What Really Drives Reimbursement in High-Cost Claims

What Really Drives Reimbursement in High-Cost Claims. When an employee experiences a high-cost claim, the immediate priority is always care and recovery. For self-funded employers, however, there’s another story unfolding at the same time. One that can have a significant financial impact.

In part two of our latest Benefits Architecture edition, we’re taking a closer look at stop-loss coverage, because the details in your contract can significantly impact how and when claims are reimbursed.

Inside stop loss: the incurred and paid timeline.

Imagine a claim happens late in the year, in November, for example. The employee receives care, the provider submits the bill, and your plan begins processing — seemingly straightforward on the surface — but with stop-loss contracts, two checkpoints exist: when the claim is “incurred” (when the service happens) and when it is “paid” (when the dollars actually go out). The structure of your contract determines how those two timelines must align.

Stop-loss contracts are often described using two numbers, such as 12/12 or 12/18. The first number refers to the months during which a claim must be incurred, while the second number refers to the months during which that claim must be paid. These structures define the rules your claim must follow and are commonly organized in several ways:

• 12/12 Contract: Claims must be incurred and paid within the same 12-month period. For example, a claim incurred in March must also be paid by December 31 of that same year to be eligible.
• While this type of contract is the least expensive, it can be unforgiving if claims are paid late or if a switch is made from self-funded to fully insured the next year. It is important to discuss terminal liability coverage with your stop-loss carrier in the event of a change like this.
• 12/18 Contract: Claims are incurred during the 12-month plan year but have an extended window to be paid. For example, a claim incurred in December 2026 could still be paid as late as June 2027 and be eligible.
• This added flexibility allows for claims to be processed and move through the system. This is one of the most common and practical structures.
• 18/12 Contract: This structure expands backward, allowing claims incurred before the policy start date to be eligible, as long as they’re paid within the 12-month policy period. For example, if your policy starts January 1, claims incurred as early as July of the previous year may be eligible, but they must be paid by December 31.
• Often used during transitions to a new carrier who wants run-in protection without extending the paid period.
• 24/12 Contract: Broadens the incurred period even further, typically two years of claims, but still requires payment within a fixed 12-month window. For example, claims from the prior year and current year may be eligible, but all must be paid within the same 12-month window.
• This type of contract is common during the second year of a renewal with the same stop-loss carrier.

Across all of these structures, the key consideration is how incurred and paid dates interact with the plan. For example, consider the November claim mentioned earlier: it is incurred during the current plan year, but if the bill is delayed or processed slowly, the actual payment could fall into the following plan year.

That change in timing can directly affect whether the claim is eligible under a given stop-loss arrangement, since eligibility depends not only on when care is received, but also on when the claim is ultimately paid under the contract’s rules.

Managing claims across coverage periods.

That sensitivity to timing becomes even more pronounced when a plan changes, whether that means switching stop-loss carriers or moving away from self-funding altogether. Provisions like run-in and run-out are designed to manage this overlap:

• Run-in applies to claims incurred before the effective date of your stop-loss policy but paid during the policy period. This is especially important when transitioning from one stop-loss carrier to another. Without run-in coverage, claims incurred before your new plan year—even if paid afterward—may not be eligible for reimbursement. An 18/12 or 24/12 are examples of this type of contract.
• Run-out extends protection for claims incurred during the policy period but paid after it ends. This feature is critical when switching carriers or terminating a plan, as claims often take months to process. A 12/18 or 12/24 are examples of this type of contract.

Several other stop-loss provisions influence how claims move through your plan and how costs are managed throughout the year. While they operate in the background, they can significantly influence cash flow, timing, and predictability when high-cost claims happen.

Terminal Liability helps protect you when a stop-loss contract ends, and there is no new policy in place. Without it, claims incurred during the coverage period but submitted or paid after the policy ends may not be reimbursed, leaving a potential gap in coverage. Because providers often submit claims after a policy has terminated, this feature ensures those claims can still be covered for a defined period following termination.

Aggregate Accommodation is designed to complement aggregate stop-loss coverage. While aggregate stop-loss protects against total claims exceeding a set threshold, claims don’t always occur evenly throughout the year. When claims are higher earlier in the policy period, Aggregate Accommodation provides added flexibility, helping you access potential reimbursement sooner rather than waiting until year-end.

Advance Funding: improves cash flow by allowing the stop-loss carrier to pay large claims upfront, rather than reimbursing the employer after payment. This can be especially helpful for employers who prefer not to carry the financial burden of large claims while waiting to be reimbursed.

Help prevent gaps that can be costly to absorb.

One of the most often overlooked aspects of stop-loss coverage is ensuring that the stop-loss policy is fully aligned with the Summary Plan Description (SPD).

Because stop-loss insurance and the SPD are distinct agreements, differences in definitions, exclusions, reimbursement conditions, and administrative requirements can create gaps in coverage between what the plan pays and what the stop-loss carrier will reimburse.

For example, let’s go back to the basics and consider an employee who undergoes emergency surgery for acute appendicitis. Under the SPD, the procedure is covered as medically necessary, and the employer’s plan pays the hospital and surgical claims according to the plan terms.

Often, a third-party administrator will submit the paid claim to the stop-loss carrier for reimbursement on the employer’s behalf. However, stop-loss coverage has its own policy rules. Even if a claim is properly covered and paid under the SPD, reimbursement may be reduced or denied if the claim does not satisfy the stop-loss policy’s conditions.

Therefore, an employer may pay the claim under its plan but could receive only partial or no reimbursement under stop-loss coverage if the plan document and stop-loss policy are not fully aligned, creating unexpected financial exposure.

A trusted benefits specialist can help you strategically design a benefits program that avoids gaps in coverage and ensures your plan works for both your organization and your people.

Protecting your plan.

When a high-cost claim occurs, the focus should be on supporting the employee, not navigating avoidable financial surprises. With the right structure in place, your stop-loss coverage can do exactly what it’s designed to do: provide confidence, stability, and protection when it matters most.

If you’re reviewing your current stop-loss arrangement or planning for an upcoming renewal, now is the time to take a closer look at how your contract is structured. 

Don’t hesitate to reach out to discuss your current benefits design, identify potential gaps, and ensure your coverage is aligned to support both your people and your financial strategy.

Reach out today!

Cost figures, coverage details, and plan design elements presented in this blog are for illustrative purposes only and do not reflect any specific insurance policy or provider. Actual costs will vary based on your organization’s health plan, the insurance carrier, provider contracts, and the specifics of each medical situation. Employers and employees should refer to their official plan documents or speak with their broker or benefits consultant for guidance if needed.