In our last article we gave an overview of why a PHSP is an excellent way to provide a benefit plan to you and your employees.

The question it raises is what happens if there is a major medical issue that costs, for argument sake, $100,000. You will recall, with a PHSP benefit plan, one of the most critical structure issues is that there is an annual cap on what can be paid. So on the one hand you control costs, but on the other, if there is what is called a catastrophic medical issue, the PHSP plan will not have the limit to deal with it. A traditional insurance plan would have this built into it.

So if you have a PHSP benefit plan, how do you deal with this? Broadly speaking, you can do one of two things;

• Do nothing and accept the risk, which by the way, is low.
• Obtain what is referred to as stop loss insurance

What is stop loss insurance?

In general, it’s a benefit plan that only comes into effect once a certain dollar threshold of medical expenses is exceeded. The higher the threshold the lower the cost. The rationale being that most medical expenses rarely exceed certain thresholds. In addition, when you buy stop loss insurance you are part of a larger “pool” of employers. The concept being the many pay for the catastrophe’s of the few.

What’s the catch and what criteria do I need to know of?

Sounds like a great idea, right? It is, but what’s the catch? The “pooling” concept. The pooling concept means you must have numbers of people to make it financially viable for the insurer. If you are an employer with over 100 employees, this is a common approach and usually available to them. Larger corporations, or organizations of over 1,000 “lives” or employees have a PSHP structure blended into a stop loss program.

How does the “little” guy get stop loss? There are some national PHSP’s that will go as low as 35 employees and offer stop loss as part of their package. They can do it, because they have their own “pool” of lives covered under an umbrella program. It’s possible they might look at smaller groups than 35, but they are not typically targeting this market.

So where does that leave the vast majority of small businesses? You pay the higher price for a less flexible plan as one alternative. Another option is a stop loss or catastrophic plan that is offered by Manulife. They have an individual stop loss plan that is very affordable and the premiums can be claimed under a PSHP benefit plan. The downside to their plan is that qualification process is rigid and time consuming as they only want healthy people in the program. If you have pre-existing medical conditions there is high probability you will not get approved.  The approval process is similar to obtaining a life insurance policy, ie, it could take months to obtain. Once you obtain it, as long as you keep the premiums current, it’s your own personal policy.

Other alternatives, include buying disability insurance or critical illness insurance. Both are great products and disability in particular is very valuable to have in place.