Pricing Methodology

Pricing specific stop-loss requires modeling the distribution of individual claims, particularly the tail beyond the attachment point. Actuaries estimate the expected claims above the deductible using historical large claim data, trend assumptions, and leveraging factors that adjust for different deductible levels. The severity distribution of large claims (often modeled with lognormal, Pareto, or mixed exponential distributions) is critical. Aggregate stop-loss pricing involves projecting total expected claims and modeling the variance around that expectation. Key assumptions include claim trend, enrollment changes, plan design modifications, and the correlation between individual claim sizes. Lasering (setting a higher deductible for individuals with known high-cost conditions) is a common but controversial practice.