Human Resources and Benefits

Medical Captive Programs – An Alternative to Traditional Insurance

medical captive

Does it feel as if someone is covering your eyes and ears while your company tries to understand and manage escalating medical plan costs? It can feel this way if you don’t have the information you need from your insurance carrier concerning your employees’ utilization and claims. This is a particularly common issue for employers with 100 to 1,000 enrolled employees.

Without access to the right 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?

A medical captive program provides a solution for many mid-size companies that are trying to provide affordable, quality insurance coverage to their employees but are struggling with unexplained, ever-increasing costs 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 a captive are:

  • Self-Funded Retained Layer: Employer chooses this maximum and only pays for what employees spend.
  • Shared Captive Layer: All participating employers pay into this layer at a fixed monthly cost based on their 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.

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

Click here to download an infographic with a basic illustration of how self-funding works.

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%.
    • Member 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 use in your Self-Insured Retained Layer.

Stop-loss insurance provides protection against unpredictable or catastrophic losses. Stop-loss policies take effect after a certain threshold has been exceeded in claims.

Building a Successful, Long-Term Medical Plan

Our experience is that the medical captive arrangement renewal is around 2% to 6%. Keep in mind, 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 – not 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 escalating costs – it just provides short-term relief with great disruption to employees who must 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.

Moving from one fully insured carrier to another every few years does not address escalating costs – it just provides short-term relief with great disruption to 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.

Is a medical captive right for your organization? Contact your Leavitt Group insurance advisor to learn more.

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.