In this day and age, it’s not unusual for company decision-makers to become furious with insurance carriers for frequent and substantial health benefit plan cost increases. Even more infuriating, carriers are often unwilling to supply any reason for such a rate action by not providing indication about medical claims, high amount claimants, prescription drug usage, and so on. This happens for many companies with 50-to-250 employees.
When companies are willing to implement programs that help employees reach and maintain personal health, it’s time to get creative. Controlling costs is possible when you look for innovative risk management tools. One of those tools is self-insurance, and another tool is a “captive” insurance company. Captives afford an additional layer of risk protection beyond self-insurance. And, for small-to-mid sized employers, captives can be especially useful tools.
If you think moving to a self-insurance captive is right for you, read on for a Q&A that will shed some light on the process of setting up a captive.
What is a group captive and how does it work?
A captive is an independently owned and operated insurance company that provides insurance to, and is controlled by, its owners. A group health insurance captive is owned by multiple owners insuring just one thing – their employee health benefits plans. Because the captive insurance company insures specific risks of health claims, employers find comfort in this approach. There can be any number of employers participating in a group captive.
Typically, a company will self-insure the health and prescription claims and hire a Third Party Administrator (TPA) to administer the payment of claims. This company has access to all the data needed to manage the plan, understand disease states, view prescription usage, and help determine the best ways to improve the health of the company’s employees.
What provider network is used in a captive arrangement?
Third Party Administrators are either owned by a large health insurance company or have contracted with a carrier to use their network of doctors and facilities. Pick the TPA with the best network coverage in your area.
What is the cost to the employer? What about the employee?
There is no more or less cost sharing in a captive than when either fully insured or self-insured. Simply determine the fully-insured “equivalent” rates and share the premium as you would in a fully-insured plan.
What are the protections for the employer from severe high claimants?
Employers pay for all individuals’ claims up to a certain limit, such as $30,000. If an individual claim exceeds that amount, the Captive carrier would step in and pay all claims on that person up to a limit, such as $300,000. Claims above the $300,000 are covered by catastrophic insurance called reinsurance. The most an employer would be liable for is $30,000 per person covered, and the employer pays a premium into the captive for the protection between $30,000 and $300,000.
Is the Captive Premium expensive?
The Captive premium is usually about 20% of what your total fully-insured premium was under your old plan.
How do I go about joining a captive and is there a capital contribution?
You apply for membership in the captive, much like you apply for health coverage as a group. You present your demographic information, claims (if you know), and knowledge about any existing health conditions or existing large claimants – to the best of your knowledge.
If you are accepted in the captive you will be charged a capital contribution which is usually a small amount compared to your total expenditure. And remember, this capital is an investment in an insurance company, not just another expense of the plan.
How are wellbeing programs worked into this type of insurance?
Companies are encouraged to implement whatever wellness or cost mitigation programs they like. At the very least employees will be encouraged to “know their numbers” via biometric testing, should they wish to participate. The usual wellness features of progressive plans can be built into the plan, just as they are on fully-insured plans. If you are self-insuring you will want to have the healthiest population as you can. And since the captive owners (including you) are reviewing the claims data regularly you have another incentive to have a healthy workforce.
What are the benefits to participating in a captive as opposed to traditional health insurance?
For companies that are fed up with ever-increasing health insurance costs, a group captive may be a viable alternative. Captives may help companies control insurance costs, increase flexibility and avoid the annual ritual of fighting with the traditional health insurance companies.
That simple reduction in annual stress is priceless.