We know one thing is certain in healthcare these days: rising costs. Businesses of all sizes are left with sticker shock as they see health insurance premium rates increase and they are struggling to find better strategies for cost control. Costs continue to rise at a rate two to three times that of traditional inflation. Employers are at a loss when it comes to identifying and implementing effective, sustainable ways to address the issue, and also coping with the countless hours of administrative burdens placed on them by the Affordable Care Act.
Businesses need alternatives, and captive insurance is a great solution for companies looking for similar businesses to share in both risk and reward and experience “power in numbers,” as we like to call it. Below you’ll find a few ways businesses are attempting to manage rising costs, while providing a rich set of benefits to employees to boost retention, performance, morale, and much more.
Captive insurance is a form of self-insurance where a group of entities to join together and form their own insurance pool. That means members share risk, and in doing so they create greater purchasing power, cost consistency, and long-term risk management. For example, a small business of 10 employees might be able to experience the buying power of a much larger group due to the size of the captive. Captives allow its members to essentially “own” their insurance. So instead of paying premiums to an insurance company (which in turn becomes profit for the insurance company), the group contributes to a shared dividend pool. That money is then rewarded back to members when there’s good performance. All the while the overall captive is still protected against large claims by an overlying insurance policy.
Another great feature of captive insurance is that it’s flexible enough to be used by all sorts of employers. If you’re feeling the pain of unsustainable health insurance costs, you probably fall into one of the following two groups. More important, you likely can be helped by the captive insurance solution.
Larger employers often operate their own health plans. At least in theory, self-funded plans are less expensive than the fully insured route because an added layer of cost is removed. But this in turn can leave employers more vulnerable to the unpredictability in claims. Yes, there is stop loss insurance, which can offer protection against catastrophic losses. But that can bring its own share of problems, especially when you consider that stop loss can cost up to 30% of an overall health insurance budget. Employers may typically see that the premiums they pay year after year for stop loss insurance far outweigh the actual large claim activity it’s designed to protect them against.
We like to recommend adding voluntary benefits to a benefit offering as it gives employees a way to insure against unexpected events like accidents, or a critical illness. It also can enable the employer to change the health plan designs to control their costs.
Fully insured employers pay a premium, fixed for a year, to an insurance carrier. The carrier bases the premium rate on the number of employees enrolled in a plan each month. However, fully insured entities often take this approach not necessarily because they want to, but because they may be smaller in size, or have concerns over the volatility in self-funding, or because their industry doesn’t allow self-funding insurance plans.
More specifically, these employers may not be able to access their data and thus don’t have the tools to create meaningful risk management strategies to impact plan performance. But note that even if they did have such access and employed strategies with good results, it wouldn’t necessarily have a long-term positive impact on their cost outlook. On top of that, with the implementation of the Affordable Care Act, these organizations have now seen even greater limitations on what they can do, along with additional fees and taxes associated with managing their plans.
If you’re an employer interested in getting back in the drivers’ seat when it comes to your employee benefits, joining a group like NARFA provides a full suite of benefit offerings including more options for health insurance, a self-insured Workers Compensation Program, full administrative support, and much more. NARFA members buy like a large group and experience that “power in numbers” we’ve become so accustomed to talking about in our group. Since 1929 NARFA has provided support for its members during both good and bad times, and our 99% member retention rate speaks for itself.
Contact us today to learn more about how our programs and association can help your business stay strong.