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. This situation is becoming increasingly unsustainable causing many employers to consider creative 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 strategy:

What are group insurance captives?

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

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 to participate in a group insurance captive. This eliminates some insurance carrier and state-mandated costs, such as carrier risk charges, state premium taxes, and state mandates.

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 midsize businesses tend to be the best fit for this model. By banding together and sharing resources, employers can fight back against the lack of transparency, flexibility, and control that defines most “off-the-shelf” health plans.

Key Considerations for Adopters:

• 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 level of engagement from employers rather than a fully funded model and may even necessitate the hands-on execution of some plan management duties.

• When an employer is already self-funded, the barrier to entering a captive is very low. For fully insured groups transitioning to self-funding, there are some transitional items that need to be managed before joining a captive. In most cases, the primary burden is making the switch from a traditional carrier to a third-party administrator.

• Participating employers can consider various strategies and policies to reduce costs for their business and employees, including targeted risk management programs such as employee education and engagement initiatives and carving out pharmacy benefits.

Group insurance captives are appealing to 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 looking to get creative to reduce 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 year over year. 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, for 25 additional strategies to reduce healthcare, pharmacy, and workforce rising costs.