Self-funding your company's health plan can lower costs in a good year, but it also means your business is on the hook for whatever employee medical claims come in. Stop-loss insurance is what protects you from a single bad claim or a rough year wiping out that savings.
This guide walks Dallas employers through how stop-loss actually works, the contract details that trip people up, and what to check before you sign.
Wilkerson Insurance AgencyWhat Stop-Loss Insurance Actually Protects
When you self-fund, you're taking on the financial risk an insurance carrier would normally absorb. That works fine most months, but a single "shock claim," like an organ transplant or premature birth, or a stretch of unusually high utilization across your group, can create costs no small business budget is built for. Stop-loss insurance reimburses your business once claims cross a set threshold, so one bad year doesn't sink the company.
Stop-Loss Protects the Employer, Not Employees Directly
If an employee believes a claim was wrongly denied under your plan, they can bring a claim against your business, not against your stop-loss carrier. Understanding this distinction from day one shapes how seriously you should review the rest of the contract.
Specific vs. Aggregate Attachment Points
Stop-loss policies typically include two different limits, and confusing them is one of the most common mistakes employers make.
| Attachment Point | What It Limits | How It Works | Risk It Addresses |
|---|---|---|---|
| Specific | How much the employer pays toward any one person's claims before reimbursement begins. | With a $20,000 specific attachment point, the employer pays that person's claims and the carrier reimburses eligible costs beyond $20,000 for the year. | One catastrophic individual claim. |
| Aggregate | The employer's total claims exposure across the entire group. | With a $1 million aggregate attachment point, the policy reimburses eligible total claims beyond that group-wide threshold. | An unusually costly year across the whole plan. |
Both limits matter, and they protect against different risks: specific attachment points guard against one catastrophic case, while aggregate attachment points guard against a rough year across the board.
Need help comparing attachment points?
A local agent can review your group size, claims history, exclusions, and risk tolerance before you choose a stop-loss structure.
Lasering: The Clause That Can Single Out an Employee
Sometimes a stop-loss carrier will set a higher, individualized attachment point for a specific employee or dependent it considers a higher risk, often someone with a known preexisting condition. This practice is called lasering.
How a Laser Changes Your Exposure
If your policy's standard specific attachment point is $60,000, but a dependent has a preexisting condition, the carrier might set that person's individual attachment point at $100,000. Your business would absorb a larger share of that person's claims before reimbursement starts.
If lasering is a concern for your group, ask directly whether a carrier uses the practice and under what circumstances before you sign.
Timing Issues: Run-In, Run-Out, and Claim Lag
Medical providers don't always file claims right away, and that lag can cost you money if your stop-loss contract doesn't account for it. A claim incurred near the end of your policy year but filed after the year ends might not be covered at all if your policy doesn't address this.
| Contract Feature | What It Protects | Why It Matters |
|---|---|---|
| Run-Out Coverage | Claims incurred during your policy year but filed after the year ends. | It can preserve reimbursement eligibility when providers submit claims late. |
| Run-In Coverage | Claims incurred shortly before the new policy began but filed after it started. | It can reduce gaps when moving into a new stop-loss contract. |
The length of run-in and run-out protection varies by carrier and contract, so this is worth reading closely rather than assuming it is included.
What a Stop-Loss Policy Does and Doesn't Cover
Stop-loss coverage is regulated more loosely than standard health insurance, so don't assume it works the same way. Check these details directly with any carrier.
Stop-Loss Contract Checklist
- Benefit alignment: Confirm that your health plan's covered benefits match the stop-loss policy. If your plan covers prescription drugs but the stop-loss policy excludes them, those claims may not be reimbursed.
- Annual coverage limits: Some policies cap reimbursement at $1 million or less per person, even though federal rules affect how your own health plan may limit coverage.
- IRO decisions: An employer may have to follow an independent review organization's decision to pay a claim, while the stop-loss carrier may still decline reimbursement.
- Termination rights: Review when the carrier can terminate the policy, including non-payment, inaccurate application information, participation issues, or a contract allowing termination with 30 days' notice.
Working With a Third-Party Administrator (TPA)
Most small and mid-size employers don't have in-house staff to handle claims processing, plan documents, and provider coordination, so they hire a third-party administrator to manage those functions. You're still the plan sponsor and ultimately responsible for how the plan is run, even when a TPA is doing the day-to-day work.
Questions to Resolve Before Choosing a TPA
- Is the TPA registered with the Texas Department of Insurance?
- Which claims, documents, network, and compliance tasks will the TPA perform?
- How will you review the relationship and the administrator's performance over time?
- Could switching TPAs cause your stop-loss carrier to terminate coverage?
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Self-funding isn't automatically cheaper. Administrative costs can be similar whether you're insured or self-funded, so a smaller employer may not see the savings that make self-funding worthwhile for a larger group. It's worth weighing that trade-off honestly rather than assuming self-funding is always the better financial move.
| Issue | What to Consider | Potential Impact |
|---|---|---|
| Accommodation Option | Some contracts offer a short-term carrier advance to cover a claim before the employer has paid it. | Review repayment terms and interest before you need to use the option. |
| Provider Discounts | Self-funded employers may not receive the same provider discounts negotiated by a large insurance carrier. | Actual claims costs may be higher even with stop-loss protection. |
| Group Size and Claims History | Smaller groups may not have enough scale or predictability to absorb claims volatility. | Savings are not guaranteed and should be modeled using the group's actual numbers. |
For a broader comparison of whether self-funding fits your business, see our guide on self-funded vs. fully insured health plans in Texas. For a gentler entry point that shares some risk protection without full self-funding, our article on level-funded plans for Texas small businesses explains that middle-ground option.
Trying to figure out whether this fits your business?
Schedule a Discovery Consultation and we'll walk through your specific group size, claims history, and risk tolerance, or call 214-501-9613.
Schedule a Discovery Consultation →Your Legal Responsibilities Don't Disappear
Self-funding doesn't exempt you from federal requirements. As the plan sponsor, you're still responsible for making sure your plan complies with the Employee Retirement Income Security Act (ERISA), the Health Insurance Portability and Accountability Act (HIPAA), and the Affordable Care Act. Stop-loss insurance manages your financial risk, but it doesn't transfer your legal compliance obligations to your carrier or your TPA.
How a Local Dallas Broker Can Help
Wilkerson Insurance Agency is an independent broker based at 2727 LBJ Freeway, Suite 1062, in Farmers Branch, serving employers across Dallas-Fort Worth. We represent Tokio Marine HCC and other carriers for catastrophic stop-loss coverage, and because we're independent, we can compare attachment points, exclusions, and contract terms across carriers instead of presenting only one option.
Our team of nine licensed agents across North Texas can help you weigh self-funding against level-funded or fully insured alternatives based on your group's actual claims history and risk tolerance. You can meet our full team of licensed Texas agents on our team page. Our Catastrophic Stop Loss Plans page has more detail on how we help employers evaluate retention levels and coverage limits.
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We start every business relationship with a Discovery Consultation: a plain-language conversation about your group's claims history, budget, and appetite for risk.
Frequently Asked Questions
For more detail directly from the state regulator, the Texas Department of Insurance's guide to employer self-funding covers additional contract issues, including claim denials, policy termination, and how to file a complaint about a stop-loss carrier.
Let's see what makes sense for your business. Schedule a Discovery Consultation to compare stop-loss and funding options with a local, independent team, or call 214-501-9613. Prefer to start with numbers first? Request a Free Quote.
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