18 October 2013Analysis

Affordable Care Act could be a positive for the captive industry

According to industry experts the Affordable Care Act—the deeply embattled landmark legislation that began rolling out this year—could be a positive for the captive industry.

Adam Forstot, vice president at USA Risk Group, explained: “as with many emerging issues, the captive industry has responded aggressively and creatively try to meet the needs of those interested in applying alternative risk financing and captive techniques to addressing the issue. This has largely been through the development of hybrid self-insured and group captive solutions in which mid-sized employers are able to pool risk above a self-insured layer to generate economies of scale, stabilise losses and reduce frictional costs.”

Consolidation at the hospital level, according to Aon Global Risk Consulting regional managing director of captive and insurance management Nancy Gray, is creating larger and more sophisticated captive programs. She told Captive International: “what we’re seeing is consolidation of captives as hospitals hospital systems are merging and purchasing physician’s practices, and in doing so become larger and more sophisticated.”

She continued: “we’re seeing a lot more in terms of these captives looking at integrated risk programs, so risk financing on an integrated basis and looking at additional lines of business like cyber risk and excess workers compensation, and even employee benefit programs.”

Forstot added: “we are seeing more interest in incorporating medical stop loss and other aspects of their benefit programs into existing property & casualty programs. There are forward facing compliance issues that likely prevent full integration the programs. However, behind the scenes—so to speak—with the captive, owners can deploy existing surplus to support funding elements of their benefit programs.”

According to Doug Hayden, senior vice president at Captive Resources, it’s business as usual for Well Health Insurance, Ltd., the company’s healthcare stop-loss group captive. As a consultant and creator of member-owned group captives, he said: “the member companies that we’re working with were self-funding their benefits prior to the Affordable Care Act and will continue to do so. Yes, they’re going to have to make slight changes, but in the totality of the self-insured marketplace we don’t see much of a change.”

He concluded: “healthcare captives may indeed be impacted by the ACA, but for Well Health, there is little to no impact.”

“We anticipate there will be additional increase in captive formation,” Forstot said. “For a time, it seemed the issue slowed captive formation as companies were highly focused on understanding the implications of the ACE on their overall cost of doing business. During that evaluation phase, we saw a number of companies put their captive formations on hold. Now that there is a bit more clarity on the issue, formations appear to be moving forward again.”

Gray concluded: “I think this is positive. Captives are being recognised as a useful strategic tool as hospital systems continue to grow and rely on their captives for their strategic risk finance position.”