Employer healthcare costs are expected to increase by 5% in 2022. For companies across the U.S., this is an unfortunate (and all too familiar) narrative—one that’s even more challenging amid the Great Resignation. Simply put, high-quality benefits have never been more critical to recruiting and retaining talent, yet those benefits are coming at an exceedingly high dollar figure.

For years, businesses had two choices: Either accept the price hikes or switch providers. But as the insurance landscape evolves, innovative tools are putting the power back into the hands of employers. One strategy gaining traction is the group health captive.

What is a medical captive, and is your company a good fit for this modern, small-business friendly take on the self-funded plan? Keep reading for your quick guide on the health insurance captives landscape as we enter 2022.

What is a medical captive?

Large organizations have long used self-funded insurance to reduce costs, gain flexibility and increase their access to employee healthcare data. Yet self-funded plans have largely been out of reach for small and medium-sized businesses that can’t afford to shoulder costly medical services. In the Kaiser Family Foundation’s 2020 Employer Health Benefits survey, for example, 84% of large-firm employees were in a self-funded plan, compared with just 23% of workers at small companies. With the rise of group captives, many perks associated with self-funded plans are becoming accessible to small- and medium-sized employers.

An alternative to fully insured health plans, a captive is an independent insurance company created specifically to provide insurance to the parent company or companies. (At least one of those owners must be a non-insurance company.) As the National Association Of Insurance Commissioners puts it, “Captives are essentially a form of self-insurance whereby the insurer is owned wholly by the insured.”

Group medical captives are similar. However, instead of having a single owner, the captive is owned by multiple companies. By banding together, those businesses can share expenses and risk—potentially minimizing healthcare market volatility for every member in the group.

How do group medical captives work?

Medical captive programs typically include three components:

• Self-funded claims: Instead of paying a fixed premium to an insurance carrier, each employee will self-insure a designated amount of claims per member, per policy period. As an employer, you only pay the amount your employees spend.
• Shared risk: Each employer contributes a premium to the captive pool, which covers claims between the employer deductible and a certain upper-limit amount that’s typically around $500,000. Each employer’s demographics and risk profile help determine the premium. At the end of each year, unused premium funds are returned to the employers.
• Transferred risk: For any claims above the plan’s retained claims, a stop-loss policy goes into effect. In the event of a catastrophe, risk is spread across all group members, preventing participants from unpredictable and sizable losses.

If you’re interested in exploring group medical captive insurance, contact our advisors. We can help you determine if this tool is a good fit for your business—and help you navigate the entire process.

What are the benefits of health insurance captives?

Companies typically create group health captives to control their costs and minimize the risk involved with traditional self-funded plans. This tool isn’t a fit for every business. However, with the right strategy, group health captives can deliver measurable value.

• Costs: For a single employee, premium costs have increased 55% since the early 2000s. Salaries only increased 26% in that same period. With a group captive strategy, there are no “surprise” costs in an employer’s health insurance budget. Employers also retain funds year over year. When claims are lower than anticipated, a significant portion of the benefit cost savings goes back into your business—enhancing your cash flow and your bottom line.
• Transparency: The best health and wellness strategies are driven by data. With full visibility into your workforce’s healthcare data, you can determine the true drives of your healthcare costs—and implement strategies that bring out the best in your organization.
• Control: You determine what your plan covers and can tailor coverage to your workforce’s unique health needs and demographics. With a group health captive, you also choose the networks, pharmacy options, claims management and other critical aspects of your plan.
• Shared Risk: Unlike self-funded plans, group captives allow small and medium-sized businesses to share risk with like-minded companies.

Are group captives right for your business?

Like any employee benefits strategy, a group captive plan requires a customized approach—and what’s right for one business might not be for another. Let our experts clear the confusion and help you make a well-informed decision.

If your company has at least 40 employees and would like to explore this innovative strategy, contact Evans National’s experts. We’re here to help you navigate group captives and other insurance tools that prepare your workforce for tomorrow, today.