Healthcare coverage is a valuable benefit to extend to employees. With costs rising over the past decade, employers scramble to find cost-saving solutions associated with employee healthcare benefits. Alternative risk structures may provide the solution employers are looking for in the form of medical stop loss captive insurance. By funding risks through a captive insurance entity, businesses of nearly every size and type gain a viable method of controlling employee healthcare expenses. There are certain benefits and advantages to be had by adopting a medical stop loss captive, including superior risk management.
To understand medical stop loss captives, it can be valuable to refresh on the captive insurance concept. A captive is a wholly-owned insurance entity with a parent company or group of companies behind it. The owners of the captive are also the insureds. Medical stop loss captives are a form of captive entity designed to provide excess insurance through self-funding; in simple terms, it provides insureds with certain financial protections against catastrophic healthcare losses or unpredictable claims volumes. There are two major types of stop loss coverages:
Aggregate Stop Loss – coverage that caps the aggregate expenses employers face for healthcare claims occurring during a coverage period or contract. At the end of the period or contract, the insurance carrier reimburses the employer for aggregate claims.
Specific Stop Loss – referred to in the industry as individual stop loss programs, this form provides single-instance high healthcare claims (catastrophic loss) coverage filed by an employee.
These are only two of the many variations within medical stop loss captives. To choose the right plan for an employer’s needs, balancing the expenses and availability of traditional insurance solutions against the potential cost-saving benefits of medical stop loss captives is essential.
Captive insurance in any form provides discrete benefits and advantages for employers. As traditional healthcare benefits insurance continues to skyrocket in cost and availability, employers desire alternative solutions. Medical stop loss captives offer benefits like:
Self-reliance in terms of traditional insurance protections – certain businesses face unpredictable or unusual risks, including in both the frequency and severity of claims. As a result, traditional insurers may be expensive, or coverage from the traditional market is simply unavailable. Medical stop loss captives represent a viable solution by giving employers the flexibility to develop coverage areas and limits to manage their unique risks.
Improved control – the key to robust risk management is flexibility. Medical stop loss captives provide that flexibility, allowing employers to assume risks and managing insurance market conditions. These self-insurance programs can be designed to meet the exacting needs of employers, including those with unusual risk exposure profiles.
Cost savings – premium rates in the traditional insurance market have grown exponentially. Severe or frequent claims can exhaust the limits of a traditional policy as well. As a result, overhead expenses can quickly run out of control. Medical stop loss captives give expense control back to the employer and may even offer underwriting profit in years with low claims volume. Risk distribution helps to stabilize costs as well.
Better healthcare risk management – captives are owned and managed by the company, giving them improved control over healthcare risks. Captives themselves – or third-party servicers – handle claims, giving them insights that they cannot get from the traditional insurance market. This, in turn, allows them to develop risk mitigation strategies that protect employees and company assets alike.
Captive insurance is a growing segment in every country and across industries. These captives are also enjoying widespread adoption particularly from smaller businesses or those with 500 or fewer employees. Captives give impressive control over expenses, help to retain profits, and enhanced risk management options for employers faced with staggering healthcare benefits expenses in the traditional insurance markets. Ultimately, this growth will both stabilize pricing and provide improved coverage limits for employers who select this excess self-insurance model.
Caitlin Morgan Captive Services provides clients with captive insurance solutions supported by years of experience in establishing the successful formation and implementation of a wide range of captives. To learn more about how we can help you, please contact us at (855) 975-4949.