What does a ‘stop-loss’ provision in a health insurance policy accomplish?

A ‘stop-loss’ provision in a health insurance policy is designed to protect the insured from excessive medical costs by capping their total out-of-pocket expenses for covered services within a policy year. Once this limit is reached, the insurance company will cover 100% of the eligible medical costs for the rest of the policy period. This mechanism provides financial security and peace of mind, as it ensures that individuals will not face overwhelming expenses that could lead to significant financial hardship.

In contrast, the other options presented do not accurately describe the purpose of a stop-loss provision. Eliminating all medical costs is unrealistic, as health insurance is intended to share the financial burden rather than remove costs entirely. Significantly increasing premiums would likely deter consumers rather than serve as a risk management tool. Lastly, coverage for pre-existing conditions pertains to a separate aspect of health insurance, which revolves around the inclusion of medical issues present before the initiation of the policy, rather than cost containment through a stop-loss provision.