Stop-loss caps the damage a catastrophic case can do. This lesson covers specific versus aggregate protection and the attachment point that defines it.
Stop-loss, also called reinsurance, is insurance for the risk-bearer. An organization that has accepted risk buys coverage that pays when claims exceed a defined threshold, capping the damage any catastrophe can do. It is the most direct tool for the single-catastrophic-case problem from the previous lesson.
The two forms
| Type | Protects against | Triggers when |
|---|---|---|
| Specific (individual) stop-loss | One member’s catastrophic claims | A single member’s claims exceed the attachment point |
| Aggregate stop-loss | An unlucky year overall | Total claims exceed a set percentage of expected |
Specific stop-loss handles the transplant case; aggregate stop-loss handles the bad year in total. Many risk-bearing organizations carry both.
The attachment point
The key term in any stop-loss deal is the attachment point: the dollar level above which the coverage pays. It works like a deductible.
Worth remembering: the attachment point is a dial between protection and cost. A low attachment point (say, coverage above $100,000 per member) transfers a lot of risk but costs a high premium. A high attachment point (coverage above $500,000) is cheaper but leaves the organization holding more risk. Choosing it is a deliberate trade of premium dollars against retained risk.
The cost of protection
Stop-loss is not free; the premium comes out of the same capitation the organization is trying to manage to. That creates a genuine tension:
- Buy too much protection and the premium erodes the margin you were trying to earn.
- Buy too little and one bad case can still sink you.
The right level depends on size. A small group needs more protection (lower attachment point) precisely because it cannot absorb variance; a large plan can safely retain more risk and spend less on stop-loss. Matching protection to your ability to absorb loss is the core judgment.
Where it sits in the money math
Stop-loss recoveries feed back into reconciliation. When a member’s claims cross the attachment point, the coverage reimburses the excess, which reduces the actual spending counted against the benchmark. Stop-loss does not change the care delivered; it changes who ultimately pays for the extreme tail of it.
Key takeaways
- Stop-loss (reinsurance) reimburses claims above a threshold, capping catastrophic exposure.
- Specific stop-loss covers individual catastrophic cases; aggregate stop-loss covers an unlucky year overall.
- The attachment point trades premium against retained risk, and smaller organizations should buy more protection than larger ones.
Check your understanding
What is the 'attachment point' in a stop-loss arrangement?
The attachment point (or deductible) is the level of claims above which protection kicks in. A lower attachment point means more protection and a higher premium; a higher one means the organization retains more risk.