- Tier 1: Employer layer or specific stop-loss risk. The maximum risk an employer is responsible for on a large claim. Similar to a typical partially self-funded specific deductible plan, this risk layer generally ranges from $10,000-$150,000, depending on the size and risk tolerance of the client and captive member pool.
- Tier 2: Captive stop-loss layer or shared risk pool. This shared risk layer sits between the employer risk and traditional reinsurance. It pays members’ claims that are over their specific stop-loss maximum, but under the reinsurance deductible. It is funded by a large portion of the reinsurance premiums that members pay to the captive manager. The percentage of premium contributed to the pool is determined by the captive manager, or managing general underwriter, who has structured the program, but generally ranges from 45%-70% of the total paid premium paid by each client in the captive. The balance of the premium is used to purchase actual reinsurance and cover costs associated with the management and running the captive. Any unused premium in this layer after the policy year is completed typically is returned to the member clients.
- Tier 3: Traditional reinsurance layer or excess risk. The reinsurance layer protects the shared risk layer from substantial claims by capping the cost it is responsible for. Typically set at a high limit ($250,000-$750,000), reinsurance covers excess costs of a claim after the employer pays their portion (Tier 1) and the shared layer pays its portion (Tier 2). Since the Affordable Care Act requires no limits, the excess layer has no cap on what it will pay.
Two of the most powerful aspects of captives are:
Benefits Think The basics of health insurance captives for small employers
By
Mick Rodgers
Published Updated
4 Min Read
Mick Rodgers
Managing Partner
Rodgers is the managing partner at Axial Benefits Group, which is based in Boston.
