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How to Contain Health Plan Costs with Group Captives

A group captive is a progressive health plan model that can be an excellent way to control costs for employers who are fed up with the status quo.

It’s no secret that runaway healthcare costs are creating an affordability crisis for employers and employees alike. Health insurance premiums increased by a whopping 68% over the last decade. Prices in the economy as a whole inflated by about 30% during this same time period, which means that the cost of healthcare has grown at more than twice the rate of other goods and services, and much faster than employee wages or corporate profits.

The Center for Medicare and Medicaid Services projects that national healthcare spending will increase by an average rate of 5.4% per year for the remainder of this decade, which is almost certainly faster than GDP, inflation, or salaries will grow. This situation is becoming increasingly untenable, and many employers are looking for alternative health plan funding options.

“In the last ten years, healthcare costs have grown more than twice as fast as the general rate of inflation. Costs are projected to continue increasing at a rapid clip for the foreseeable future.”

Group insurance captives are a great option for employers who are fed up with endless premium increases and ballooning benefit budgets. Below, we’ve compiled an FAQ that covers the basics of this funding model:

What are group insurance captives?

A group insurance captive is a strategic healthcare funding arrangement between multiple like-minded employers. Together, these employers can pool risk, leverage economies of scale, and create their own high-performing health plan.

How do captives work?

Captives are a financial strategy that gives participating employers a high degree of transparency, flexibility, and control over health costs and plan design. Member employers cooperate to manage health costs and plan obligations while also sharing in the rewards of increased flexibility, transparency, and autonomy. By participating in this arrangement, member employers can reimagine the value of their health plan and potentially achieve greater price stability than would be possible alone.

How do captives help control costs?

Employers must be self-insured in order to participate in a group insurance captive. This eliminates some insurance carrier and state mandated costs like carrier risk charges, state premium taxes, state mandates, etc.

Also, it is important for member employers to implement value-based plans and networks and/or risk management programs that engage employees, manage risk and reduce costs. Examples include Consumer-Based Health Plans, value-based networks or alternative network options, member advocacy platforms, wellbeing programs and more. These actions generally reduce claim costs, resulting in improved cost and claim trends over time.

When the group captive performs well, participating employers have the potential to collect a proportional share in plan savings in the form of a dividend. With sustained cost reductions and savings, captive members can re-invest these dollars back into their organizations and employees.

Which types of employers are good candidates for a captive?

While almost any self-funded employer could participate in a captive, small to mid-size businesses tend to be the best fit for this model. By banding together and sharing resources, several such employers can fight back against the lack of transparency, flexibility, and control that defines most “off the shelf” health plans.

Key Considerations for Adopters:

  • It is important that those seeking to join a captive have a willingness to collaborate with other like-minded employers on a long-term strategy to create and optimize a shared health plan. This will require a greater level of engagement from participating employers than a fully-funded model and may even necessitate the hands-on execution of some plan management duties.
  • Participating employers should be prepared to consider various cost containment ideas and policies, including the implementation of targeted risk management programs, employee education and engagement initiatives, and decisions such as carving out your pharmacy benefits manager.

Group insurance captives are appealing to so many employers because they give participating members increased levels of control and transparency over their health spending without the full level of financial exposure that comes with a standard self-funded plan. This approach allows participating employers to gain a large amount of flexibility and agency over plan design while sharing risk and responsibility with their captive partners. If your organization is being bled dry by ever-rising premiums and expensive claims, it may be time to seriously consider whether a captive is a good fit for you.

OneDigital’s Captive Solutions have a proven track record of beating market trends, reducing renewal rates, and returning surplus dollars to our clients. You can learn more and connect with our Captive Solutions team here.

To explore other cost containment ideas for your organization, read OneDigital's Cost Containment Playbook, which has 25 strategies for healthcare, pharmacy, and workforce optimization.