Group employee benefit captives: all grown up
While many will debate when the first group employee benefits captive (aka group medical stop loss captive) was formed, there is no disputing the exponential growth in the use of captives to allow small and mid-size employers to partially self-insure and share a layer of medical stop loss risk in a captive.
Although arrangements can vary from programme to programme there is certainly one commonality among the most successful structures: the use of cost containment strategies to mitigate high-cost claims, overutilisation or billing errors, not only in the captive layer, but also within each employer’s self-insured retention.
All too often there is a main focus on the need to achieve critical mass in order for a programme to be successful, and while this is an important element, the need for cost reduction strategies is just, if not more, important.
How are programmes reducing claim costs and bending the medical trend curve? Medical management, concierge services, reference-based pricing, direct contracting, and medical bill review, not to mention controlling specialty drug spend. There’s no way to touch on all the approaches being used here, but the industry has seen positive results from several.
Most self-insured plans are designed around provider network access. These networks negotiate pricing with doctors, hospitals, pharmacies and other healthcare services and providers. Typically a percent discount on fee-for-service charges is used when paying for services rendered in-network. The argument that these discounts are based on already inflated charges is the impetus for finding alternative reimbursement methods.
While a relatively small percentage of self-insured plan designs use a reference-based pricing (RBP) method for some or most services, there is a growing interest in this approach. The model doesn’t incorporate a network, so there is no agreement with the provider to the RBP fees for service the plan is paying.
Typically, these payments are based on a percentage of Medicare allowable charges, which are typically lower than a preferred provider organisation (PPO) discount. Although there has been proven success with plan designs using this payment structure, there are potential risks that need to be contemplated. The plan participation may be subject to balance billing if the provider refuses to accept the RBP as payment. Understanding how to handle these scenarios is essential.
As healthcare providers are finding it increasingly difficult to differentiate themselves in a competitive marketplace and employers are trying to mitigate the challenges of escalating costs, a solution which allows the two to partner is evolving.
In a direct contracting arrangement, the self-insured employer(s) and a provider organisation directly negotiate terms on which the provider will provide and manage the provision of care for the employer’s employees and dependents.
This alignment can benefit both parties, whether it be through the employer paying the provider a bonus for achieving certain agreed-upon quality and patient satisfaction metrics, or the parties agree upon a shared savings arrangement.
For the employer, negotiated reimbursement rates can prove to be advantageous. Ultimately, employers can gain a level of transparency into costs and quality that is uncommon in some administrative services only/third party administrator (TPA) arrangements. In turn, these resources secure the best combination of value and service for the workforce.
Medical bill review
Without constant oversight of claims submitted by providers and hospitals, an employer’s self-insured plan could be overspending thousands of dollars on billing errors. Out-of-network solutions, including repricing services for claims that would otherwise not receive in-network PPO discounts, audits for data entry errors and charges for unadministered tests and services should be provided by the TPA or selected service provider.
Errors like these occur daily and impact not only the employer but the employees who have to meet high deductibles and coinsurance percentages. Implementing a strict medical bill review procedure can benefit the plan greatly.
Stop loss carrier
Selecting the right stop loss carrier partner matters. This isn’t a decision based solely on the lowest quoted rates. After all, saving 50,000 in annual premium versus hundreds of thousands in claim costs because of the stop loss carrier’s proactive involvement in negotiating or mitigating high cost claims is certainly worth the initial investment; not to mention, the captive is retaining much of that premium.
Stop loss carriers should illustrate their ability to provide resources such as consultative services, claim negotiation and review and specialty network access, to name a few. Consider these discussions as programme development and carrier selection is taking place.
While taking time to implement these strategies takes effort, the long-term return on investment is certainly worthwhile.
Can this growth continue?
With the right resources, accountability and proactive management, group employee benefit captives have saved employers money, not only on the medical stop loss layer assumed in the captive, but within the self-insured retention too.
Projected medical and Rx costs for captive participants are expected to increase below trend as well. It’s no wonder that a leading employee benefits periodical picked group employee benefits captives as the #1 Affordable Care Act trend two years ago, and that trend seems to be continuing at a rapid speed.
Wendy Dine is an associate director and employee benefits practice leader in Strategic Risk Solutions’ Washington, DC office.