Signature
L = min(max(S - A, 0), M); R = S - L
| Inputs | Definition | Unit |
|---|---|---|
S | Employer's eligible claims for the contract year net of specific stop-loss recoveries, summed over all covered members | dollars |
A | Aggregate attachment point, the amount of net claims beyond which the carrier pays | dollars |
M | Most the carrier pays under the aggregate cover for the contract year. For a policy with no maximum, M is entered as S, which the excess can never exceed | dollars |
L | Amount the aggregate stop-loss carrier pays the employer for the contract year | dollars |
|---|---|---|
R | Net claims the employer bears for the contract year after the aggregate payment, before stop-loss premiums | dollars |
Function
Aggregate stop-loss payment and expected payment function
Maps a self-funded employer's eligible claims for the contract year, net of specific stop-loss recoveries, to the payment due from the aggregate stop-loss carrier and the claims the employer retains, given the aggregate attachment point and any maximum aggregate payment. Applied to the distribution of the year's claims instead of one realised year, the same rule gives the carrier's expected payment, the net stop-loss premium before any loading. The records follow the notation of the Aggregate Stop-Loss article, where S is net claims for the year, A is the aggregate attachment point and L is the carrier's payment.
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Implementations
Excel
Aggregate stop-loss payment and retention in two cells
The first formula returns the carrier's payment from named cells NetClaims, AttachPoint and MaxAgg; the second returns the retained claims from the net claims and the cell holding the first result, named Payment. For a policy with no maximum, MaxAgg can hold the net claims.
=MIN(MAX(NetClaims-AttachPoint,0),MaxAgg); =NetClaims-Payment
Assumptions
Claims accumulate net of specific stop-loss recoveries
Claims already reimbursed under the specific stop-loss cover do not count towards the aggregate attachment point, so S is measured after specific recoveries. Using gross claims would reimburse the same dollar twice.
Claims inside the aggregate stop-loss contract basis
S includes only the claims the contract covers. Unless a provision or endorsement extends cover, the policy reimburses only claims incurred and paid in the same policy year; run-out cover adds claims incurred in the year but paid later, and run-in cover claims incurred before the year began. Excluded services fall outside S.
Worked examples
Realised year above the aggregate attachment point for a 200-member group
Employer 1 in the article has an attachment point of $1,875,000 and no maximum. Net claims of $1,980,000 give a carrier payment of $105,000, and the employer retains $1,875,000 of claims plus its premiums. M is entered equal to S to stand for no maximum.
S = 1980000; A = 1875000; M = 1980000; L = 105000; R = 1875000
Aggregate stop-loss year in which the maximum payment binds
With an illustrative maximum aggregate payment of $250,000, net claims of $2,300,000 exceed the $1,875,000 attachment point by $425,000, but the carrier pays only $250,000. The employer retains $2,050,000, more than the attachment point. The maximum is illustrative and does not come from the article.
S = 2300000; A = 1875000; M = 250000; L = 250000; R = 2050000
Aggregate stop-loss year below the attachment point
Net claims of $1,420,000 stay below the $1,875,000 attachment point, so the carrier pays nothing and the employer retains all of its claims. The claims figure is illustrative.
S = 1420000; A = 1875000; M = 1420000; L = 0; R = 1420000
Common errors
Accumulating gross claims towards the aggregate attachment point
For illustration, suppose Employer 1's gross claims were $2,100,000 with $120,000 recovered under the specific cover, leaving $1,980,000 net. Applying the aggregate rule to gross claims gives a payment of $225,000 instead of $105,000, so total recoveries are counted as $345,000 rather than $225,000. The $120,000 already paid by the specific layer is reimbursed twice.
Treating the aggregate attachment point as a cap on the employer's cost
The attachment point limits retained claims only within the contract and only up to the maximum payment. In the second worked example the employer retains $2,050,000, which is $175,000 above the attachment point, before adding premiums, excluded services and claims that fall outside the incurred and paid basis.
Sources
NAIC description of the aggregate stop-loss payment rule
National Association of Insurance Commissioners. Stop Loss Insurance, Self-Funding and the ACA. White paper. 2015. Section on the anatomy of a self-funded health plan combined with stop loss insurance: once the employer's total claims payments, not counting claims paid by the specific coverage, reach the aggregate attachment point, the policy covers all remaining costs for the year up to the policy limit, if any. Also the section on policy provisions on claims incurred and paid in the policy year and run-out cover.
Canonical Identity
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