What is the function of a stop loss provision in health insurance?

The function of a stop loss provision in health insurance is to limit total out-of-pocket costs for the insured individual. This provision establishes a limit on the amount of money that an individual has to pay for covered healthcare expenses within a specific period, usually a year. Once the insured's expenses reach this predetermined limit, the insurance plan covers 100% of the remaining eligible costs for that period.

This mechanism is crucial for protecting individuals from catastrophic healthcare expenses that could otherwise lead to financial hardship. By capping out-of-pocket spending, it provides peace of mind to policyholders, knowing they will not be financially burdened by excessive healthcare costs beyond a certain point. Hence, it directly addresses the financial risks associated with serious illnesses or costly medical treatments.