A financial tool utilized by employers who self-fund their employee health plans, this type of coverage protects against catastrophic or unpredictable losses. It functions as a form of reinsurance for the employer, limiting the financial responsibility for claims. For instance, a company might purchase a policy that covers individual claims exceeding a certain threshold, such as $100,000 per employee, or aggregate claims exceeding a specified overall amount for the entire group.
The significance of this protection lies in its ability to provide stability and predictability to the employer’s healthcare costs. It allows companies to reap the potential savings associated with self-funding while mitigating the risk of large, unexpected medical expenses bankrupting the plan. Historically, the growth of self-funded health plans has been intrinsically linked to the availability of affordable and effective mechanisms for managing claim volatility, which this type of coverage directly addresses.
