A large employer that self-funds its group health plan typically purchases stop-loss insurance in order to:

Why A is correct

A self-funded employer pays employee health claims directly and therefore bears the risk of unexpectedly high or catastrophic losses. Stop-loss insurance protects the employer by reimbursing claims that exceed a selected attachment point: specific stop-loss caps the exposure on any single individual's covered claims, while aggregate stop-loss caps the employer's total claims for the plan year. This risk-transfer layer is what makes self-funding financially feasible for large employers, so A correctly identifies the purpose of the stop-loss coverage the employer purchases.

Why the other options are wrong

• B) Stop-loss does not change the plan's funding structure; the plan remains self-funded, and stop-loss merely reinsures the employer's claim risk rather than converting the plan into a fully insured HMO. Stop-loss is a reinsurance layer, not a funding conversion, so the plan remains self-funded.
• C) HSA funding is a separate employer decision governed by federal tax rules on high-deductible plans; stop-loss insurance has nothing to do with depositing money into employee accounts. HSA contributions are governed by tax rules on high-deductible plans and are unrelated to claim reinsurance.
• D) COBRA continuation rights are statutory obligations that attach to group coverage; stop-loss insurance neither removes nor replaces an employer's duty to offer COBRA continuation. COBRA obligations are statutory and attach regardless of the employer's stop-loss protection.

Memory hook

Self-funded employer + stop-loss = the employer pays first, the reinsurer eats the monster claims.