Stop-Loss Insurance Costs Are Higher: What You Can Do About It

For employers offering self-insured or self-funded health plans, even one catastrophic health claim can be financially devastating for the organization. Stop-loss insurance helps bridge the gap. However, this form of “reinsurance” is becoming pricier, in large part due to the increasing number of “jumbo” claims hammering employers — some reaching seven figures.

“It’s not just that we’re seeing more $1 million claims; we’re also seeing the amount paid for those claims escalating to amounts we haven’t seen before, so it’s a double-whammy,” said Michael Tesoriero, a senior vice president and health consultant at Segal, an HR and benefits advisory firm.

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A Lesson on Lasering: Get to Know This Stop-Loss Insurance Practice

How Stop-Loss Insurance Works

Stop-loss insurance functions as a “risk-management lever” that self-funded employers can pull when faced with catastrophic health claims, said Alicia Scott-Wears, a content strategy director at WorldatWork.

Self-funding provides several organizational benefits, Tesoriero said, including certain reduced costs, better access to data that can be used to refine plans and — perhaps most appealing — the ability to craft a plan design that best fits an employer’s unique workforce.

But offering a self-insured plan means the employer, not an insurance company, is on the hook for paying workers’ healthcare claims. And when those claims hit a certain dollar amount per employee that some organizations may find prohibitive, stop-loss insurance takes over.

“If you were to have a $5 million or $7 million claim hit today, would you worry?” Tesoriero said. “Would you have to make cuts to your plan design or increase contributions? Would you scramble? If yes, you better have stop-loss.”

Stop-loss helps reduce the sting of a year of unexpected high claims — but it does so through increased premiums the following year, which is what many organizations are now facing.

Jumbo Claims Drive Up Stop-Loss Costs

Advances in medical technology and treatment options, as well as the continued pervasiveness of costly conditions, are moving health costs and medical claims higher — which, in turn, is ramping up stop-loss premiums, a trend observed on multiple fronts:

Employers saw a 29% increase in claims for $1 million or more per million covered employees in 2024 compared to the year before — and a 47% increase in claims totaling $3 million or more, according to financial services company Sun Life.
2025 stop-loss rate renewal increases through Voya Financial were double the amount of 2024 increases, with the company citing a spike in the number of claims in the prior year.
There was a 9.4% increase in average stop-loss premiums in 2024 among health plans tracked by Segal, with that increase rising to 11.5% for employers maintaining comparable coverage to the prior year as opposed to adjusting their coverage to reduce premium costs.

The common denominator? High-dollar claims. Fewer than 0.2% of claimants tallied claims greater than $250,000, but those claims accounted for 14% of all medical plan expenses, according to Segal’s data.

Several conditions and treatments are particularly notable when looking at jumbo claims, Segal and Sun Life found:

Treatments for rare disorders can approach or surpass $1 million, while gene therapy in particular, albeit infrequently utilized, can surpass $3 million or $4 million.
Cancer (often medically termed “malignant neoplasm”) continues to be the leading condition that both affects the most covered members and leads to the highest claim costs, followed by cardiovascular diseases and then musculoskeletal or orthopedic conditions.
The cost of newborn or infant care has increased by 50% since 2021 — now averaging $476,200 per claim, with the highest single claim for that care totaling $7.2 million. Advances in technology have made it possible for an infant born extremely prematurely to survive and eventually thrive, but a stay in a neonatal intensive care unit carries high costs, Tesoriero said.

Is Stop-Loss Right for You?

Even though stop-loss premiums are increasing, it’s prudent for self-insured employers to at least consider purchasing the coverage, Tesoriero said, since the escalating medical costs leading to higher stop-loss premiums also mean greater risk for employers.

“Any employer that’s self-insuring without any form of stop-loss is basically taking on all the risk, from the first dollar up until infinity,” he said.

The choice to purchase stop-loss often aligns with corporate size. Tesoriero has observed that businesses with between several hundred and several thousand covered employees and dependents are most likely to utilize stop-loss when they are self-insured.

Similarly, a recent study by the Employee Benefit Research Institute (EBRI) examining self-insured employers found that those with 100 to 999 employees were most likely, by far, to purchase stop-loss, with 93% of them using the coverage in 2023 — compared to 60% of businesses with 1,000 or more employees and 63% with 25 to 99 employees. Those numbers drop significantly, to one-third or lower, for organizations with less than 25 employees.

EBRI suggested the dropoff in numbers for small employers may be due, in part, to a reduced understanding of how the coverage works. And, Tesoriero said, while stop-loss becomes more important the smaller a business is because of the greater potential impact of high-cost claims, some businesses with fewer than 100 employees can’t purchase stop-loss, or have restrictions on coverage, due to state laws — making self-funding at all prohibitive.

By contrast, much larger employers have more predictable claims and access to more assets, and some of them choose to budget for large claims rather than purchasing reinsurance.

“Determining the right coverage has many layers of complexity and brings together several stakeholders for input, such as finance, HR and broker teams with actuarial analytics, as it is a cross-functional risk strategy,” Scott-Wears said.

When determining if stop-loss insurance is worth purchasing, employers and total rewards professionals working with brokers shouldn’t just receive a quote, she said. Rather, they should examine modeling that incorporates design characteristics, medical trends, emerging treatments such as gene therapies, specialty medications and workforce impacts on plan utilization (e.g., the proportion of aging employees).

“Ultimately, it is about enabling and leveraging dynamic, data-informed decision-making that tailors a stop-loss policy to your organization’s unique risk profile, cost tolerance and long-term benefits strategy,” Scott-Wears said.

Mitigating Stop-Loss Costs

Tesoriero said there are several steps organizations can take to reduce reinsurance costs, all of which should be analyzed and decided based on corporate data and trends. He advised employers to:

Incorporate rate caps into your stop-loss coverage. Doing so costs an additional percentage up-front, but it guarantees your premiums the following year will not exceed a certain amount.
Increase the per-employee risk your organization takes on. Choosing to cover a greater portion of workers’ health costs before stop-loss kicks in reduces premiums.
Include a “laser” in your stop-loss policy, with increased restrictions on stop-loss coverage for individuals or groups with certain higher-risk medical conditions. This can reduce premiums but place more financial responsibility on the employer for those individuals’ health costs.
Implement an “aggregating specific deductible,” which reduces premiums by a certain amount but requires the employer to cover that same dollar amount in claims before stop-loss coverage kicks in. If that level of claims isn’t reached, the employer is able to pocket the difference.
Inspect claims before paying them. It’s easier to address billing errors, double-accounting or other issues before a claim is actually paid than it is to recoup that money afterward.

More broadly, finding ways to reduce jumbo claims can mitigate future stop-loss costs. There’s virtually no way to anticipate or eliminate all high-cost health issues, but Tesoriero said employers can:

Offer and promote well-being programs, as well as cover and encourage preventive appointments and screenings to help improve employee health long-term.
Use employee health data to gain a better understanding of your specific population’s health issues and needs, which also may guide you toward more specialized and helpful offerings.

“The key is getting ahead of this stuff so it doesn’t emerge. That’s great for your population and great for stop-loss coverage,” Tesoriero said. “You can be as healthy as you can and things still happen — but the more you can do to catch things up-front or earlier, the better outcome you may have in the end.”

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