Massachusetts Health & Accident Insurance Practice Exam

What is the purpose of a Stop-Loss limit?

1. To ensure maximum coverage for chronic conditions

2. To limit the amount of out-of-pocket expenses for the insured

3. To define the total annual premium cost

4. To establish eligibility for new policies

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

The purpose of a Stop-Loss limit is primarily to protect the insured from excessive out-of-pocket expenses by capping the total amount they have to pay for their medical costs in a given year. This feature is particularly important in health insurance, as it provides a financial safeguard against unexpectedly high medical expenses. For instance, once an individual reaches the Stop-Loss limit, the insurance company will cover 100% of any additional medical costs for the remainder of the policy year. This mechanism ensures that while insurance premiums may vary, the financial risk to the individual remains manageable, promoting access to necessary healthcare services without the fear of overwhelming debt. In contrast, the other options focus on different aspects of health insurance, such as chronic condition coverage, premium costs, and policy eligibility, which are not directly related to the Stop-Loss feature.