Medical Captive Programs – An Alternative to Traditional Insurance

medical captive

Do you ever feel as though your company is trying to find information to understand and manage its escalating medical plan costs while someone covers your eyes and ears? It can feel this way if you don’t have the information you need from your insurance carrier concerning your employees’ utilization or claims. This is a common issue for employers with 100 to 1,000 enrolled employees.
Without access to information, your company cannot:

  • Understand the various cost components of its medical plan.
  • Make impactful changes to plan design.
  • Know the overall health of its employees, identifying areas where they may need help to manage chronic conditions, improve health, and avoid large future claims.
  • Manage escalating prescription drug costs through more efficient/effective vendors who provide rebates based on your company’s utilization.

How does your company get access to this information? Through a self-funding arrangement such as the Leavitt Leverage Medical Captive Program. A medical captive program provides a solution for many mid-size companies that are tired of trying to provide affordable, quality insurance coverage to their employees while the insurance carrier provides no information explaining the often double-digit increases year over year.

What is a medical captive and how does it work?

In a captive arrangement, companies share risk with like-minded employers through an operating agreement with stop loss insurance. This helps to minimize risk by capping the individual company cost as well as the captive’s overall cost. The components of the captive are:

Self-Funded Retained Layer: Employer chooses this maximum and only pays for what employees actually spend.

Shared Captive Layer: All participating employers pay into this layer at a fixed monthly cost based on their individual demographics and risk profile. Any unspent money is returned to the member companies.

Transferred Risk: Stop loss insurance provides protection by paying for claims above the Shared Captive Layer maximum, individual companies’ Self-Funded Retained Layer maximums, and an overall captive maximum.

Because of the stop loss insurance protection, the captive will never require your company to fund above the maximums it has agreed to.

Why do medical captives work and what are the results?

  • Administrative costs are reduced by 5% to 9%, including carrier profit and margin.
  • Premium tax is reduced by 2%.
  • Participant companies participate in wellness programs to improve their own experience and the experience of the captive.
  • Participant companies are not punished for bad claim years – participant companies agree that everyone will have a high claims year.
  • Prescription drug costs are now around 25% to 30% of the claims cost for most companies. The captive arrangement allows companies to choose a vendor that can reduce this cost and pays the rebates to the company, rather than the fully insured carrier retaining rebates.
  • Your company “pays as it goes” – only paying for what your employees actually use in your Self-Insured Retained Layer.

Our experience is that the medical captive arrangement renewal is around 2% to 6%. However, keep in mind that this is on the fixed insurance costs – not the fixed costs and the claims cost like in a fully insured arrangement. In addition, any efforts to promote wellness that reduce costs stay in your company’s bank account – it does not go into the insurance company’s pocket.

The fully insured medical market in the United States continues to shrink, giving your company fewer options. Moving from one fully insured carrier to another every few years does not address the escalating costs – it just provides short-term relief at a great disruption to employees who have to change doctors, interrupt care, and figure out which ID card is for the current plan. It is also an arrangement wherein the insurance carrier can pass on increasing costs to your company every renewal without revealing your claims experience and without a strong motivation to be actively involved in reducing the costs through improving the health of your employees.

The success in controlling your company’s medical costs lies in obtaining access to claims and utilization information, which allows your company to build its own successful, long-term medical plan.

Judy Larson is an employee benefits producer for Leavitt Central Coast Insurance Services with over 25 years of experience. She focuses on selling a variety of benefit products to mid-sized companies and has significant experience in structuring alternate funding solutions for companies who wish to have access to information that can help them customize their benefits programs as well as implement meaningful wellness programs.

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