Using Group Health Stop Loss Captives to Gain More Control Over Costs

Using Group Health Stop Loss Captives to Gain More Control Over Costs

Using Group Health Stop Loss Captives to Gain More Control Over Costs

Managing healthcare expenses is a top priority for employers, with many organizations over the last several years opting to self-fund their plans. In fact, more than 60% of U.S. workers are now covered by self-funded plans with even more companies planning to self-insure as a result of healthcare reforms under the Affordable Care Act (ACT). This is especially true for midsize companies and smaller employers who in the past had the lack of scale to benefit from self-insurance. Now, they are increasingly turning to the use of captive insurance companies to provide medical stop loss coverage as an alternative between a fully insured product, which caps risk but is increasingly expensive, and fully self-insured protection, which is less expensive but more unpredictable.

How do group health stop loss captives work?

Each employer that participates in a group medical stop-loss captive maintains its own self-funded health benefits separate from other members. Employers can choose their own plan rules, including coverage levels, such as copays and deductibles, as long as they’re in compliance with federal laws governing self-funded employee benefit plans. The participating self-funded employers can also choose their own third-party administrators and provider networks.

These members are connected through the stop-loss program, which is purchased from a medical excess insurer that issues a separate policy to each captive member. The stop-loss policy has a specific deductible applied to each plan participant; and an aggregate attachment point, which applies when the total amount of a single employer’s health benefit plan’s claims reaches a certain level, usually 125% of expected claims. To fund this layer of risk, the stop-loss insurer pays a portion of the stop-loss premium collected by each captive member to the captive. Under this arrangement, the captive is only acting as a reinsurer, and the stop-loss insurer is “fronting” the captive.

Health Risk Management Important

The principal benefit of a captive is to manage and reduce the cost of risk. A captive’s shared risk feature is designed to improve underwriting return and deliver pricing and underwriting stability. With a captive, employers can retain more underwriting and investment income, which in turn helps manage revenue and expenses more efficiently.

Keep in mind, though, that for a group health stop loss captive to be successful, employer members need to focus on strong health risk management, including wellness and disease management, health risk assessments, biometric screenings and care management to keep costs in check. In addition, an employer’s long-term commitment is essential and being selective in the admission criteria is also critical. You don’t want to have employers looking at the captive as another means of purchasing health insurance. Just as with a workers compensation captive solution where rigorous safety, ergonomics, and training programs are in place to manage costs, a group medical stop loss captive requires a robust risk management strategy commitment.

A Good Fit for Employees?

When considering a medical stop loss captive as an option to fund an employee medical benefit plan, an employer has to be focused on expense control, willing to be engaged and communicate with employees about being proactive in lower healthcare costs, and able to assume portion of benefit plan risk. Caitlin Morgan specializes in providing captive solutions and can help you provide alternatives for managing healthcare risks to your insureds. Give us a call at: 877.226.1027.

Sources: Business Insurance, Munich Health North America