Contract Types

Every stop loss contract is built around two timing elements:

Incurred Date

The date the medical service is provided.

Example:

• Surgery performed on March 15 → Claim incurred March 15.

Paid Date

The date the employer (or TPA on behalf of the employer) actually pays the claim.

Example:

• Surgery billed April 1
• Processed May 1
• Paid May 15 → Claim paid May 15.

A stop loss contract defines:

• The window in which a claim must be incurred
• The window in which it must be paid

Both conditions must be satisfied for reimbursement eligibility.

Run-In Contract:

Covers claims:

• Incurred before the policy effective date
• Paid during the current policy year

Example:

Policy starts January 1, 2026. Run-in covers claims incurred in late 2025 and all of 2026 but paid in 2026.

Run-Out Contract:

Covers claims:

• Incurred during the policy period
• Paid after the policy ends

Example:

Policy starts January 1, 2026. Run-out covers claims incurred all of 2026 but paid in 2027.

Without run-out, the employer may remain liable for unpaid large claims after termination.

12/12 = 12 months incurred / 12 months paid

Claims must:

• Be incurred during the 12-month policy period
• Be paid during that same 12-month period

Example:

Policy Year: January 1 – December 31, 2026

Eligible claims:

• Incurred between 1/1/2026 – 12/31/2026
• Paid by 12/31/2026

If a December 20 surgery is not paid until January 2027, it is not covered under a 12/12 contract.

Risk Implication: 

This is the most restrictive contract and often the lowest cost — but it creates run-out exposure.

24/12 = 24 months incurred / 12 months paid

For a claim to be eligible:

• It must be incurred during a 24-month window
• It must be paid during a 12-month policy period

This structure expands the incurred period backward to capture prior-year claims, while keeping a standard 12-month paid window.

It is standard practice to follow a 12/12 contract with a 24/12 contract to ensure no gaps in coverage.

12/18 = 12 months incurred / 18 months paid

For a claim to be eligible:

• It must be incurred during the 12-month policy year
• It must be paid within 18 months from the start of the policy

This gives the employer an extra 6 months of run-out beyond the end of the plan year.

This is a common alternative to the 12/12 --> 24/12 approach. With a 12/18 contract, an employer group can continually re-elect 12/18 contracts. The downside is that typically carriers do not like writing run-out contracts.

Claims must:

• Be paid during the policy period
• Incurred date is unrestricted

Example:

Policy year January 1 – December 31, 2026. Any claim paid during 2026 may be eligible, depending on policy wording. Paid contracts shift emphasis to cash flow timing rather than service date.

Claims must:

• Be incurred during the policy period
• Paid date is unrestricted

Example:

Policy year January 1 – December 31, 2026. Any claim incurred during 2026 may be eligible, depending on policy wording.