Should Your Organization Consider a Health Insurance Captive?

Health insurance captives give companies the opportunity to reduce costs, receive returns of underwriting profits and enjoy the benefits of being self-insured without as much risk.

What is a health insurance captive? A captive is an independent insurance company created and owned by at least one non-insurance company to assume the employee benefits risks of the captive owner (or owners). Incorporating a captive into a plan strategy allows members to benefit from being owners in an insurance company. Not only do captives provide market leverage, but members are able to increase the predictability of medical costs. For a deeper dive on captives, read: How to Contain Health Plan Costs with a Group Captive.

For most organizations, cost containment is top of mind when tackling benefit planning. Alternative funding options like the captive model provide several advantages that traditional designs may not offer. Here are 3 ways health insurance captives offer more value:

1. More Control of Medical Costs

   Employers want the ability to budget medical spend the way they manage most other expenses. With change being the only constant in the health insurance environment, captives provide a strategy for employers to take better control of their healthcare costs.

2. Receive Returns of Underwriting Profits

   Companies participating in a captive program have the opportunity to benefit from the underwriting profits. With a captive plan, your positive claims experience is rewarded. Conversely, a standard employer reinsurance contract requires premiums paid in and all risk and reward is shifted to the insurance company with no potential upside to the employer.

   The opportunity to receive the underwriting profits can motivate employers to develop strategies that encourage improved health of participants and proactively manage risk.

   Captive owners typically understand that they are, on some level, able to impact the cost of healthcare and often conclude that wellness plans can be an effective method of positively impacting spend.

3. More Protection Than Fully Self-Funded Plans

   Medical costs are too high to make completely self-funded plans a good option for many employers. To minimize risk, many employers choose a partially self-funded health plan which involves adding a reinsurer or stop-loss carrier. The captive provides an extra layer between the self-insured employer and the stop-loss carrier. In a health insurance captive, the high-cost claim risk is spread over all member companies.

A captive health insurance solution is one of many alternative funding options for organizations. For more information on captives and other strategies, read: OneDigital's Cost Containment Playbook.