Aggregate accommodation is a tool to provide financial relief to an employer that sponsors a self-funded health plan. It is an option available in certain stop-loss insurance contracts.
The typical stop-loss insurance contract has two components – specific and aggregate. Specific stop-loss kicks in when a participant in the plan incurs medical expenses in excess of the specific attachment point. Aggregate stop-loss kicks in when all of the participants in the plan, in the aggregate, incur medical expenses in excess of the aggregate attachment point.
The problem with aggregate stop-loss is that an employer may have to wait until the end of the policy period in order to recover costs in excess of the aggregate attachment point. Aggregate accommodation allows an employer to recover costs on a more frequent basis; typically, monthly.
HOW DOES IT WORK?
Let’s assume that a plan has an aggregate attachment point of $1.2m. That means that an employer has to incur medical expenses of $1.2m before it can be reimbursed by stop-loss insurance. A stop-loss policy with aggregate accommodation converts the annual aggregate attachment point into monthly aggregate attachment points – in this case, $100,000 for each month of the policy period. An employer will be reimbursed by its aggregate stop-loss insurance as soon as its year-to-date costs exceed the accumulated aggregate attachment point. So, if the employer incurs costs of $150,000 in the first month of the policy period, it can file a claim for $50,000 after one month, instead of having to wait until it has paid $1.2m in the aggregate.
At the end of the policy period, there will be an accounting to determine whether the employer has exceeded the aggregate attachment point. If not, the employer may have to refund the payments made. However, in the meantime, aggregate accommodation provides relief to the employer by smoothing out its payments.