Employers who move to self funding tend to describe stop loss as the safety net. That is a reasonable summary, but it hides the important part. The stop loss contract is where you find out how much risk you actually retained, and two contracts at the same premium can leave you in very different positions.
Most of the trouble concentrates in three places.
Lasers
A laser is an individual claimant carved out of the standard specific deductible and assigned a higher one. If your plan’s specific deductible is fifty thousand dollars and one employee has a known ongoing condition, the stop loss carrier may set that person’s deductible at two hundred and fifty thousand. You now carry the first two hundred and fifty thousand of that person’s claims yourself instead of the first fifty thousand.
Lasers are not inherently unfair. The carrier is pricing a known risk, and the alternative is a higher premium for the whole group. The problems are more specific than that.
Lasers are frequently discovered late. They appear in the final contract rather than in the early quote comparison. An employer comparing two proposals on premium alone can pick the cheaper one and find out afterward that it carries lasers the other did not.
A laser has a dollar value that belongs in the comparison. If a laser moves one person’s deductible up by two hundred thousand dollars, then a proposal that is thirty thousand dollars cheaper in premium is not actually cheaper. It moved cost from a premium line, where it is fixed and known, to a claims line, where it is variable and yours.
The real question is what happens next year. Ask whether the contract includes no new lasers at renewal. Ask whether existing lasers can increase. Ask whether there is a rate cap. A contract with none of those protections can reprice you severely after a bad year, at exactly the moment you have the least flexibility to move.
Contract basis
This is the least discussed and most consequential term in the document. Contract basis determines which claims belong to which policy year, and it is usually written as two numbers.
A twelve twelve contract covers claims incurred during the twelve months of the policy year and paid during those same twelve months. A claim incurred in November and paid in February falls outside it. That gap is yours.
A twelve fifteen contract covers claims incurred in the policy year and paid within fifteen months, giving three months of run out. A twenty four twelve covers claims incurred as far back as twelve months before the policy year and paid during it, which matters when you are switching carriers.
Employers moving from fully insured to self funding for the first time are the most exposed here, because there is no prior self funded year behind them and the run in question is real. The related terms are terminal liability, which extends payment coverage after the contract ends, and run in coverage, which reaches backward. Both cost money. Both are cheaper than discovering you needed them.
Aggregate, and why it rarely helps
Specific stop loss caps any one person. Aggregate stop loss caps the total. In practice, aggregate almost never pays.
The attachment point is typically set at a corridor above expected claims, commonly around one hundred and twenty five percent. For total claims to exceed that, you generally need a broad and sustained increase across the whole population, because a single catastrophic claim is already being handled by the specific coverage.
This is worth understanding for one reason. Employers sometimes reason that aggregate coverage protects them from a terrible year and therefore they can take a higher specific deductible. The two are not substitutes. The specific deductible is the one that determines your exposure in the scenario that actually happens.
What to ask for
Before binding, ask for four things in writing: the contract basis, a list of any lasers with the deductible assigned to each, the renewal terms including whether new lasers can be added and whether a rate cap applies, and confirmation of whether terminal liability or run in coverage is included.
If a proposal is quoted without those, it is not yet a proposal you can compare. The premium is only the visible part of the price.