What is stop-loss insurance designed to do?

Stop-loss insurance is a crucial component of health insurance plans, particularly for self-funded employers. Its primary function is to protect the organization from significant or catastrophic expenses that exceed a specified threshold. When an organization opts for stop-loss coverage, it establishes a maximum loss amount that it is willing to absorb. Any costs that surpass this set limit are covered by the stop-loss insurance, effectively capping the organization's financial exposure.

This mechanism allows organizations to manage their risks effectively, ensuring that unexpected high claims do not lead to financial instability. It does not reduce premium costs directly, provide unlimited coverage, or function like a health savings account, which are characteristics associated with other types of insurance or financial products. Therefore, the proper role of stop-loss insurance is best encapsulated in the aspect of capping losses, which aligns perfectly with the provided answer.