Stop-loss protection in health insurance serves to

• A. Stop-loss covers only natural catastrophes.
• B. Stop-loss is the cap on the insurer's profit margin.
• C. Stop-loss provides coverage for high-cost claims above a predetermined threshold, protecting the employer or insurer from catastrophic costs.
• D. Stop-loss reduces premiums for all insureds.

Answer: (C)

Stop-loss protection is about limiting the financial risk from very high medical claims. It acts like a safety valve: once an individual claim or the total claims for a plan reach a predetermined threshold, the stop-loss coverage pays to protect the employer or insurer from paying catastrophic costs. This is especially important for self-funded or large-group plans where the plan sponsor bears the actual claims risk. There are two common forms—specific stop-loss covers high-cost individual claims above a set amount, and aggregate stop-loss covers total claims across the policy period—both aiming to cap exposure rather than reduce premiums for everyone or to guard against unrelated events.