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Employee Benefit Advisors
June 6, 2016
Mr. Larry Budreau
Director of Human Resources
City of Nashua NH
Re; Stop Loss
Stop loss insurance is purchased by self-funded medical plans to help smooth out the risk of large
unpredictable claims. Stop loss comes in two forms, Individual (or Specific) and Aggregate. Individual
Stop Loss (ISL) is where the stop loss carrier pays for all claims that are paid on an individual that exceed
a certain threshold {$250,000 for the City of Nashua} in a plan year. Aggregate Stop Loss insurance pays
for all claims in excess of the aggregate attachment point for the entire plan in a given plan year. The
aggregate attachment point is usually set at 125% of the plans expected claims. Aggregate Stop Loss
payments are very rare as large plans (over 1000 lives} rarely if ever hit the aggregate stop loss
threshold. The City of Nashua does not purchase Aggregate Stop loss insurance but the City does
purchase Individual Stop Loss Insurance.
As stated above, individual stop loss insurance is purchased to smooth out the unpredictable nature of
large claims that can easily exceed $500,000, $1,000,000 or more for an individual with any number of
ailments including Cancer, End Stage Renal Disease, Congestive Heart Failure, Blood Disorders
(Hemophilia) and such things as premature birth or serious accidents. It is impossible to predict the
number and severity of these incidents in advance. Additionally, medical and genetic technology gains
make cost for future treatments more expensive and more unpredictable.
According to the 2015 SunLife stop loss survey, the frequency of $1,000,000 claims have increased by
over 1000% from 2010 to 2014. 71% of those claims were from dependent children, while the cost of
bone marrow /stem cell transplants increased 177% from 2011 to 2014.
Private and Public employers typically turn to medical stop loss insurance to cover this unpredictable
risk in the same way you may turn to stop loss in a self-funded property insurance policy. Stop loss
allows for predictability in the budgeting process for unpredictable expenses.
However, very large employers, generally over 5,000 employees have been known to increase ISL limits
to reduce their premium. This reduction in premium has a corresponding increase in claims exposure.
Entities with significant operating capital or claim reserves are able to absorb this additional claim
liability. Even larger firms over 10,000 employees may forego stop loss insurance all together. They are
prepared to take on the additional risk by putting funds aside or are able to manage the risk through
operating income. Typically private employers will not want to set millions of dollars aside in a claim
