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» Using a Captive Health Insurance Company to Share Risk with a Community

February 7, 2023

Business Strategies, Captives, Employee Benefits, Health Insurance, Healthcare Innovation, Self-Funding

Employers are facing unsustainable cost increases

For many companies, healthcare costs including health insurance have become a top expense. It often goes payroll first, then healthcare benefits. It’s not uncommon for many employers today to face healthcare costs of $8,000 or more per year per employee.

And healthcare costs have been steadily increasing, increasing 152 percent from 2010 to 2021. Not only are costs increasing, but trends in plan design have led to more shifts in costs toward employees from the plan and employer. As deductibles increase and copays go up, employees pay a greater share of costs, on top of increasing premiums.

Looking forward, costs are expected to double in the next 4 years. How will employers handle these increases? Absorb the cost, pass it all onto employees, or some mix of the two?

Despite their huge investment in healthcare, employers experience sometimes significant dissatisfaction from employees.

Employees are generally unhappy with their healthcare benefits

Employees are unhappy for many reasons, but the number one reason is that they are paying more than they used to and are unhappy with what they are getting.

Premiums have generally gone up 40% over the last few years

The average deductible today is $4,400

And a study found that 40 percent of Americans can’t afford a $400 unexpected expense

Healthcare consumerism has not worked and only exacerbated the upward trend of healthcare costs and health insurance premiums.

Beyond costs, employees are unhappy with the limited information they get. They have low to no clarity on how to make choices along cost and quality and healthcare is designed that way; the health system is nearly impossible to navigate.

But while dissatisfaction with benefits hurts retention, satisfaction helps it.

According to one employee respondent to a LIMRA study, “My benefits make me more likely to stay.”

  • Of employees who were highly satisfied with their benefits, 81 percent say they’ll stay
  • But of all employees, that rate is just 43 percent

Companies nearly 2X their retention rate when employees are highly satisfied with their healthcare benefits

What is stopping employers from addressing this?

Employers feel they can’t change:

  • Feel the system is too complex
  • Receive little to no data to compare options
  • Forced into short-term focus ie the 12-month renewal cycle
  • Mid-sized firms lack the scale or power to negotiate

The system doesn’t want to change:

  • Misaligned incentives – the only way to increase profits is to increase healthcare spend ie premiums
  • A deliberate lack of transparency
  • No one is representing employer’s best interests

The Solution: a Shared Risk Healthcare Community

We won’t get different results with the same strategies that brought us to this point. Instead of passing off all decisions and responsibilities to a carrier, employers can better control healthcare costs by sharing risk.

In the old model, employers used what we call “Fully Insured” health plans. They shift all risk to the insurer and pay a fixed cost regardless of healthcare used. They have little to no control over benefits design.

In the new model, we ask employers to take some risk, share some risk, and shift catastrophic risk. They pay only for the healthcare used, have a high control over benefit design, and tailor their coverage to their unique profile and blend of employees.

Let us be your healthcare economist

You don’t want to become a healthcare economist – that’s our job.

But you do need to understand the basic economics of your health plan for us to make a meaningful impact. Your plan will put costs in three buckets:

  1. Shift Catastrophic Risk: We use Stop-Loss Insurance to shift significant healthcare costs (over $500,000) to a carrier. This will be ~10 percent of your total cost.
  2. Share Risk with Other Employers: ¬†You’ll pool funds with other employers to cover costs over a certain threshold, your deductible. This pool shares costs over hundreds of employers and hundreds of thousands of people. Any unused funds from the pool are returned to you pro rata. This will be ~25 percent of your total cost.
  3. Take Some Risk: You’ll pay for your employees’ and their families’ care up to your plan deductible. Any unused funds are fully retained by you, not your carrier. This will be ~65 percent of your total cost.

You’ll use your own plans, which we help you tailor to the needs of your employees, and incorporate best-in-class solutions for different areas of care.

You want to support your employees with better mental health care?

You want better physical therapy for your employees?

You want to make your pregnancy program best-in-class in your space and use it as a recruiting tool?

You want to steal employees from your competitors and larger companies because you have better benefits?

We can accomplish all this with your plan to deliver better healthcare at a lower cost.

We combine three key strategies to enhance your health plan:

  1. Data & Analytics: We provide info & insights to make better decisions for your plan and members.
  2. Cost-Savings Investigations: We’ll monitor your plan over time to identify opportunities to implement cost-saving measures based on your unique group.
  3. Cost Containment Solutions: Choose from the most effective and vetted cost containment solutions on the market. Don’t pick and choose point solutions based on clever cold emails – let’s select vendors based on your group’s demographics and claims data, so we make the greatest possible impact on your employees.

If you want different results, you can’t keep doing the same thing you’re accustomed to. You can directly take on the various inefficiencies and issues in the health insurance market by sharing risk with a community of like-minded employers via captive insurance. At this point, we run captive insurance quotes for many of our groups every renewal so we can at least see the differences and to help groups make informed decisions.

If you’d like to learn more about how a shared pool of like-minded employers could help you and your employees, click here to schedule a complimentary call with one of our advisors today!



Posted by in Business Strategies, Captives, Employee Benefits, Health Insurance, Healthcare Innovation, Self-Funding