Medical captive insurance is helping level the playing field for mid-market employers who, along with their brokers and advisers, pledge a more aggressive stance on cost containment, observes Mike Schroeder, president of Roundstone Management, Ltd.
His firm uses a pooling approach to self-fund employers with as few as 25 employees — a strategy that as many as 98% of larger employers have used for years. The cost savings of its stop-loss group captive is 20% on average, which he says is a double-digit advantage over traditional fixed cost health insurance. Under the medical captive model, which helps mitigate self-funding’s volatility challenge, like-minded employers band together to leverage their purchasing power and secure direct contracts with providers.
There are several types of group captive programs. While a medical stop-loss or workers’ comp captive manages the cost of commercial insurance, for instance, an enterprise risk captive generally addresses uninsured risks or gaps in these programs pertaining to business interruptions. A captive program is essentially layered on top of self-insurance as a cost-containment tool, explains Art Grutt Jr., an insurance agent and managing partner with Cambridge Insurance.
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Known as an “alternative risk transfer” solution in certain industry circles, medical captives are designed to wrest control from “managed care intermediaries that hold employee health data hostage” in fully insured group plans, Schroeder says. His list of chief offenders includes so-called BUCA plans (i.e., Blue Cross Blue Shield, UnitedHealthcare, Cigna and Aetna).
Insurance carriers withhold detailed health claims information often under the guise of concern about violating the Health Insurance Portability and Accountability Act and won’t even share it in aggregate form, he says.
“Employers have a fiduciary responsibility to manage their plans effectively, and they can’t be handcuffed in doing so without appropriate and transparent access to the data,” adds Mike Thompson, president and CEO of the nonprofit National Alliance of Healthcare Purchaser Coalitions, formerly the National Business Coalition on Health.
Samuel Fleet, president and CEO of AmWINS Group Benefits, makes an analogy to help explain this dilemma further: Sports fans have more information about their fantasy football team than business owners have about the health and welfare of their employee population. “And that’s their second-largest expense behind payroll,” he says.
Representatives from America’s Health Insurance Plans, as well as the BUCA acronym, declined to comment for this article or did not respond to repeated interview requests. Truven Health Analytics, an IBM company that helps employers manage their healthcare data, also turned down an opportunity to comment.
Self-funded employers can access “all kinds of claim information,” according to Schroeder. “They know what providers they’re going to or whether there’s a pharmacy spend issue. And they can take corrective action either in the plan’s design or programs for the employees.”
This realization is trickling down market. More than 30% of midsized companies with 100 to 499 employees are now self-funded, which represents a 20% increase in the past year alone, according to the Employee Benefit Research Institute.
“The employer community is really now starting to demand transparency, and so there is a tremendous growth in self-funding in that middle market,” Schroeder observes.
He believes brokers and advisers that have long been accustomed to selling or promoting fully insured, managed care-type group health plans increasingly will turn their attention to self-funding and the nuances associated with a group medical captive. These solutions, he says, offer a consultative opportunity to review quarterly results, as well as implement more meaningful pharmacy strategies or biometric screenings.
“Everybody is talking about advisers becoming consultants and a value partner to their clients,” Schroeder notes. “If they are truly going down that path and getting away from a transactional commodity sale approach to their business, they need to understand where the market’s going.”
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