Employee Health Insurance Captive
Discover how captive insurance for employee health coverage offers employers greater control, cost savings, and customization. Learn about the "Five C's" - Control, Claims, Coverage, Compliance, and Cost - and how they benefit businesses seeking alternatives to traditional health insurance plans.
Beyond Traditional Health Insurance: The Rise of Captive Programs
Key Benefits Driving Employers to Embrace This Alternative Approach
Five C’s of Employee Health Insurance Captives
A practice that has existed for decades, the use of a captive for employee health insurance coverages, has exploded in recent years as employers seek to overcome the affects that rising health insurance premiums have had on their bottom lines. Employers have been moving to captives, particularly group captives, for a multitude of reasons, think of the Five C’s: Control, Claims, Coverage, Compliance, and Cost.
Control
Control
Employers have the feeling that they have no control over their health insurance program, how their employees use the health insurance, and how claim costs are contained. The use of a captive for employee health insurance gives an employer the ability to take back control as you will discover as we explore the rest of the C’s.
Claims
Claims
Unlike when you are fully insured, you will have easy access to your claims data. You may be able to receive some data from your traditional insurance company if you are large enough of a client that they are willing to provided it, however they usually do so reluctantly and with delays. In a captive, you will readily receive your claim information. It will not be employee specific, but you will be able to see what employees are being treated for, or diagnosed with, in general. That way, you can establish wellness programs to try and combat areas that may raise your healthcare utilization and therefore your premiums. It is simple risk management; if you see issues that are causing claims, you put programs in place to mitigate the impact of those issues, or better yet, put programs in place to prevent things from occurring, or at least occur less frequently and with less severity. This is where Employee Wellness programs can have an impact.
Unlike when you are fully insured, you will have easy access to your claims data. You may be able to receive some data from your traditional insurance company if you are large enough of a client that they are willing to provided it, however they usually do so reluctantly and with delays. In a captive, you will readily receive your claim information. It will not be employee specific, but you will be able to see what employees are being treated for, or diagnosed with, in general. That way, you can establish wellness programs to try and combat areas that may raise your healthcare utilization and therefore your premiums. It is simple risk management; if you see issues that are causing claims, you put programs in place to mitigate the impact of those issues, or better yet, put programs in place to prevent things from occurring, or at least occur less frequently and with less severity. This is where Employee Wellness programs can have an impact.
Coverage
Coverage
Being part of a captive, you are able to customize your insurance coverage program. You will not be restricted to one specific insurance company’s network, you will able to choose a network, or networks, you want from a multitude of options. This will allow you to choose based on locations, medical providers, or discounts available within a network. You can also customize the coverage to control costs. If you see too many people using emergency room services, which are far more expensive, you can change your employee co-pay in the middle of the program year to a higher co-pay to dissuade them from doing so. If you see too many chiropractic visits, you can set limitations. The ability to restrict coverage to control costs, so long as you are still compliant with regulations, you will be able to do so. You can make these mid-program year changes by simply giving your employees written notice of the change.
Being part of a captive, you are able to customize your insurance coverage program. You will not be restricted to one specific insurance company’s network, you will able to choose a network, or networks, you want from a multitude of options. This will allow you to choose based on locations, medical providers, or discounts available within a network. You can also customize the coverage to control costs. If you see too many people using emergency room services, which are far more expensive, you can change your employee co-pay in the middle of the program year to a higher co-pay to dissuade them from doing so. If you see too many chiropractic visits, you can set limitations. The ability to restrict coverage to control costs, so long as you are still compliant with regulations, you will be able to do so. You can make these mid-program year changes by simply giving your employees written notice of the change.
Compliance
Compliance
Your captive manager, or broker, will make sure you are compliant with current regulations so you do not need worry about this. If you are self-insured, you must undergo Department of Labor exemptions for the ERISA benefits, the same would apply to the use of a single-parent captive. The Department of Labor still views a single-parent captive as being self-insured with regards to ERISA compliance. In both cases, your captive manager or broker, will assist you with compliance. On the other hand, if you are participating with a group health insurance captive, you do not need to file for exemption to meet that ERISA requirements.
Your captive manager, or broker, will make sure you are compliant with current regulations so you do not need worry about this. If you are self-insured, you must undergo Department of Labor exemptions for the ERISA benefits, the same would apply to the use of a single-parent captive. The Department of Labor still views a single-parent captive as being self-insured with regards to ERISA compliance. In both cases, your captive manager or broker, will assist you with compliance. On the other hand, if you are participating with a group health insurance captive, you do not need to file for exemption to meet that ERISA requirements.
Cost
Cost
As you can see, a captive has all the advantages of self-insurance when it comes to cost control, and if you are in a group captive, you have less regulatory compliance to worry about. However, there are additional benefits with a captive. Right out of the gate, a health insurance captive has the benefit of being viewed as a self-insurance program, and therefore exempt from the Affordable Care Act (ACA) Insurer Premium Fee (Tax) assessed to all health insurance companies does not apply. What started out in 2014 as an $8,000,000,000 (yes, that is $8 Billion) ACA assessment fee to all health insurance companies, increases to $13.9 Billion in 2017, and will be indexed upwards from there. This ACA fee is applied to all health insurance companies based on a percentage of their premium written in the entire USA marketplace for traditional health insurance (not self-insured). As everyone knows, this fee is clearly being passed on to employers using their traditional insurance company programs. Second, cash flow is more predictable. In the self-insured world, you must pay your claims as incurred, so if a number of employees seek service in one month, or an employee has a significant healthcare event, you would have to pay for those service costs, up to your stop-loss points, at one time. Therefore, one month may be a small payment and another large. With a group captive, can pay in monthly as the group would most likely be able to spread the claims payments over more employers so all you may have is your normal monthly premium payments. Third, just as we discussed before, insurance companies make more profit from insuring the smaller, predictable and controllable claims than they do from covering the unexpected, catastrophic claims. Using captives, a single employer, or group of employers, can self-insure their smaller, more predictable claims and then utilize reinsurance, also known as Stop Loss Coverage in the health insurance world, to cover the unexpected, catastrophic claims. This allows the employer(s) to receive the potential underwriting and investment income back in the form of a dividend. There two significant differences between health insurance captives and captives that provide general liability and workers’ compensation coverages: the claim runoff period and the funding for losses.
As you can see, a captive has all the advantages of self-insurance when it comes to cost control, and if you are in a group captive, you have less regulatory compliance to worry about. However, there are additional benefits with a captive. Right out of the gate, a health insurance captive has the benefit of being viewed as a self-insurance program, and therefore exempt from the Affordable Care Act (ACA) Insurer Premium Fee (Tax) assessed to all health insurance companies does not apply. What started out in 2014 as an $8,000,000,000 (yes, that is $8 Billion) ACA assessment fee to all health insurance companies, increases to $13.9 Billion in 2017, and will be indexed upwards from there. This ACA fee is applied to all health insurance companies based on a percentage of their premium written in the entire USA marketplace for traditional health insurance (not self-insured). As everyone knows, this fee is clearly being passed on to employers using their traditional insurance company programs. Second, cash flow is more predictable. In the self-insured world, you must pay your claims as incurred, so if a number of employees seek service in one month, or an employee has a significant healthcare event, you would have to pay for those service costs, up to your stop-loss points, at one time. Therefore, one month may be a small payment and another large. With a group captive, can pay in monthly as the group would most likely be able to spread the claims payments over more employers so all you may have is your normal monthly premium payments. Third, just as we discussed before, insurance companies make more profit from insuring the smaller, predictable and controllable claims than they do from covering the unexpected, catastrophic claims. Using captives, a single employer, or group of employers, can self-insure their smaller, more predictable claims and then utilize reinsurance, also known as Stop Loss Coverage in the health insurance world, to cover the unexpected, catastrophic claims. This allows the employer(s) to receive the potential underwriting and investment income back in the form of a dividend. There two significant differences between health insurance captives and captives that provide general liability and workers’ compensation coverages: the claim runoff period and the funding for losses.
Health Insurance Captives vs. Traditional Captives
There two significant differences between health insurance captives and captives that provide general liability and workers’ compensation coverages: the claim runoff period and the funding for losses.
Claim Runoff Period
Claim Runoff Period
The claim runoff period used in healthcare captives is significantly different than those insuring liabilities. We discussed that in when you insure liability claims, that it may take years for them to be reported (remember IBNR) or settled. In the health insurance captive world, the captive is paying the claims as services are incurred, therefore there is no long period needed for claim reporting, development, settlement, or even IBNR.
For example, if you see your doctor on December 28th of 2016, and the bill arrives on February 1st of 2017, the 2016 program year of the captive takes care of the bill. Your follow-up visit on January 2nd that you also received the bill for on February 1st would be paid in the 2017 program year. All treatments, physician visits, prescriptions filled that occurred during a captive program year are paid by that captive year.
As you can quickly see, in health insurance, there is no long timeframe that you have to wait to see if or when a “claim” is made, or how long it will take to settle an issue in court. Therefore, there is no need for a five to seven-year captive program year closure timeframe. Healthcare captive programs typically have a three to six month claim run-off period where they do wait for the bill for services rendered during that program year. After that very short claim run-off period, a dividend will be declared.
Health Insurance Loss Fund
Health Insurance Loss Fund
In a captive that insured things such as workers’ compensation and liability, it is common for the loss fund for a business be set at the predicted loss amount, as we discussed, the Initial Loss Fund. There In these captive, it is also common to have a stipulation that there be an amount that the business may also have to pay should the claims of the individual company exceed a certain amount, the Potential Loss Fund. These two combine to be the total maximum loss funding before the maximum aggregate retention point is reached and the excess reinsurance starts to pay for the claims. The funding for such a captive was outlined in Chapter 2-What is a Captive.
In a Health Insurance Captive, it is common to fund to the maximum aggregate retention. Funding your loss fund in this matter provides two benefits: first, collateral requirements will be reduced as the captive should have enough funds to pay for a worst case scenario; and second, since the likelihood of the aggregate payments that the captive has to pay for its retained claims is very unlikely, this makes it common to have underwriting profit and therefore dividends are frequently paid.
Based on everything outlined here, you can see why health insurance captives have become so popular. They typically are very competitive in terms of the premiums being paid upfront as compared to traditional health insurance, they can return underwriting profit dividends, and can provide the ability to control your plan more to your needs.
In a captive that insured things such as workers’ compensation and liability, it is common for the loss fund for a business be set at the predicted loss amount, as we discussed, the Initial Loss Fund. There In these captive, it is also common to have a stipulation that there be an amount that the business may also have to pay should the claims of the individual company exceed a certain amount, the Potential Loss Fund. These two combine to be the total maximum loss funding before the maximum aggregate retention point is reached and the excess reinsurance starts to pay for the claims. The funding for such a captive was outlined in Chapter 2-What is a Captive.
In a Health Insurance Captive, it is common to fund to the maximum aggregate retention. Funding your loss fund in this matter provides two benefits: first, collateral requirements will be reduced as the captive should have enough funds to pay for a worst case scenario; and second, since the likelihood of the aggregate payments that the captive has to pay for its retained claims is very unlikely, this makes it common to have underwriting profit and therefore dividends are frequently paid.
Based on everything outlined here, you can see why health insurance captives have become so popular. They typically are very competitive in terms of the premiums being paid upfront as compared to traditional health insurance, they can return underwriting profit dividends, and can provide the ability to control your plan more to your needs.
An additional note: There is a perception that your HR department will have an increased burden of work (and anxiety) when it comes to administering a self-insured or captive program. In reality, with today’s technology, the integration between your network(s) and your third-party claims administrator will feel more like a traditional health insurance company than you realize. Plus, your captive manager or broker should be able to assist in the administration and changeover. However, just as with changing any healthcare insurance company, you will still need to go through the process initially of changing "insurance providers."
Turning Premiums Into Profits: How Captive Insurance Can Revolutionize Your Business
This Business Owner's Definitive Guide to Captive Insurance Companies by David Leng addresses the frustration and inefficiency of traditional insurance programs for businesses, proposing alternative risk financing methods, particularly captive insurance, as a solution to reduce costs and build equity. The book explains how businesses paying over $100,000 in annual premiums can benefit from taking on some risk to potentially reap rewards, with captive insurance emerging as a popular and effective strategy to increase profitability and equity.
Captive Insurance Services
Your Single Destination for Captive Solutions
“Selling” you on using insurance captives is not what we want to do, as captives are not for everyone. Only businesses that understand and can benefit from using insurance captives should pursue using captives to finance their risks. Providing the guidance, tools, support, resources and education needed to help achieve success is the focus of the Duncan Financial Group.
In addition to guiding and supporting you through the entire captive process, Duncan provides initial and ongoing workshops and webinars on the types and structures of captive, how they work, how to gauge success, benchmarking results and key performance indicators, understanding captive financials, as well as keeping you abreast of current events that impact the captive insurance world. Having a deep understanding of the captive success factors and challenges you may face is key to improving your captive success.
Captive Discovery Services
Preliminary Feasibility Study
Although reducing insurance costs through the lower cost structures of captives is attractive to business owners, it is important for a business owner to know if a captive is the right option for them. We will perform an analysis of your safety and risk management practices, as well as a claims analysis, to determine if the time is right for you to look at a captive. We can also determine if a group or association insurance captive, or your own single parent captive, makes the most financial sense for you to pursue.
Preliminary Financial Analysis
Entering a captive can be financially advantageous, but there is an initial cost of starting your own captive, or entering a group captive. We will review those costs as well as assess the impact of the collateral requirements on your financial picture. This includes potential impacts on cash flow, loans, or lines of credits. Our accounting and CPA professionals can review your current financials, and financial situation, and help advise you in your decision, and even make recommendations to help structure your financials before submitting for captive review.
Preparation of Captive Submission
Qualifying for a captive and establishing your premiums and reinsurance costs requires a much more extensive compilation of data about your business, your operational and claims history, and financial picture. We will walk you through this process and help gather all of the required data; we will then compile it into formats that the captive managers will want so that they can analyze your submission to join their captive.
Captive Manager/Program Selection
With over 7,000 captives, over 1,000 captive managers, and hundreds of group captives, finding or creating the right captive program and choosing the right captive manager is important for both the protection and financial success of your business and your captive. In addition to our own captive domiciled facility and captive manager, we have access to dozens of captive programs and managers that can best meet your needs.
Consultation on Captive Ownership
Understanding who should own your captive can impact who has the financial responsibility and benefit of the captive, such as receiving dividends from the captive and their taxable impact. Understanding your goals, whether business, individual, or even your estate, will need to be considered when determining who should own your captive or captive shares. Our captive experts, and accounting and CPA professionals can advise you as you make this important decision.
Although reducing insurance costs through the lower cost structures of captives is attractive to business owners, it is important for a business owner to know if a captive is the right option for them. We will perform an analysis of your safety and risk management practices, as well as a claims analysis, to determine if the time is right for you to look at a captive. We can also determine if a group or association insurance captive, or your own single parent captive, makes the most financial sense for you to pursue.
Preliminary Financial Analysis
Entering a captive can be financially advantageous, but there is an initial cost of starting your own captive, or entering a group captive. We will review those costs as well as assess the impact of the collateral requirements on your financial picture. This includes potential impacts on cash flow, loans, or lines of credits. Our accounting and CPA professionals can review your current financials, and financial situation, and help advise you in your decision, and even make recommendations to help structure your financials before submitting for captive review.
Preparation of Captive Submission
Qualifying for a captive and establishing your premiums and reinsurance costs requires a much more extensive compilation of data about your business, your operational and claims history, and financial picture. We will walk you through this process and help gather all of the required data; we will then compile it into formats that the captive managers will want so that they can analyze your submission to join their captive.
Captive Manager/Program Selection
With over 7,000 captives, over 1,000 captive managers, and hundreds of group captives, finding or creating the right captive program and choosing the right captive manager is important for both the protection and financial success of your business and your captive. In addition to our own captive domiciled facility and captive manager, we have access to dozens of captive programs and managers that can best meet your needs.
Consultation on Captive Ownership
Understanding who should own your captive can impact who has the financial responsibility and benefit of the captive, such as receiving dividends from the captive and their taxable impact. Understanding your goals, whether business, individual, or even your estate, will need to be considered when determining who should own your captive or captive shares. Our captive experts, and accounting and CPA professionals can advise you as you make this important decision.
Improving Captive Performance
Claims Advocacy
Ultimately, your claims will determine the success of your captive performance. Helping to minimize the cost of your claims will be crucial to reducing how much is paid out and increasing the profitability of your program. Our deep team of over a dozen seasoned claims professionals will be your advocate and work to make sure any claim is managed, settled, or even denied, in your best interest.
Safety & Risk Management
You already have a significant focus on safety and quality, otherwise you would probably not be interested in insurance captives. However, identifying risks in your business, and determining the best ways to reduce or eliminate those risks will help achieve greater captive success. Our team of over a dozen Certified Safety Professionals, Certified Risk Managers, and Certified WorkComp Advisors can help your team build and implement custom risk management programs to reduce your total cost of risk and improve your captive profitability.
Human Resources
The success of any business starts with its employees. Hiring, managing, training, and retaining the best employees are obviously critical. Our deep team of human resource specialists, including a human resources attorney, is there to support your team so they have the right information, make the right decisions, and implement the best programs.
Benchmarking Captive Performance
Just because you are in a captive, does not mean that you do not need to worry about how things are going, how things are performing. Assessing how well your captive is performing, especially in a group or association captive is critical. We will work with you to assess how well your captive cost structure is performing against the traditional marketplace, help you to understand and determine if there other members of your captive that are overly negatively affecting your results, and if the captive cost structure is appropriate.
Benchmarking Your Business’ Performance
As the cost of your captive insurance program is directly affective by your claim costs, it is important to manage your captive, not by the end results (your claims) but by a complete matrix of criteria that are leading indicators of potential problems that could lead to claims. Criteria such as injury frequency, near misses, rejected product counts, turnover, peer observation reports, and out of service vehicles, are just a few of the leading indicators with point to potential larger issues. Our deep risk management and safety professionals will help you to build the matrix of criteria to benchmark yourself against, as well as structure the means to test and measure them.
Ultimately, your claims will determine the success of your captive performance. Helping to minimize the cost of your claims will be crucial to reducing how much is paid out and increasing the profitability of your program. Our deep team of over a dozen seasoned claims professionals will be your advocate and work to make sure any claim is managed, settled, or even denied, in your best interest.
Safety & Risk Management
You already have a significant focus on safety and quality, otherwise you would probably not be interested in insurance captives. However, identifying risks in your business, and determining the best ways to reduce or eliminate those risks will help achieve greater captive success. Our team of over a dozen Certified Safety Professionals, Certified Risk Managers, and Certified WorkComp Advisors can help your team build and implement custom risk management programs to reduce your total cost of risk and improve your captive profitability.
Human Resources
The success of any business starts with its employees. Hiring, managing, training, and retaining the best employees are obviously critical. Our deep team of human resource specialists, including a human resources attorney, is there to support your team so they have the right information, make the right decisions, and implement the best programs.
Benchmarking Captive Performance
Just because you are in a captive, does not mean that you do not need to worry about how things are going, how things are performing. Assessing how well your captive is performing, especially in a group or association captive is critical. We will work with you to assess how well your captive cost structure is performing against the traditional marketplace, help you to understand and determine if there other members of your captive that are overly negatively affecting your results, and if the captive cost structure is appropriate.
Benchmarking Your Business’ Performance
As the cost of your captive insurance program is directly affective by your claim costs, it is important to manage your captive, not by the end results (your claims) but by a complete matrix of criteria that are leading indicators of potential problems that could lead to claims. Criteria such as injury frequency, near misses, rejected product counts, turnover, peer observation reports, and out of service vehicles, are just a few of the leading indicators with point to potential larger issues. Our deep risk management and safety professionals will help you to build the matrix of criteria to benchmark yourself against, as well as structure the means to test and measure them.
Additional Captive Services
Insurance Program Design
Even with insurance captives, you buy insurance to pay your unexpected claims. Since it’s common for business owners to mix business assets, property, vehicles and investments with personal ones, oversights often occur under traditional insurance arrangements. In addition to our Risk Assessment helping you to become a safer, more productive and profitable company, the assessment provides us with unique insight into your operations, and both your business and personal world. Through our Coverage Analysis, we will make sure that your business and personal insurance protection meets your needs.
Captive Audits
If you are already in a single parent captive, or group or association captive, we can perform a deep analysis of your captive and your overall safety performance. Using benchmarks, we can help you determine if the captive is actually benefiting you or not, and if there are other factors that need to be addressed to help you to improve your insurance captive performance.
Even with insurance captives, you buy insurance to pay your unexpected claims. Since it’s common for business owners to mix business assets, property, vehicles and investments with personal ones, oversights often occur under traditional insurance arrangements. In addition to our Risk Assessment helping you to become a safer, more productive and profitable company, the assessment provides us with unique insight into your operations, and both your business and personal world. Through our Coverage Analysis, we will make sure that your business and personal insurance protection meets your needs.
Captive Audits
If you are already in a single parent captive, or group or association captive, we can perform a deep analysis of your captive and your overall safety performance. Using benchmarks, we can help you determine if the captive is actually benefiting you or not, and if there are other factors that need to be addressed to help you to improve your insurance captive performance.
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