Health Insurance Mastery Practice Exam

What is generally considered the purpose of a stop loss provision in health insurance?

1. To limit out-of-pocket expenses for the insured

2. To increase premiums for high-risk individuals

3. To manage the insurer's financial risk

4. To cover non-essential treatments

The correct answer is: To limit out-of-pocket expenses for the insured

The stop loss provision in health insurance is primarily designed to limit the out-of-pocket expenses for the insured. This provision sets a maximum amount that an individual has to pay out of pocket within a policy period. Once the insured’s expenses reach this limit, the insurance company will cover 100% of the remaining eligible medical costs for the rest of the policy term. This mechanism provides financial protection and peace of mind to policyholders, ensuring that they are not overwhelmed by potentially catastrophic expenses. While the purpose of a stop loss provision indirectly benefits the insurer by managing their exposure to excessively high claims, its primary function is to safeguard the insured from significant financial burdens. It is important to note that increasing premiums for high-risk individuals and covering non-essential treatments are not related to the purpose of stop loss provisions. The focus here is on ensuring that individuals can receive necessary medical care without facing financial ruin, making this aspect of insurance particularly valuable for policyholders.