When we’re helping various companies take back their budget in the face of out-of-control healthcare costs, one of the biggest things we recommend at Captiva Benefit Solutions is for mid-sized companies (between 50 and 1,000 employees) to form or join a healthcare captive.
Really, we believe in it so much, it’s kind of part of our company name.
The San Francisco Business Journal spells out what a captive is as well as we could:
A captive is created by pooling multiple, like-minded companies with a similar commitment to healthy lifestyles and wellness. Together, they pool contributions and self-fund the claims, while also benefiting from the transparency of data and the shared best practices of the entire group.
According to Lawley Employee Benefits, by joining together, companies “share the advantages of being self-insured without the stand-alone risk.”
While many organizations are just waking up to this opportunity to experience significant cost savings with minimal risk, healthcare captives are nothing new.
According to the 2010 article “Employee Health Benefits” from the Kaiser Family Foundation, 93 percent of firms with at least 5,000 employees have self-funded healthcare; compare that to 58 percent of midsize companies.
One of the reasons midsize companies are more reticent to the self-funded route, is fear of not having the cash flow to cover a massive medical claim by an employee.
The biggest ways captives mitigate risk, Lawley says, is by lumping together like-minded employer groups, “to leverage size and predictability with an emphasis on wellness and disease management.”
Not only does Captiva specialize in helping businesses create these captives, but through the multifaceted approach of the Health Rosetta paradigm, we help these businesses mitigate risk by controlling costs, demanding transparency in charges and helping patients access quality care that will prevent further claims.
The benefits of captives are many, as laid out by Tatiana Serafin of the business website, Inc.:
1. Customized Plans – Being able to tailor your plan and coverage to your specific environment. No one-size-fits-all rules here, nor are captive participants bound by state mandates.
2. Better Data – You have more access to claims data and helpful demographic info specific to your company and employees, rather than information about a broad population and risk pool.
3. Cash Flow Control – Coverage isn’t prepaid by the company, which provides a cash flow not possible with standard insurance. If claims are below projections, the company retains the savings instead of the insurer.
4. Federal ERISA Laws Apply (Not State) – State-mandated benefits, premium taxes and other requirements don’t apply, providing more flexibility and tax advantages (although the U.S. tax code and federal anti-discrimination laws still apply).
5. Lower Premiums – According to that Kaiser Family Foundation report, family coverage under fully insured plans were about $700 more expensive than self-funded plans. At $700 per employee, that has a legitimate effect on the bottom line. And that was back in 2010; the difference is likely to be much more.
6. Potential for Lower Costs – Improved claims management means savings, estimated at 3 to 5 percent annually.
The Business Journal piece goes on to say that a self-funded captive could be just the beginning to unraveling the rat’s nest of exorbitant healthcare costs, starting with the pharmacy benefit:
“[S]elf-funded models enable employers to partner with a skilled insurance broker or consultant to decouple these contracts and navigate the complicated pharmacy landscape.”
Since we’ve learned that the insurance companies, hospitals and Big Pharma all scratch each other’s backs, keeping these benefits unbundled allows for greater scrutiny and, in the end, better prices.
This isn’t a quick fix, though; if you’re wanting your firm to be part of a captive, it’s going to take a long-term commitment; typically, results aren’t felt until at least three to five years into the process… but they will come!
Interested in establishing a captive and beginning the domino effect of cost-savings and better benefits? Talk to us at Captiva Benefit Solutions and we’ll connect the dots.