Healthcare costs continue to rise worldwide, while uncertainties related to recent legislation threaten the amount of control employers can maintain within traditional benefit programs. The global pandemic has complicated matters even more.
The conventional approach for addressing these challenges, such as cutting benefits or passing on cost increases directly to employees is no longer palatable to many. Employers—especially self-insured employers—are left searching for more viable, sustainable, and employee-friendly solutions that will improve risk management and manage costs. Enter medical stop loss captives.
Mid-sized employers are increasingly turning to medical stop loss captives as an alternative cost-containment strategy. Choosing this type of insurance structure, as opposed to buying stop loss from a commercial insurer, adds another layer of risk protection that could potentially lead to significant savings for employers.
A medical stop loss captive is when a group of unaffiliated yet like-minded employers, ranging in size from approximately a hundred to several thousand employees, come together to form their own insurance entity: the captive.
While a captive may include dozens of members, each member maintains its own self-funded benefits program, claims administrator, and its own unique stop-loss policy. Think of it like different classrooms within a school. All classrooms are part of the same school and governed by the same core rules, but each of the classroom teachers has autonomy to create policies and rules for their own class.
Captives give mid-sized employers a way to gain control over their employee benefits by stabilizing insurance costs through risk management, rather than simply assuming it.
Specifically, the captive allows employers to retain manageable layers of predictable risk while transferring more volatile and unpredictable layers to an insurer. When catastrophic claims are large, the group captive serves as a shock absorber. When claims are modest, captive members (employers) essentially pocket a portion of the profit that would normally have gone to an insurance carrier.
Specifically, the group captive structure typically divides the risk into three layers:
Self-funded, mid-sized employers that are interested in sharing the risks and rewards of their benefit liability while actively managing expenses.
In most cases, your employees will have no idea you’ve moved to a captive. Assuming you keep your current TPA, your employees will continue to have the same benefit coverage, plan design features (deductibles, copays, coinsurance, and out-of-pocket maximums), and network of doctors and hospitals.
Organizations of all shapes and sizes are rethinking their approach to employee healthcare risk and costs. In situations where traditional stop loss insurance has become unaffordable, captives are an option worth exploring. Many organizations that have already made the switch are now finding increased predictability, control, and savings in an otherwise unpredictable time.
To learn more about captives and whether they may be right for your organization, please contact LoVasco.
This article is for educational purposes only. The tax and legal references attached herein are designed to provide accurate and authoritative information with regard to the subject matter covered and are provided with the understanding that LoVasco Consulting Group is not engaged in rendering tax or legal services. If tax or legal advice is required, you should consult your accountant or attorney. LoVasco Consulting Group does not replace those advisors.
Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a registered broker dealer and Investment Advisor, member FINRA / SIPC. LoVasco Consulting Group is independently owned and operated.
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