29 March 2018Analysis

Mid-size companies should mirror Fortune 500 and mull captives to tackle healthcare

Mid-sized companies should follow the lead of Amazon, JP Morgan and Berkshire Hathaway by taking a more proactive, long-term approach to the purchase of their employees’ healthcare in response to skyrocketing costs, according to Mike Schroeder, founder and president of Roundstone.

Schroeder explained that many of these Fortune 500 companies are "joining forces" and taking control of their healthcare costs by negotiating directly with both providers and supplies for the purchase of their services and products. In the process they are eliminating network, pharmacy benefit manager (PBM), and Blue Cross, United, Cigna, Aetna (BUCA) intermediaries, he said.

Amazon, JP Morgan and Berkshire Hathaway had announced on January 30 that they are forming an independent, not-for-profit healthcare company to lower healthcare costs for their US employees.

Schroeder believes that mid-size companies could learn ways they can take control of their health benefit spend from such ventures, and consider alternative risk products such as captive and specialty insurance programmes.

"Mid-sized companies should exit the fully insured twelve month rate auction strategy and mirror what these large companies are doing by looking at their employee benefit costs over a multi-year period," explained Schroeder.

"Adopt strategies like self-funding, identifying the cost drivers and looking to buy the services and products more efficiently with less intermediary friction and more transparency of cost. It takes a proactive approach to purchasing health care over several years with data enlightened decision-making and root cause analysis addressed with cost containment strategies aimed at reducing price inflation."

In terms of captive insurance structures, he suggested that mid-sized companies fit best with a group captive structure.

"The risk sharing delivered by a group captive reduces the volatility a mid-sized business experiences, while retaining transparency and control that comes with self-funding your employee’s health benefits," he added.

Roundstone develops and manages captive and self-insurance solutions for exposures including health insurance, malpractice, voluntary benefits, transportation, warranty and workers’ compensation.

The group will be hosting its annual Medical Captive Forum at FirstEnergy Stadium in Cleveland, Ohio on Wednesday, May 9.

The forum will include topics such as: helping employees adopt real time health care pricing strategies; partnerships with local health care centres of excellence; carve out solutions for high cost care; and the annual employer panel discussing best practices and success stories.