In the second installment of our series on the COST advantages of group captives for managing employer healthcare expenses, we focus on the “O” in COST: Ownership.
In the realm of stop-loss insurance, differentiation among carriers and providers has diminished, turning into a commoditized market competing primarily on price.
Consequently, employers and brokers often find themselves locked in short-term buying tactics, navigating from one renewal cycle to the next. This focus on stop-loss premium as a key component of total healthcare costs does not support a long-term strategic approach to managing an employer’s Total Cost of Care.
Joining a group captive for stop-loss insurance transforms the employer’s role from a mere buyer to an owner of the insurance company. This shift brings a new perspective on how to manage healthcare costs over the long term:
Rethinking the Lowest Rate: While securing the lowest stop-loss rate might seem advantageous, the perspective changes when one becomes an owner within a captive. Start-up ventures rarely succeed on underfunding, and similarly, overly aggressive rate cuts in a captive can jeopardize the required reserves.
Captives, which are typically conservatively funded, recapture the benefits of cost containment through the distribution of surplus once proven effective. This approach requires a conservative budgeting strategy, akin to planning for self-funded claims, where employers might budget at last year’s levels rather than banking prematurely on promised savings from new cost containment vendors.
Standard Terms like No New Lasers and Rate Caps: These terms are common in stop-loss proposals and are used to reassure employers that (1) the costs for future high-cost claimants will not be pushed back on the employer and (2) any premium increases to absorb the additional cost will be limited. As buyers, this sounds like a great perk, allowing employers to transfer the risk of costly claims to insurers. However, within the captive, the dynamics shift. Owners must consider the collective risk and the implications of accepting terms that might benefit one member at the expense of the group. This strategic shift can lead to more prudent, collective decision-making about risk acceptance and management.
Claim Payments and the Ownership Perspective: In traditional insurance settings, claims processing can become adversarial, with parties aiming to “win” by maximizing claims paid versus premiums. In a captive, this dynamic changes. Employers view claims from both the buyer’s and owner’s perspectives, focusing on equitable claims processing and addressing underlying healthcare costs. This dual perspective fosters a more cooperative and cost-effective approach to managing healthcare expenses.
Ownership in this context extends beyond the captive itself; it encompasses a broader ownership of the healthcare responsibility employers assume for their employees. By owning this responsibility, employers can more effectively manage the total cost of care, ensuring the sustainability of competitive healthcare benefits for their employees.
To explore how to join or start a group captive, contact info@mslcaptives.com. Our next article will discuss Stability and how group captives contribute to managing the volatility associated with stop-loss programs.
