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- Once deductibles and copayments have been met, the stop loss provision is activated
- This is a specific clause that is contained within any policy that has a deductible as a core component
- Once the stop loss provision is enacted, the insured will no longer pay out of pocket for any qualifying medical expenses
- If no stop loss provision is present, the insured may be on the hook for covering a share of his or her own medical expenses on an indefinite basis
There are many policies and procedures governing the execution of health insurance policies in this country, Some are rather straightforward and easy to understand and implement, while others are a bit more complex. Here we examine the often misunderstood notion of the stop loss provision.
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The Stop Loss Provision Explained
Many health insurance policies today contain a provision that requires the insured to pay a certain portion of their medical related expenses. This is typically referred to as co-insurance, which most people today are familiar with. Co-insurance kicks in only after the insured has satisfied his or her deductible that is stated on the policy. Within this condition, the co-insurance would state exactly the amount that, once reached, the insurance company would begin to pay in full for any and all medical expenses incurred from that point forward.
Let us use the example of a policy with a $5,000 deduction and a co-insurance provision of $2,500. The insured will need to first satisfy the $5,000 deduction. After that point, the insured will need to pay a certain percentage of the medical expenses that are incurred, up to the point that the $2,500 co-insurance has been met.
If the percentage is 20 percent, the insured would pay that amount and the insurance would pay the remaining 80 percent. After the coinsurance has been satisfied, then the insurance company would be obligated to begin paying at 100 percent of the medical bills that accumulate from that point forward.
Know Your Deductibles
In order to better understand what exactly a stop loss provision in health insurance is, deductibles must first be discussed. Here are some of the fundamental concepts to keep in mind:
- Before any type of reimbursement will be made on a health insurance policy, the deductible must be met
- Not all policies have a deductible, so you will need to check yours to determine if this even applies
- Health Savings Accounts can help ease the tax burden on the insured while being used to cover the amount of the deductible over the course of the year
Many health insurance companies today give you the option to choose your own deductible. You will want to take your time and considers all of your options carefully before locking yourself into a policy. If you are generally healthy, you might opt to go with a high deductible in order to keep your monthly premiums as low as possible. That is fine, but remember that you will be on the hook for the entire deductible in the event that you were to suffer a serious injury or illness.
In addition, it is not until after your deductible has been met that any co-insurance will kick in, keeping you that much further away from hitting the stop loss provision contained in the policy.
If, on the other hand, you tend to use your insurance quite frequently then you will want to consider a lower deductible. This will almost certainly increase your monthly premiums, often quite substantially, but will also lessen the amount of time it will take to get your through the co-insurance and into the stop loss provision.
One way to get help with your deductibles, thereby easing the financial burden associated with medical expenses overall, is through the use of a Health Savings Account. Provided as an option by many employers, this is a tax-sheltered account that will allow you to put aside some money before taxes are paid to take care of your medical expenses.
As long as the bill is for a healthcare related item, you are able to use this money that you set aside. Because they are to be used to help offset the presence of deductibles, they are typically paired together with a health insurance policy that contains a high deductible.
Coinsurance Leads To A Stop Loss Provision
Assuming your deductible has already been met, there are many health insurance policies that will begin to cover 100 percent of your medical expenses from that point forward. There are others, however, that implement a co-insurance policy into their program. This is done on a percentage basis.
As an example, let us imagine that you have a policy that state your co-insurance is 70/30. This means that the insurance company will pay 70 percent of your medical expenses after your deductible has been met, while you are responsible for that other 30 percent.
This will continue until you reach the stop loss provision, which is essentially your out of pocket maximum. This provision has been put into place to keep individuals from being unduly burdened by the financial costs associated with a major illness or injury.
If there were not a stop loss provision within a particular health insurance policy, you would be responsible for the co-insurance amount indefinitely. As you can imagine, this could be severely and financially limiting for most people. Imagine you included medical expenses of $750,000 and you have an 80/20 co-insurance. This would mean that you are on the hook for $150,000 of the bill, and that is far higher than the average annual income of most Americans at this time.
Because of this, you will want to ensure that any policy that you are considering has a stop loss provision. As you conduct your comparison, keep this in mind. Similar to deductibles, the higher the stop loss amount is, the lower your premium will be.
The Deductible Does Not Apply
Remember that before any co-insurance kicks in, you must first pay the deductible. This good news is that not all medical expense fall under the deductible. In other words, depending on your insurance policy, certain procedures will be covered by the health insurance company at 100 percent.
To better understand this, let us consider the two major classes of comprehensive medical plans in existence today:
- First Dollar Coverage – The health insurance policy will begin to pay out benefits as soon as any covered medical expenses incurred. This is essential a zero deductible policy.
- No First Dollar Coverage – This is the opposite. The health insurance policy will not pay out benefits for covered medical expenses until the insured first pays a certain amount. The exception is certain expenses, as detailed in each specific policy.
It is quite common today for many health insurance plans to cover hospital admittance and surgical expenses up to an amount that is specified in the policy. This will be paid out even before a deductible amount is asked to be paid.
Consider it as an added benefit if you will, but do keep in mind that this will prolong the amount of time it takes to reach a stop loss provision. For the vast majority of insured Americans, however, this is a benefit worth taking note of.
Supplemental Policies Are an Option
If you are concerned about the amount of your deductible and co-insurance that must be met prior to a stop loss provision kicking in, you will want to consider a supplemental major medical policy. This is designed to back up your primary policy and will typically include payment for hospital and surgical related expenses. Your primary plan will pay for any and all expenses up to the point that there is no deductible required.
Once that limit has been met, the supplemental policy would kick in and provide your benefits. Most supplemental policies will also include a stop-loss limit and will also have a maximum lifetime benefit limit, so that is something to consider as you make your purchase decision.
Stop loss provisions are a protection mechanism that have proven quite helpful to the insured individual. Even with the Affordable Care Act in place, healthcare expenses have risen dramatically in recent years. Insurance is designed to maintain a person’s financial sense of security without having to worry about going bankrupt in the event that a major illness or injury strikes.
Check to make sure your policy has a stop loss provision so that you know exactly what you will potentially be responsible for financially in regard your medical expenses.
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