What is a 'stop-loss provision'?

A stop-loss provision is a critical feature within health insurance policies that serves as a financial safeguard for insured individuals. It establishes a cap on the total amount of out-of-pocket expenses that a policyholder is required to pay for covered healthcare services within a defined period, typically a year. Once the insured's expenses exceed this limit, the insurance company takes over and covers the remaining costs for covered services.

This provision is particularly important as it protects individuals from excessive financial burdens resulting from high medical expenses. It ensures that no matter how high the costs might be, the insured will not pay out more than a specified amount, providing a degree of financial predictability and security. Understanding stop-loss provisions is essential for policyholders to effectively manage their healthcare costs and plan their finances accordingly.