We aim to help our group benefits clients to design and promote a sustainable benefits program for now and for the long term. A sustainable benefits program manages costs now and has mechanisms in place to improve outcomes and control costs long-term. And a foundation for these benefits plans is to be self-funded.
“But these plans do contain some risk – our claims could explode and our costs be even greater than before!”
This is true! By its very nature, a Self-Funded Health Plan can result in higher costs over time for exactly the reason it may deliver lower costs. A self-funded plan removes layers of risk management and has the employer directly paying claims up to a certain point when stop-loss insurance kicks in.
So while we can define max costs in any given year, an employer may still want greater limits on cost overruns while still retaining the benefits of a self-funded health plan.
In this instance, we bring a Captive Medical Stop-Loss to the discussion as a way to control and smooth costs. We’ve discussed them previously but they are always worth another look.
With a traditional Self-Funded Health Plan backed up by Stop-Loss Insurance, an employer is on the hook to pay claims now instead of the insurance carrier being the payer and plan administrator. The employer pays claims up to the stop-loss attachment points (essentially the deductible), but for smaller employers, obtaining Stop-Loss Insurance can be prohibitive from an underwriting or cost perspective due to economics. Does that mean self-funding is closed off to them? Not by a long shot!
To solve this issue, we help these employers join a risk pool of similar employers to fund the first layer or tranch of stop-loss risk, a Medical Stop-Loss Captive, which does a few important things.
First, this becomes their first source of risk management and thus raises their stop-loss attachment point. To put it simply, their stop-loss insurance kicks in after a much higher deductible so the cost of the insurance is much less. Think of the cost decrease in your auto insurance if you increased the deductible from $500 to $1,000.
Second, the employer works together with other cost-conscious employers to manage this first layer of risk management, who share aligned interests. This leads to the flow of cost-containment strategies, vendors, and more to help each member group reduce their claims and improve the financial performance of the captive as a whole.
Finally, this grants the employer access to a Savings Guarantee from the captive provider. This may vary by the captive manager, but in general, it is a promise from the captive manager to a certain amount of savings over time.
For example, one vendor we work with puts in writing a cost savings guarantee such that if the employer has not had savings over a set number of years, the manager will pay the difference between what the group paid over that time versus what they would’ve paid in their prior fully-insured program.
We feel that a savings guarantee like this is an amazing promise and endorsement of the value a captive program and self-funded health plan bring to the small and mid-sized employer market. Beyond the benefits of transparency and cost containment strategies, a cost savings guarantee may push groups who are on the bubble to adopt a self-funded plan.
We need every tool available if we’re going to stabilize healthcare for the small and mid-sized market and push back on an unsustainable trend.