How Employers Can Maximize the Value of Their Employee Benefits Captive

July 11, 2024

Employee benefits captives are rising in popularity as an alternative solution to fully insured employee benefits plans.

These innovative solutions allow like-minded employers with 100 to 500 employees to form and manage their own insurance entity. Rather than paying premiums to an insurance company, the employers contribute to a shared pool for reinsurance (stop-loss coverage). As members of a captive, employers retain the profits when claims are low and share the financial impact when claims experience is higher than predicted. However, since the stop-loss premiums are based on the claims experience of a pool of employers, rather than a single employer, organizations in captives may benefit from better stop-loss pricing and are not likely to experience the drastic stop-loss premium volatility that can occur when self-insuring on their own.

An additional benefit of captives is increased control and access to data. Members retain control of their claims data and maintain better visibility into how participants are utilizing the plan. This data is extremely beneficial and can be used to tailor the plan in ways that help participants and the overall organization.

Identifying Captives With the Most Value
Employee benefits captives are beneficial for a wide range of organizations looking to lower their overall costs while regaining control of their plans. There are multiple structures to choose from. However, not all captives are created equal. When seeking a captive, it is important to ensure it offers the following additional advantages:

1. Limited volatility from large claims and high-cost years: In a stop-loss captive, employers should ensure they can set their stop-loss attachment point based on their preferred level of risk. The right captives will allow employers to secure lower stop-loss attachment points than they could in the marketplace and at more competitive rates. In doing so, these employers won’t have to worry about the additional risk from high claims year after year.

2. Enhanced control of spending through data transparency and access to larger data pools: Captives should provide their members with access to data around how participants are using the health plans. With access to this data, employers can apply predictive modeling to make informed adjustments to
the plan. They can also identify gaps in care and better direct participants to services that will keep them healthy and minimize long-term costs.

3. Access to pharmacy coalitions & rebates: Employers should ensure their captive also comes with access to pharmacy coalitions and rebates that can provide powerful savings in this area of healthcare that’s notorious for driving up overall costs.

4. Population health support: With population health support, employers can design their health benefits plans based on the needs of their population. By using data and analyzing trends, employers can tailor their benefits plans to provide improved access to needed services and better direct care to prevent costly claims down the line.

5. Catastrophic claims screening technology: As medicine continues to advance, large claims are becoming more frequent and self-funded employers must ensure these claims are being handled properly. Employers should make sure their captive provides access to new technologies that are able to closely examine large and catastrophic claims. Once identified, this technology can automatically ensure these claims are being properly managed by the complex healthcare system, adjudicated pursuant to the plan of benefits and paid properly.

6. Risk management expertise and best practices sharing: When like-minded employers band together in a captive, it becomes mutually beneficial for all members to share risk management expertise and best practices to keep total healthcare costs down for the group. Employers should make sure their captive offers member and consultant meetings where professionals can come together and learn from one another to improve safety and risk management expertise.

Reap the Return on Your Investment
Captives are well suited for organizations that invest in the health and well-being of their employees. By creating a healthier, happier workforce, captive members can reap the financial benefits produced by lowering their claims instead of passing them along to insurance carriers.

As healthcare costs continue to rise, captives remain an attractive option for a wide range of employers. But these organizations need to ensure they choose the best captive for their business. Joining a captive is best accomplished with the help and guidance of an insurance broker that’s deeply experienced in these innovative solutions. At Conner Strong & Buckelew, we offer our employee benefit captive clients expert guidance from our years of experience assisting clients joining captives and maximizing value. When we don’t have the expertise necessary to solve a problem, we’re known for forming partnerships with the best in the industry to provide it. We believe in captives so much that we’ve joined our own, called CREO.

If you think an employee benefit captive might be right for your organization, or just want to learn more, contact us today to ensure you maximize the value for your organization and employees.

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Employee Benefits

Raymond O. Burke
Partner, Chief Health Insurance Fund Underwriter & Captive Manager