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Refreshing Insights

As healthcare costs continue to climb year after year, insurance premiums rise with them and employers of all sizes search for ways to provide employee health benefits that won’t break the bank.

It can be a tremendous challenge to find lower-cost solutions that offer employees high-quality care that meets their specific needs. While there are many excellent fully funded plans to choose from, a traditional one-size-fits-all design can limit your ability to customize options. As a result, flexibility in benefit choices is often sacrificed for lower fees.

To address this issue, some employers are turning to self-funded insurance plans that offer greater control over healthcare costs.

In a self-funded plan, you (the employer) assume financial risk for employees’ healthcare premiums and the money that would normally be paid to the insurance carrier is instead placed into a special fund earmarked for paying healthcare claims. Companies offset this financial risk by purchasing stop-loss coverage to protect themselves from the financial liability of catastrophic claims.

While it usually ends up saving you money over time, the most immediate advantages of self-funding are expanded healthcare choices, greater flexibility in plan design and increased transparency into costs.

Despite its many benefits, however, self-funding isn’t the right fit for every employer and small and midsized businesses especially may be apprehensive about taking on the financial risk alone. If you have been leaning toward self-funded options but you think you might feel more comfortable taking the leap with a team, consider an employee benefit group captive.

What is an Employee Benefit Group Captive?

In the past, self-funded insurance plans were most popular with larger employers because they had a greater employee population to help mitigate risk and absorb unexpected large claims.

In essence, a group captive similarly reduces risk by allowing multiple self-funded small and midsized employers to form a coalition and pool their funds to pay for stop-loss insurance. The pool is managed by a third-party firm on behalf of the group.

There are many variations in group captive structures and each program is unique to its members. You will want to work with a broker to understand all the options available, but here is a simplified example to show how a captive typically works.

How an Employee Benefits Captive Works
Individual Employer Responsibilities

Like any self-funded plan, each employer still puts premium dollars (that would normally be paid to the insurance carrier) into a special fund for paying healthcare claims—each employer is responsible for covering its own smaller and more predictable claims.

Individual employers also must hire their own third-party administrators (TPA) to handle claims processing, ID cards and preferred provider contracts.

Group Captive Responsibilities

In addition to individual responsibilities, each employer pays premiums into the group captive pool to purchase multi-layer stop-loss insurance.

In the event a member employer has claims that exceed the specific deductible, the captive layer serves as stop-loss coverage and claims are reimbursed through this pool. Most captives also purchase additional reinsurance to ensure stability for the captive group members in the event the claims are massively catastrophic.

Essentially, the group captive gives you buying power and better protects you from the liability of catastrophic claims. Employers are still assuming some financial risk when purchasing stop-loss through a captive, but with a group captive, you aren’t going at it alone.

Additional Benefits

Many employee benefit group captives also aid in rate stabilization. For example, some captives offer a perpetual “no new laser” contract with a rate cap as low as 30 percent.

Lasering is a tactic where stop-loss carriers target (or laser) employees who have or are expected to have large claims due to severe illnesses or chronic conditions. These members have a higher specific deductible, which puts a greater financial responsibility back on you (the employer).

Finally, while self-funding in general gives you greater transparency into the allocation of funds, group members also benefit from a shared (and larger) data set to measure the impact and effectiveness of risk management efforts, not to mention the ability to share ideas and best practices among the group.

Self-funding isn’t just for industry giants, but it isn’t for everyone, either. Talk to one of our trusted strategic risk advisors and see if self-funding is right for you.

What’s This I Hear About Self-Funding Lowering My Pharmacy Costs?

It’s true! If you are self-funded, you have the option to choose your Pharmacy Benefits Manager (PBM) and negotiate a contract with the lowest possible drug costs and rebates that are passed through to you!

Learn more about our exclusive partnership with Costco and put more money back in your pocket.

Save on Prescription Drug Benefits with Costco

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A collection of articles from the McClone team with the helpful knowledge and insights to ensure your organization is well protected.