Group Captives for Employee Benefits

Matt Noonan, CIC, RHU, CHRS, CCWS
Group Captives for Employee Benefits

A group captive is a strategy that can reduce risk and volatility essentially making self-insurance more feasible.  As health care costs continue to rise, employers are looking for alternative risk financing solutions that can give them more control. Group captives could make the difference.

What’s driving the costs in health care?

  • Demographics
  • Government policy and regulation
  • Social factors and lifestyle
  • General inflation
  • Drug spending
  • Medical technology and innovation

Add to the trend provider megamergers, physician consolidation and the epidemic of preventable diseases.  The four leading causes of death are heart disease, cancer, chronic obstructive pulmonary disorder, and stroke.  Chronic diseases cause all of them.

Group Health Risk Financing Options

Today there are four popular models for group health risk financing.  Each has its own pros and cons.

  • Fully-insured
  • Level-funded
  • Self-insured
  • Captive

The basic structure of a group captive is a symbiotic relationship between the employer, the captive and the insurance carrier.

Each employer has its own Third-Party Administrator to handle its own claims processing, ID cards, and preferred provider contracts and each employer is responsible for covering its smaller more predictable claims.

Each employer then pays into the group captive “pool” to cover medium-sized claims.  If the dollar amount of these pooled claim payouts exceeds the amount that has been put into the pool, the group shares the loss (up to certain thresholds).  Likewise, if the pool payouts are less than the balance in the pool, the group shares the profit.

Each employer pays an insurance company a premium to cover the unpredictable large catastrophic claims.  The insurance company provides protection in cases where an individual’s claims exceeds an annual cap, or the aggregate of all claims exceeds an annual cap.

Since the group captive model provides the employer with transparency of claims and expenses, it quickly becomes clear that the employer/administrator can take action to have an impact on the overall costs.

Health risk management is where we can make a positive impact on our employees and our health care spend over the long-term.  Population health management methods like those listed below should be a requirement for your group captive for the purposes of promoting better outcomes while controlling costs and attracting like-minded members into the group captive.

  • Health Risk Assessments & Biometric Screenings
  • Plan Design
  • Pricing Transparency
  • Financial Incentives
  • Disease Management
  • Telemedicine
  • Onsite Clinics
  • Health Advocacy

Employee benefit group captives give small- to mid-sized employers a way to gain control of the cost of employee benefits.  When employee claims are extensive, your group captive absorbs the shock.  When employee claims are modest, you essentially pocket a portion of the profit that would normally have gone to an insurance carrier.

Entering a benefits group captive is more complicated than simply buying traditional group health insurance.  Membership requires on-going active involvement and should be considered a long-term commitment, however, for the right business it can allow you to take control and strike the right balance between cost and volatility.  The first step is to conduct a risk assessment and captive feasibility study to consider if a benefits group captive is right for you.