Why Join a Health Insurance Captive?
A health insurance captive is a system in which a group of employers join to form their own health insurance program which is wholly owned by the member. For many small and midsize firms, captives offer an opportunity to transition to self-funding or for existing self-funded plans, to reduce cost by pooling risk with other employers.
By becoming part of a health insurance captive, employers can enjoy much of the same risk mitigation and economies of scale it would get from a large insurer but without the premium increases and lack of control.
Why should your company consider joining a health insurance captive?
Cost Control Without Increased Risk
With a fully insured health program (one purchased from a large insurance company), you have little to no control over your company's premium costs and cost containment programs. You might get a great rate this year and sign up based on that offer only to see your premiums rise substantially upon renewal.
To gain control over their insurance premiums, many employers consider self-funding. This option comes with increased financial control and some risk.
A health insurance captive offers control and predictability without the risk. Because several employers are paying into the program, the risk from a large claim is spread across multiple entities. Employers in health insurance captives often take a percentage of the premiums paid by employees and put it into a shared risk pool to cover abnormally large claims. This is known as reinsurance, and over time, it helps keep claim costs steady and predictable.
While health insurance captives mitigate risks in the same way as large insurance companies — by taking advantage of economies of scale — they are small and personal enough to give individual employers control over costs. Your business will never receive a renewal notice stating that the cost of your coverage is doubling.
Possible Returns from Unused Premiums
Health insurance captives typically involve a type of reinsurance in which each member pays into a shared risk pool. This pool is available for members to tap into when an employee files a claim that exceeds what the employer can cover. It is similar to how large insurance companies pool clients' premiums and use the proceeds to pay claims.
But what happens when there is money left over in the risk pool? If your plan is fully insured through a large insurer, then, obviously, the insurance company keeps the excess as profit. In a health insurance captive, however, each employer member can receive a return of part of the unused premium pool.
Increased Flexibility
When you buy insurance through a large company, you have little to no control over who your plan administrator is or how your plan is designed. A health insurance captive, by contrast, gives you nearly the same flexibility over these items as you would get by self-insuring.
While there are many factors to consider when choosing the best health insurance option for your company, health insurance captives are an underused option that might offer the right balance of cost control and risk mitigation.
Learn more about captives from Professional Benefit Administrators.
About PBA
Professional Benefit Administrators, Inc. (PBA) is an independently owned and operated Third Party Administrator (TPA) with a national presence. Since 1985, PBA has been entirely focused on self-funded employer sponsored health plans. Our goal is to build relationships with advisors who believe in the value of self-funding health plans with a flexible, client centric TPA. Committed to leveraging the PBA Advantage, we offer a competitive edge and always search for innovation to break through the status quo.