In the pursuit of quality coverage, small employers have begun switching to a self-funded model of healthcare by joining together with similar businesses through stop-loss captives. This practice provides insurance protection to employers self-insuring medical benefits to mitigate the risk of large claims or unanticipated claims fluctuation.
Sun Life Financial, recognizing this growing trend in the healthcare market, has partnered with stop loss captive services company Pareto to reduce claims volatility for small- and medium self-funded employers or fully-insured employers transitioning to self-funding.
“Captives allow employers to pool together to share a portion of their self-funded risk, reducing claims volatility and making them a viable option for small and medium employers looking to self-fund their medical benefits,” says Brad Nieland, vice president of stop loss at Sun Life Financial. “The partnership will draw on Pareto Captive’s expertise in the client education, formation and ongoing management of group stop-loss captives, and the strength of Sun Life’s stop-loss products and services.”
Dan O’Halloran, president of The O’Halloran Group in Yarmouth, Maine, as well as one of Pareto’s broker partners, has worked in the self-funded market for 37 years and says these programs will continue to grow in popularity among small businesses at least as long as the ACA currently stands in its current form.
“Historically, large employers — with 1,000 lives or more — have been self-funded because being self-funded improves the health of your population and helps identify risks in your population using data analytics,” O’Halloran says. “The captive gives all of these small employers all of the benefits of self-funding without the risk of volatility.”
At least four out of 10 fully insured employers consider switching to self-funding and, of those, 70% consider using a captive program when switching, according to research by Sun Life Financial. The study also shows that eight out of 10 brokers expect at least one of their clients to utilize a captive in the future.
Failure of the fully-insured market
Seth Denson, president and co-founder of GDP Advisors out of McKinney, Texas, began working in the stop-loss captive business in 2013 after being introduced to Pareto and says the fully-insured market is not delivering what small businesses need when it comes to affordable and reliable insurance options for employees.
“The fully-insured market is not responding to the needs of employers with 50-500 lives,” Denson says. “Rather than try and create something that would not be the best, we decided to partner with Pareto because we could never do better than what they do.”
O’Halloran — with his almost four decades of experience in the self-funded market — has specifically worked in the stop-loss captive business with Pareto for the past five years.
However, brokers that Pareto chooses to work with across the country cannot expect a self-funded stop-loss captive will work with every single client. O’Halloran says there are certain qualities that must be identified within a client in order to be considered for a captive program.
“We need clients that do not just look at a spreadsheet and go for the lowest price,” O’Halloran says. “We need clients that are really strategic thinkers that want to actively address the cost of healthcare for their companies.”
Andrew Cavenagh, managing director of Pareto, says their partnership with Sun Life as their stop-loss carrier brings added value to both organizations’ services.
“Captives make self-funding more accessible for small and medium employers, so it is important to offer a strong stop-loss option that will give those employers the risk protection they need once they have chosen to self-fund,” Cavenagh says.
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