A self-funded employer group health plan purchases stop-loss insurance. What is the main purpose of this coverage?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
In a self-funded plan, the employer pays claims from its own funds and bears the risk of high claims. Stop-loss insurance caps that risk: the insurer reimburses the employer for claims that exceed a specific dollar level per individual, or a total aggregate level for the whole group in a plan year. This lets the employer keep the flexibility of self-funding while protecting the business from catastrophic loss. Stop-loss is not a health benefit for employees; it is a risk-transfer tool for the employer, and its terms are negotiated between the employer and the insurer.
Why the other options are wrong
- B) Stop-loss supplements a self-funded plan; it does not replace it, because the employer continues to self-fund the base claims.
- C) Stop-loss is a risk management contract for the employer's claim exposure, not a subsidy for employee premiums.
- D) Employees excluded from the plan have no benefits under the self-funded arrangement, and stop-loss does not create coverage for them.
Memory hook
Stop-loss stops the employer's bleeding: once claims pass the threshold, the insurer takes over the loss.