Individual stop loss insurance is an important way that many employers with self-funded health plans manage the financial risk associated with their large claimants. If you fall into this category, you’re probably no stranger to large stop loss rate increases following years of poor large claim experience.

But what happens when experience is BETTER than expected? Do you ever see the benefits of good experience? Or is a good stop loss renewal the equivalent of being told you only need to pay 10% or 20% more this year?

What if there was another way to reap the benefits of good experience — by “getting back” some of that premium you already paid? This type of arrangement does exist with many stop loss insurance carriers.

The way it generally works is if the loss ratio is below an established threshold, a certain percentage of that difference is credited back to the group. This is usually a rider to the policy and not automatically included in the stop loss agreement.

There are a couple caveats to point out:

  • If this rider is added, the carrier might load the rates since this puts more of their revenue at risk. Of course, everything is negotiable.
  • The credit is usually applied to the premium in the following year, thus requiring you to renew with the incumbent carrier. The credit is typically lost if you move to a different carrier.

The exact design of an experience credit program will vary by carrier, but consider the illustration below of how it would work for a carrier with the following arrangement: If the loss ratio is less than 70% of paid premium, the group receives a credit of 30% of the difference to a maximum of 15% of the premium.

Our analysis has shown that, in most years, stop loss carriers win big, but occasionally they lose big — sometimes even really big. And that means it might definitely be worth arranging to get some money back in the good years.

Interested in learning more about this or discussing stop loss coverage in general? Please let us know.