By Michael Humphrey, MLHR, Sr. 
Employ­ee Ben­e­fits Advi­sor at The Wil­son Agency
A UBA Part­ner Firm

ContractIn last week’s blog, we explained the dif­fer­ent types of stop-loss insur­ance. This week we will go over anoth­er impor­tant aspect of stop-loss: con­tract peri­ods. Stop-loss con­tract peri­ods are per­haps the most com­pli­cat­ed aspect of under­stand­ing how stop-loss insur­ance works. A con­tract term will define the peri­od when a claim is incurred and when it is paid. Con­tract terms are set up as such because claims incurred with­in a year are often not paid until the next year due to the lag of time between when they are incurred (have the med­ical appoint­ment) and when the paper­work gets sub­mit­ted by the provider’s office. Let’s take a look at the three most com­mon types of contracts:

12/12 – This cov­ers only claims incurred and paid with­in the pol­i­cy year. This type of con­tract is typ­i­cal­ly only used for the ini­tial year of coverage.

12/15 – This cov­ers claims incurred with­in the pol­i­cy year and paid with­in three months after the pol­i­cy year ends. This type of con­tract is often referred to as a “run-out policy.”

15/12 – This cov­ers claims paid with­in the pol­i­cy year that are incurred dur­ing the pol­i­cy year and the three months before the pol­i­cy year begins. This type of con­tract is often referred to as a “run-in policy.”
When nego­ti­at­ing the terms of the con­tract, it is extreme­ly impor­tant to ensure that the con­tract peri­od you have cho­sen will give you ade­quate cov­er­age. If not, you may end up with thou­sands of dol­lars of uncov­ered claims. Be sure to work with your ben­e­fit advi­sor to ensure cov­er­age issues such as these are iden­ti­fied and pre­emp­tive­ly managed.

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