How to Contain Health Plan Costs with Group Captives

This progressive health plan model can be an excellent cost containment mechanism 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 43% in the decade between 2012 and 2022. Prices in the economy as a whole inflated by about 27% during this same time period, which means that the cost of healthcare has grown 63% faster than other types of goods and services, and also 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 63% faster than inflation and much more rapidly than employee wages or corporate profits. This trend is projected to continue for the next ten years.”

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 disruptive, non-traditional 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.

• 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 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, download OneDigital's Cost Containment Playbook, which has 25 strategies for healthcare, pharmacy, and workforce optimization.