Why you should consider joining a group medical captive this year

If you are like the millions of business owners across the U.S. that are sick and tired of hearing about rate increases on your group health plan, by all means, keep reading on.

If you have been providing a group health plan to your staff for any amount of time you are likely to be acutely aware of the common struggle that businesses face in today's health insurance market.

• Feeling as though you have limited options
• Little to no control over cost increases at renewal
• Having to help employees with out of pocket expenses
• A choice of lesser evils such as slim networks or high deductibles
• Not having the freedom to design a plan that meets your employees needs

These problems are exacerbated when you are ready to renew your plan and your broker tells you that it might be best to just stay where you are at. Or maybe when you are trying to hire a new executive or leader for your organization and they choose to work for a company with better benefits.

If you are like most employers you spend little to no time throughout the year managing this expense. You may tell yourself that you are "involved in managing this expense" because your broker shops this out for you once a year.

Maybe your only involvement in managing this expense is happening 60 to 90 days before your plan renews. You might be choosing the "less bad" option of "only a 3% increase" or "only a 5% increase" or maybe it's "we actually saw our cost decrease because we chose to implement an HSA".

If this is your current level of involvement in "managing this expense", I assure you, that you are only doing a fraction of what you could be doing to manage this expense.

Maybe you don't have the staff or the capacity to dedicate the time necessary to be proactive in managing this expense. Maybe your current broker has never shared any other strategies to manage this expense with you. Maybe you have not been formally educated on how wide open your options are. Whatever the case may be, I urge you to read on and see if the solution I am sharing today may work for your company.

Enter the group medical captive.

What is a group medical captive?

A group captive is a type of captive insurance company that is owned by multiple entities within the same industry or business sector. The purpose of a group captive is to allow these entities to share risk and pool resources to self-insure their own risks.

Group captives typically have lower costs and greater control over their insurance programs compared to traditional insurance policies. They can also tailor their coverage to their specific needs and risk profiles. In addition, group captives can provide an opportunity for members to earn underwriting profits and investment income.

Membership in a group captive may be limited to companies that meet certain financial and operational criteria, and members typically contribute capital to the captive to fund its operations and cover claims. Group captives are often regulated by state insurance departments and must comply with certain financial and reporting requirements.

When did medical captives become popular?

Group medical captives have become increasingly popular in recent years as a way for employers to control healthcare costs while maintaining high-quality benefits for their employees. While captive insurance has been around for many decades, group medical captives have only gained significant popularity in the last 10-15 years.

The passage of the Affordable Care Act (ACA) in 2010, which brought significant changes to the healthcare industry, including the creation of state-based health insurance exchanges and the individual mandate, led many employers to explore alternative approaches to providing healthcare benefits. Group medical captives emerged as one such alternative, particularly for mid-sized and large employers looking for greater control over their healthcare costs.

Since then, the number of group medical captives has continued to grow, with more employers and brokers exploring the benefits of this approach. Today, group medical captives are offered by a variety of insurance providers, including traditional carriers, third-party administrators, and specialized captive management firms.

Are captives a new thing?

The history of captives goes all the way back to the early 19th century when shippers who had goods on the same maritime voyage would band together in a group captive to share the risk of shipping on said voyage.

In 1953 Frederic M. Reiss founded Steel Insurance Company of America, a captive developed for an Ohio steel company, from which the term "captive" was borrowed from "captive" mines sending ore to the company's mills.

In 1958 Fred Reiss?set up American Risk Management in Bermuda, where the first captives were domiciled.

By the 1960s there were over 100 captives in existence.

By 1980 there are now over 1,250 captives listed in the Captive Insurance Company Directory.

By 1986 33% of Forbes 500 Companies Own Captives.

Today there are over 6,000 captives in existence.

Should you consider joining a group medical captive?

A company should consider joining a group medical captive if they are looking to gain more control over their healthcare costs and benefits, while also potentially achieving cost savings and improved risk management.

Here are some specific factors that may indicate that a company could benefit from joining a group medical captive:

1. High healthcare costs: If a company is struggling with high healthcare costs, joining a group medical captive may be a way to gain greater control over these costs and potentially reduce them through more efficient management and risk sharing.
2. Limited options in the traditional insurance market: If a company is having difficulty finding affordable and comprehensive coverage in the traditional insurance market, joining a group medical captive may provide access to a wider range of coverage options and more flexible benefit designs.
3. Desire for greater customization and control: If a company wants to design healthcare benefits that are tailored to their specific needs and employee population, joining a group medical captive can offer more flexibility and customization of benefit design.
4. Similar risk profile to other employers: If a company shares similar risk profiles with other employers in their industry or business sector, joining a group medical captive can enable them to pool their resources and self-insure their healthcare benefits, potentially achieving cost savings and better risk management.
5. Willingness to take on some risk: Joining a group medical captive requires employers to take on some level of risk, as they are essentially self-insuring their healthcare benefits. If a company is willing to take on this risk and has the financial stability to do so, joining a group medical captive may be a good fit.

It is important for companies to carefully evaluate the benefits and risks of joining a group medical captive, and to work with a trusted advisor who can provide guidance on whether this approach is right for their specific situation.

Who should you talk to about joining a group medical captive?

You should look to speak to an innovative advisor who has relationships with multiple captive arrangements. You can ask them the following questions:

• Is our group a candidate to join a medical captive? The answer will vary depending on your risk pool, your population health and tolerance for risk vs. reward.
• What captives do you work with and how do those captives control the severity and frequency of claims? This answer is key, the cost-containment strategies associated with each captive will be different, you need to find the one that best meets your companies unique situation.
• Can you schedule meetings with the top 3 captives that you would recommend for our group based on what you know about us already? You may want to meet with multiple captives to understand how they manage your risk.

When you are meeting with a captive here is a set of questions to ask:

1. What is the structure and governance of the group medical captive? It is important to understand how the captive is managed, who the key decision-makers are, and how decisions are made. This includes understanding the role of the board of directors, any committees or subgroups, and any external service providers that may be involved.
2. What are the costs and financial requirements for joining the group medical captive? Companies should understand the initial capitalization requirements, ongoing costs, and potential assessments or contributions they may need to make as part of the captive. They should also evaluate the potential cost savings and return on investment they could achieve through joining the captive.
3. What is the captive's claims management process and track record? Companies should understand how claims are processed and paid, what types of claims the captive has experienced in the past, and how the captive has managed any large or catastrophic claims. This can help them evaluate the captive's overall financial stability and risk management capabilities.
4. What types of healthcare benefits are available through the captive, and how customizable are they? Companies should understand the range of benefits and coverage options available through the captive, as well as the degree to which these benefits can be customized to meet their specific needs and preferences. They should also evaluate any restrictions or limitations that may be imposed by the captive.
5. What is the captive's regulatory and compliance status? Companies should ensure that the captive is in compliance with all applicable state and federal regulations, including any requirements related to insurance, taxes, and employee benefits. They should also evaluate the captive's financial strength and rating, and ensure that the captive is adequately capitalized to manage potential risks.
6. What is the captive's track record and reputation? Companies should evaluate the captive's history of operations, financial stability, and overall reputation within the industry. This can include reviewing industry ratings and rankings, speaking with other companies that have joined the captive, and conducting due diligence on the captive's management team and service providers.

By asking these and other key questions, companies can gain a better understanding of the benefits and risks of joining a group medical captive, and determine whether this approach is a good fit for their specific situation.

I hope this article was able to shed some light on a great option that many businesses are relying on today to manage their risk more effectively. If you have any questions about what I covered or you are curious to know more about how the risk is being transferred and shared in a group medical captive, by all means reach out and schedule a meeting with me. Thanks for reading.