What is the purpose of an annual stop-loss limit in health insurance?

The annual stop-loss limit in health insurance serves the purpose of establishing a maximum financial liability for the insurer within a given year. This means that once the insured's eligible out-of-pocket healthcare expenses reach this predetermined limit, the insurance plan covers 100% of the subsequent costs for the remaining plan year.

This mechanism protects both the insured and the insurer: it offers financial security to the insured by capping their out-of-pocket spending and encourages insurers to manage expenses closely since they will not incur losses beyond the defined limit. It plays a crucial role in understanding how health insurance works, particularly how it balances costs between the insurer and the insured.

Other options suggest different intentions that do not reflect the functionality of a stop-loss limit. For instance, while eliminating all out-of-pocket costs may be an attractive prospect for an insured individual, this is not a realistic function of the stop-loss; it simply caps the insured’s financial exposure. Limiting the number of services available to the insured or ensuring indefinite coverage are not primary functions of stop-loss provisions, which are more about managing costs rather than restricting care or ensuring uninterrupted coverage.