WHAT’S MY APPROPRIATE SPECIFIC STOP LOSS LEVEL?
You’ve made the decision to convert your health insurance benefit plan from an insured arrangement to a self-funded arrangement. Under your insured arrangement your carrier offered you a pool point that you had little or no control over and may have represented more or less risk than you are willing to take on under a self-funded arrangement. What is my appropriate specific stop loss level? This is a question that most employers struggle with as they transition from an insured to a self-funded arrangement. At Resolute Underwriting Strategies, we feel that the appropriate specific stop loss level should be not be so low that it puts undue pressure on your aggregate attachment point because it will produce too many large claims, nor should it be so high that it has an adverse effect on a your company’s finances because you have to fund too many large claims in a short period of time. Generally, the larger the group, the higher the specific stop loss level should be.
At Resolute Underwriting Strategies, we use a two factor approach to determine the ideal minimum/maximum specific stop loss level for an individual group. First, we look at the size of the group. Second, we look at the mature, expected claim level. We feel this approach will yield a minimum/maximum specific stop loss level that is not too high nor too low. To use Goldilocks’ terms, “Just Right”. The grid below shows the factors we use to determine the minimum/maximum stop loss level for an individual group.
Specific Deductible as a % of Expected Paid Claims
The above levels are recommendations that a new group to self-funding can use to help choose their specific stop loss level. These levels can also be used for an existing self-funded group to determine if it’s time for a change in the specific stop loss level especially for one that has gotten larger due to growth or acquisitions. The above chart is specific to Resolute Underwriting Strategies although most stop loss insurers or MGUs will have similar guidelines to help a group determine their specific stop loss level.
Original Author: Joseph Sweeney, Crumdale Partners