In many of my blog posts, I tend to speak against the status quo when it comes to how employers manage the costs associated with their employee healthcare programs. My definition of the status quo is when employers wait for that annual, fully-insured, medical renewal; hoping and praying for a good result without much proactive plan management. Oftentimes, the desired result does not materialize, and thus begins the mad scramble to get a better result through RFPs and employee cost shift, neither of which is a long-term solution for the cost problem. The market has evolved dramatically in recent years, due in large part to the Affordable Care Act (ACA) and other market forces. There are countless new and innovative programs to assist employers in taking charge of their employee benefit risk and in providing good healthcare benefits for their employees.
A great example is a group healthcare captive. A captive is not a new concept and have been in play for large employers and in the property-casualty industry for years; however, they are relatively new to smaller employers and the healthcare industry. Simply put, a captive is an insurance company created to insure the risk of its owner(s).
In a recent article, a group of employers who formed a captive with 2,500 employees, touted average annual medical increases of 2.0% from 2010-20151. Most employers would agree that a 2.0% increase is within normal inflation parameters and acceptable budget standards.
So, how did this group of employers achieve great results? Well, it’s not just about the captive. What the collective group does within the captive is also important in driving results. How are they financing the risk? How are they controlling the claim costs? How are they engaging their members? Let’s break it down to see how group captives can be an effective way for employers to stabilize and keep their healthcare costs down.
Finance The Risk
The captive serves as the means to finance the potential risk. The diagram below shows how it works. Each employer within the captive must be self-insured, retaining a certain level of their own claims. The employer must also purchase a stop loss policy to insure against catastrophic claims per person and in the aggregate. Lastly, the employer must join or establish a captive, which is the layer of risk between what the individual employer retains and cedes to the stop loss carrier. Each employer within the captive contributes to and shares the claim risk in the middle, or captive, layer.
The collective group of employers within the captive also takes charge of controlling its own claims by putting specific programs in place such as value-based pricing, narrow networks, focused case and disease management, centers of excellence (COE), and many others.
The final piece in the captive equation is to engage members through plan designs such as consumer driven and value-based health plans; health and wellbeing programs; financial incentives; concierge services and other member-centric programs.
My call to action is for employers of all sizes is to break the shackles of the status quo and consider more progressive programs to manage employee healthcare costs. Healthcare costs are generally one of the top three costs of doing business for employers. A group healthcare captive is a great strategy to stabilize these costs over the long-term. Contact your OneDigital advisor for more information about the benefits of joining a captive.
- Benefits Magazine, Group Captives: Are They Right For You?, March 2017.