Aggregating Spec Deductibles - a Creative Way to Mitigate Fixed Costs

In a previous article, I addressed the two main coverages on a self-funded medical plan - specific stop loss, and aggregate stop loss - that employers purchase to mitigate their financial risk.  See here - "Aggregate Insurance - Do You Need It? (Probably)".  Please read that as a foundation before you dive into Agg Specs!

An Aggregating Specific deductible combines both specific and aggregate coverage, to create an additional pool of dollars that must be satisfied above the chosen Spec deductible, before Stop Loss reimbursement kicks in.

As an example, your client may choose a $100k spec deductible (per employee), and then to choose a $50k Aggregating Spec deductible as a second layer.  What this means, is that even though an individual, or individuals breach the $100k spec, collectively they must also satisfy the $50k Agg Spec before the Stop Loss carrier reimburses any claims.  One person could have a $175k claim, which breaches both the Spec, and the Agg Spec, or multiple people could have claims just above the $100k Spec, and together their claims pool above the $50k Agg Spec.  Until this point, all claims are funded by the employer.

OK, now that we know what an Agg Spec is, how would your client benefit from one?

The primary purpose to add an Agg Spec is to reduce fixed costs without raising the Spec deductible for every employee.  In most cases, the offset for an Agg Spec is an equal reduction to Spec premium (dollar for dollar).  An employer may choose to do this to lower their fixed costs in return for additional soft dollar exposure.  If the group runs well that year, the employer reaps the benefits of lower premiums.  If the Agg Spec does come into play, worst case scenario is that the increase in claims dollars is equal to the premium reduction, which means a net neutral outcome in most cases - there are situations where its not completely equal, but I need a lot more time to explain than this medium allows!

If you would like to learn more about using an Agg Spec for your client, email me at [email protected] or call me at 817-680-0504.

-Spencer