Does Your Health Plan Have a Stop-Loss?

“Insurance is the one thing you buy hoping you never use it. So buy the version that works when you do.”— Nathan Baughman

You’ve got a plan. You pay the premium every month. You’ve never really read the paperwork, because who does. But somewhere in the back of your mind there’s a question you haven’t asked out loud: if something big happened tomorrow, what would I actually owe?

I’m Nathan Baughman, owner of BIG Benefits, and that question is the whole reason I’m writing this. Most people I sit down with, whether they’re buying on your own for the first time or they’ve had a plan for years, can’t answer it. Not because they’re careless. Because nobody ever translated the lingo for them. So let’s do that, with one big round number.

1. Four words that decide what you owe

Every real health plan has four parts that kick in one after the other. Picture them as four boxes in a row.

The first box is the deductible. That’s the amount you pay out of your own pocket before the insurance company starts paying anything. It works like your car or home insurance. Five-hundred-dollar deductible on your car, you back into a pole, the first five hundred is yours and the body shop bills the rest to your carrier. Health insurance is the same idea with bigger numbers.

The second box is coinsurance. Once you’ve paid your deductible, you and the insurance company split the next chunk of the bill by a percentage. The most common split is 80/20, which means they pay eighty percent and you pay twenty. Some plans are 70/30, some are 100/0 after the deductible. That percentage matters more than people think, and we’ll see why in a minute.

The third box is the maximum out-of-pocket, written as MOOP on a lot of plan documents. This is the most you will pay in a plan year for covered, in-network care, and it includes your deductible, coinsurance and copays. When you reach that number, you’re done. The plan pays one hundred percent of covered costs for the rest of the year. In the industry we also call this the stop-loss, because it’s the point where your losses stop and the insurance company’s begin.

The fourth box is the one almost nobody looks at, and it separates actual health insurance from a lot of things sold as health insurance. That’s the unlimited contract: no ceiling on what the plan will pay once you’ve hit your maximum. We’ll get there.

2. The hundred-thousand-dollar hospital bill

Let’s make it real. You’re in a car accident, or you get a diagnosis you weren’t expecting, and you spend a week in the hospital. The bill is one hundred thousand dollars. A week inpatient with surgery in eastern Pennsylvania gets there without trying.

Say your plan has a five-thousand-dollar deductible, 80/20 coinsurance and an eight-thousand-five-hundred-dollar maximum out-of-pocket. Here’s how the money moves.

The first five thousand is your deductible. You pay it. Now you’re into coinsurance on the remaining ninety-five thousand. Your twenty percent of that would be nineteen thousand dollars, and if the story ended there, you’d be writing checks for twenty-four thousand. That’s the number that keeps people up at night.

But it doesn’t end there, because of the third box. Your maximum out-of-pocket is eight thousand five hundred. You’ve already paid five thousand toward it, so you pay another three thousand five hundred in coinsurance and then you stop. The insurance company picks up the other ninety-one thousand five hundred.

So on a hundred-thousand-dollar bill, you owe eight thousand five hundred dollars. Not twenty-four thousand. Not a hundred thousand. And you’re done for the year, even if you go back in the hospital in November. That’s what a stop-loss does. It turns an unknowable number into a known one, and a known number is something you can plan around.

Eight thousand five hundred is still a lot of money. But it’s a number you can work out a payment plan on. A hundred thousand isn’t. That’s the difference between a bad year and a bankruptcy.

3. The two-hundred-fifty-thousand-dollar ceiling

Now here’s the part that bothers me.

There’s a whole category of products that look like health insurance from a distance. Monthly premium, ID card, a network name you’ve heard of, a friendly brochure. But read the contract and you’ll find a line like “maximum benefit $250,000 per year” or “$500,000 lifetime.” That’s a benefit ceiling, and it’s the opposite of a stop-loss. A stop-loss caps what you pay. A benefit ceiling caps what they pay.

Go back to our hospital stay, but make it worse. Serious cancer treatment, a premature baby in the NICU, a spinal injury. Those bills run four, five, seven hundred thousand dollars over a year or two. On a plan with a two-hundred-fifty-thousand-dollar ceiling, the plan pays its quarter of a million and then it’s finished. Everything after that comes back to you. On an unlimited contract, the plan keeps paying, because there’s no number where it’s allowed to stop.

I’m not here to bash anybody’s product. Health benefits plans, indemnity plans, sharing arrangements, there’s a time and a place for some of them. My issue is when somebody buys one thinking it’s actual health insurance, not a health benefits plan, and finds out the difference in the worst week of their life. Know exactly what it covers. That’s all I ask.

4. The three questions I ask about every plan

When I review a plan, whether it’s one of the Pennie marketplace plans, one of the private plans priced on your health, or something bought off a website at eleven at night, I ask three questions. You can ask them too. You just need the plan document and a little bit of patience.

One. Is there a maximum out-of-pocket? Once you hit it, are you done paying? Look for the number. If you can’t find one, or it’s described as a “per-occurrence” or “per-service” limit instead of a yearly total, that’s a flag. A real MOOP is one number for the whole year.

Two. Is it an unlimited contract, or does the plan stop paying at two hundred thousand or five hundred thousand dollars? Search the document for “maximum benefit,” “annual maximum” or “lifetime maximum.” A dollar figure next to any of those is a ceiling. ACA-compliant plans, meaning everything sold on Pennie, aren’t allowed to have one. Good private underwritten plans don’t either. A lot of the lower-priced alternatives do.

Three. Is it guaranteed renewable? Can they drop you or make you reapply after a major claim? Guaranteed renewable means the plan has to keep you as long as you pay the premium. It can’t cancel you because you got sick or hand you a new health questionnaire next year.

A clear yes on all three means you’re holding actual health insurance. A maybe on any of them is a conversation to have before renewal, not after a claim.

5. Where these numbers live on different kinds of plans

The four boxes exist on every real plan, but the numbers in them vary, and that’s on purpose. There is no one-size-fits-all health plan.

On the state-based marketplace, Obamacare, ACA, Pennie, whatever you want to call it, one and the same, the federal government caps the maximum out-of-pocket each year and every plan comes in under it. Bronze plans sit near the top of that range with lower premiums; gold plans sit lower with higher premiums. On the private underwritten side, plans priced based on your health, not your income, you choose your deductible from a range and the MOOP moves with it. Healthier people land in a lower-risk group and may see a lower premium for the same four boxes. If you’ve got an ongoing condition the marketplace is usually the better answer. But for a lot of self-employed and 1099 folks, self-insured meaning you buy your own coverage, it’s worth a side-by-side look.

What I’d push back on is picking a plan on premium alone. A plan that’s eighty dollars a month lower but has a benefit ceiling isn’t lower cost. It’s just billing you later, for a number you didn’t agree to.

Recap

A deductible is what you pay first; coinsurance is the split after that; the maximum out-of-pocket, or stop-loss, is where you stop paying for the year.

On a $100,000 bill with a $5,000 deductible, 80/20 coinsurance and an $8,500 MOOP, you owe $8,500. Without a stop-loss, the same bill could cost $24,000 or the whole thing.

Ask three questions of any plan: Is there a MOOP? Is it an unlimited contract? Is it guaranteed renewable? If you’re self-employed and 1099 and want a second set of eyes, that’s what I do.

Frequently asked questions

What is the difference between a deductible and a maximum out-of-pocket?

The deductible is the amount you pay before the insurance company starts paying. The maximum out-of-pocket is the most you’ll pay in a plan year for covered, in-network care, and it includes the deductible, coinsurance and copays. Once you reach it, the plan pays one hundred percent of covered costs for the rest of the year. The deductible is the front door; the MOOP is the back wall.

What is a stop-loss in health insurance?

Stop-loss is the plain-English name for the maximum out-of-pocket. It’s the point where your losses stop and the insurance company’s begin. Real health insurance, whether an ACA plan on Pennie or a private underwritten plan, has one. Many health benefits plans and indemnity plans don’t, which means your exposure on a large claim has no ceiling. It’s the first thing I check on any plan document.

What does unlimited contract mean on a health plan?

An unlimited contract means the plan has no benefit ceiling. After you hit your maximum out-of-pocket, the plan keeps paying covered costs no matter how large the claim gets. A plan with a two-hundred-fifty-thousand-dollar annual maximum stops paying at that number, and the rest of the bill comes back to you. Look for “annual maximum” or “lifetime maximum” in the document to find out which one you have.

Does coinsurance count toward the maximum out-of-pocket?

On an ACA-compliant plan, yes. Your deductible, coinsurance and copays for covered in-network care all count toward the maximum out-of-pocket. Two things don’t: your monthly premium, and care you get outside the network on most plans. So check that your doctors and nearest hospital are in the network before you rely on the MOOP number.

Let’s Take a Look

Call or text (910) 526-4322. Send me an age and a zip code and I’ll send back a general idea of what’s available in your area. Happy to answer any and all questions so you can make the most informed decision for you, your family, or your business.

Nathan Baughman, Owner, BIG Benefits. Offices in Doylestown and King of Prussia, PA. Serving Bucks, Montgomery and Lehigh counties.

The information and suggestions provided are for informational purposes only and should not be considered professional advice until you have spoken with a licensed agent first. Please consult with one of our, or any trusted, licensed insurance professionals to discuss your individual circumstances.