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» Benefits of a Medical Stop-Loss Captive

February 28, 2022

Business Strategies, Employee Benefits, Healthcare Innovation, Healthcare Spending, Self-Funding

If you’re administering a group health plan, you may already understand the difference between fully-insured and self-funded plans. If not, take a look at our posts about self-funded health plans (and this one too!).

While the majority of groups with over 1,000 employees will use a self-funded health plan, employers with 50 to 500 employees may be interested in the benefits of a plan but have a concern with the financial risk such a plan entails. In such cases, plan sponsors need to remember that their plan funding choice is not binary. There are many ways to fund a health plan and along that spectrum lies a range of financial risk/reward. Fully self-funding with no stop-loss insurance presents the ultimate risk/reward, while a level-funded plan through a carrier presents a much narrow range of outcomes.

No benefits strategy is good or bad, per se. Each sponsor needs to consider their goals, demographics, and financial stability when they make a health plan decision.

On the margin, many small to mid-sized groups with self-funded health plans may benefit from incorporating Medical Stop-Loss into their health plan strategy.

In a fully-insured plan, a group will pay premiums based on a combination of their own claims experience and that of their risk pool. This may depend on total group size and carrier-specific determinations. The result is that a group pays a premium based to some degree on their own claims and based on claims of similar employers in their risk pool. This goes back to the balance of risk/reward we discussed earlier.

Self-funded plans by themselves expose a group to greater cost variations, as they pay 100 percent of their claims up until the attachment points of their stop-loss insurance. By incorporating a Medical Stop-Loss Captive, a group introduces risk-sharing to their claims payments. This risk pool for self-funded health plans may make underwriting stop-loss easier, less expensive, and smooth out claims from year to year. On the flip side, the group may wind up subsidizing other groups in the risk pool.

In our experience, small and mid-sized groups can more effectively self-fund their health plans by using a Medical Stop-Loss Captive. The two main stumbling blocks these groups encounter is underwriting with a lack of claims data and concern over the financial fluctuations when they’re used to a relatively level premium throughout the year. A captive can address both these concerns in the right situation.

Click here to schedule a complimentary discussion with a consultant about a Medical Stop-Loss Captive for your health plan!

Posted by in Business Strategies, Employee Benefits, Healthcare Innovation, Healthcare Spending, Self-Funding