What is a contract basis in stop-loss?

What is a contract basis in stop-loss?

• A. A policy feature that sets premiums based on expected claims.
• B. The left side lists incurred claims and the right side lists paid claims (e.g., 15/12 means 15 months incurred, 12 months paid).
• C. A method for calculating refunds to employers.
• D. A ratio of incurred to paid claims expressed over a fixed period.

Answer: (B)

Contract basis in stop-loss shows how losses are measured for reimbursement by the insurer, specifically whether the contract uses incurred losses or paid losses and how they are presented. It’s typically shown as two numbers separated by a slash, where the left side represents incurred claims (including reserves) and the right side represents paid claims (actual payments). This notation indicates the timing and basis used for settlements. For example, a 15/12 basis means 15 months of incurred losses and 12 months of paid losses. This matters because incurred losses reflect what has developed, while paid losses reflect actual cash payments, influencing when and how much the stop-loss carrier reimburses. The other options describe features that aren’t about how the contract basis is defined or displayed.

Contract basis in stop-loss shows how losses are measured for reimbursement by the insurer, specifically whether the contract uses incurred losses or paid losses and how they are presented. It’s typically shown as two numbers separated by a slash, where the left side represents incurred claims (including reserves) and the right side represents paid claims (actual payments). This notation indicates the timing and basis used for settlements. For example, a 15/12 basis means 15 months of incurred losses and 12 months of paid losses. This matters because incurred losses reflect what has developed, while paid losses reflect actual cash payments, influencing when and how much the stop-loss carrier reimburses. The other options describe features that aren’t about how the contract basis is defined or displayed.