Healthcare your way
As the costs associated with providing healthcare coverage continue to rise, businesses are looking to improve risk management and reduce expenses. Historically, to accomplish this, management has increased employee contributions, cut benefits, or worse, a combination of both. However, it is possible to utilize customized risk transfer methods to improve the financial management of an employer-sponsored health plan.
Self-insurance has been an effective alternative for employers to provide healthcare benefits to employees for more than three decades. With our strategic partners, we have crafted a type of self-funding arrangement that coordinates plan design, claim processing, risk protection, and data reporting in a single source turn-key package, providing the advantages of self-funding with the safety of a budgeted maximum cost.
A captive can provide an effective means of funding self-insured risks, lowering the cost of certain types of insurance, and maintaining greater control of the risk management process, while providing long-term stabilized pricing that can issue customized policy manuscripts – independent of the insurance industry’s market cycles, where the uncertainty of a bona fide claim being honored is minimized.
Stabilize costs over multiple plan years for predictable budgeting
Share risk management best practices for medical plans
Control and manage benefit exposure and claims data
Stop-loss insurance is indemnification for the unexpected liabilities health benefit plans may incur. Specific, or individual, stop-loss is designed to exchange the uncertainty of the cost and frequency of high-dollar claims incurred by covered individuals, for the certainty of a known premium cost. Aggregate stop loss is designed to exchange the unexpected volatility in overall claims cost for a known premium cost. Aggregate stop loss insurance is more often purchased for smaller plans that, due to their size, have less credible claims experience and, thus, less predictability.
Self-funding is an effective approach employers use to significantly reduce health benefit costs and maintain control over reserves without sacrificing coverage. In addition to avoiding the excessive overhead costs frequently associated with fully-insured plans, employers also receive some tax benefits from self-funding.
What makes a stop-loss captive different?
The Affordable Care Act sets different coverage standards for insured small group health insurance than for self-insured plans. Specifically, insured plans are required to cover 10 “essential health benefits,” the details of which are set by each state based on so-called “benchmark plans” sold via public exchanges.
Self-insured plans, in contrast, need to satisfy only the PPACA’s affordability and minimum value tests. This opens more leeway in deciding the value level of basic plan components such as hospitalization and pharmacy benefits.
- Avoid community rating
- Avoid PPACA/ premium taxes
- Take control of employee benefits financing
- Group purchasing strength for services
- Reduced claims volatility through captive layer
- Best practices for health risk management
- Purchase less commercial stop-loss
- Opportunity to share in underwriting profits
How does it work?
Employers who participate in the CapCare program join a group captive – CapCare Re. The group captive reinsures, or assumes, risk from each stop-loss policy. Since the group captive reinsures the risk of multiple policies, the risk assumed by the group captive is a larger and more diverse risk, and therefore, more predictable. Reinsuring the working layer of risk from multiple stop-loss policies to a group captive is intended to replicate the experience of a larger single employer. In this way, the CapCare program affords employers the opportunity to reduce the volatility and costs associated with providing health benefits to their employees.
The CapCare program allows open architecture for the employer in designing coverage to best fit their needs. CapCare provides a separate stop-loss policy issued to each employer by a highly rated insurance company, a reinsurance agreement between the rated carrier and a group captive, and an agreement between a group captive and each of the employers that elect to participate in the CapCare program.
- Employee deductible is not affected by this program
- Employer carves-out a specific stop-loss and self-insures in a captive
- Excess is insured by commercial insurance carrier arranged by a third-party administrator
- A captive can be established for each employer, each class of employee, or employer industry
As a policyholder, each employer makes an initial capital contribution to CapCare Re as a percentage of their stop-loss premium, which is refundable if they do not renew or the policy is cancelled. In addition, the stop loss carriers will require participating employers to post collateral, in cash or letter of credit, which will be deposited into a Regulation 114 Trust. The collateral is required by the stop-loss carriers should the losses for the overall group captive be worse than expected. The amount of collateral will vary for each individual employer, but it is typically 10% to 20% of each employer’s comparable fully insured premium.
Based on CapCare Re’s claims experience, the policyholders may be eligible to participate in a portion of any excess surplus based on the profitability of CapCare Re, each participant’s experience, and regulatory approval. Management does not foresee any participation in excess surplus for a minimum of three years. Such distribution shall be at the sole discretion of the board of directors.