Employee Health Captives
Employee Health Insurance Captives
Health captives give employers more control over their plan, real access to claims data and a share of the underwriting profit. The five C's explain why so many are making the move.
Start a conversationThe Employer Success ProgramThe five C's of employee health insurance captives
Using a captive for employee health coverage has been around for decades. It has grown fast in recent years as employers try to get out from under rising health insurance premiums. Employers move to captives, group captives in particular, for a lot of reasons. Think of the five C's: Control, Claims, Coverage, Compliance and Cost.
Control
Many employers feel they have no control over their health plan, how employees use it or how claim costs are contained. A health captive lets you take that control back, as the rest of the C's show.
Claims
Unlike a fully insured plan, a captive gives you easy access to your claims data. A traditional insurance company may share some data if you are large enough, but it often comes slowly. In a captive you get your claims information as a matter of course. It is not employee specific, but you can see in general what employees are being treated for or diagnosed with.
That lets you put wellness programs in place aimed at the conditions driving how much the plan is used, and your premium. It is simple risk management. If you see what is causing claims, you put programs in place to reduce their impact, or better yet, to keep them from happening as often or as severely. This is where employee wellness programs make a difference.
Coverage
In a captive you can customize your coverage. You are not tied to one insurance company's network. You can choose the network, or networks, you want from many options, based on locations, providers or the discounts each network offers.
You can also shape coverage to control cost. If too many people are using the emergency room, which is far more expensive, you can raise the emergency room co-pay to steer them elsewhere, even mid-year. If you see too many chiropractic visits, you can set limits. Changes like these have to stay within the regulations and your plan documents, and employees need proper written notice, so work through them with your captive manager or broker.
Compliance
Your captive manager or broker helps keep you compliant with current regulations. How ERISA applies depends on how the program is structured. A single parent health captive is generally treated much like self-insurance for ERISA purposes, and it can involve Department of Labor requirements. A group health captive is often simpler on this front. Your captive manager, broker and benefits counsel should confirm what applies to you.
Cost
A captive has the cost control advantages of self-insurance, and in a group captive there is less regulatory work. There are more cost benefits on top of that.
Cash flow is more predictable. When you self-insure, you pay claims as they come in. If several employees get care in the same month, or one employee has a major health event, you pay those costs up to your stop loss point all at once. One month is small and the next is large. In a group captive, claims are spread over more employers, so you are more likely to see your normal monthly premium payment.
And as with other captives, insurance companies make more profit on the smaller, predictable claims than on the catastrophic ones. In a captive, one employer or a group of employers can self-insure the smaller, predictable claims and use reinsurance, called stop loss coverage in health insurance, for the catastrophic ones. That lets the employers get the potential underwriting profit and investment income back as a dividend.
Health captives compared with other captives
There are two big differences between health captives and captives that write general liability and workers' compensation: the claim runoff period and how losses are funded.
Claim runoff period
Liability claims can take years to be reported or settled, so liability captives carry reserves for claims incurred but not yet reported. In a health captive, claims are paid as services are provided, so there is no long period for reporting, development or settlement.
For example, say you see your doctor on December 28 and the bill arrives February 1. That program year pays the bill. Your follow-up visit on January 2, billed the same February 1, is paid by the new program year. Every treatment, visit and prescription during a program year is paid by that year.
So there is no long wait to see whether a claim will be made or how long a lawsuit will take. A liability captive may take five to seven years to close a program year. Health captives typically have a three to six month runoff period while they wait for bills for services in that year. After that short runoff, a dividend can be declared.
Health insurance loss fund
In a captive that writes workers' compensation and liability, a business's loss fund is usually set at its predicted losses. If its claims run higher than that, it can owe more, up to the point where the excess reinsurance starts to pay.
In a health captive it is common to fund all the way to that maximum. That does two things. Collateral requirements come down, because the captive should already have enough to pay for a worst case. And because reaching that maximum is unlikely, there is often an underwriting profit, so dividends are paid more often.
Why they have caught on
Health captives are often very competitive on upfront premium compared with traditional health insurance. They can return underwriting profit as dividends, and they let you shape the plan to your needs.
One more thing. Many people assume HR will carry a heavier workload, and more worry, running a self-insured or captive plan. With today's technology, the connection between your network and your third party claims administrator will feel more like a traditional insurance company than you expect. Your captive manager or broker should help with administration and the changeover. You will still go through the normal work of changing insurance providers at the start.
Turning Premiums Into Profits
David Leng's book on captive insurance is written for business owners who are tired of the same insurance cycle every year. It explains how a business paying more than $100,000 a year in premium can take on some of its own risk in exchange for the potential rewards, and why captives have become the most widely used way to do that.
Watch: group health captives
Where the Employer Success Program comes in
It starts with a Diagnostic and Plan. We read your loss runs, your mod worksheet and your key contracts, and we talk with the people who run the work. You get the pattern behind your claims and a short list of what's worth fixing first.
From there our claims, HR, safety and fleet people work alongside yours, and you get a Score Card at the start and every year after, measured against your own starting point.
Start with a conversation
Tell me what's going on. I read these myself and reply within two business days. If there's nothing worth fixing, I'll tell you that too.