MEBCO forms Delaware cell facility

The Municipal Employee Benefits Consortium (MEBCO), last year completed the formation of a Delaware-licensed captive cell facility, after a long history of risk buying and sharing between the nine New York state governmental entities that make up the group.

Speaking during a panel session at the 2026 World Captive Forum, MEBCORP president Jerry Faiella, explained the unique structure of the facility, and how he hoped more local government entities would be able to utilise it with their own cells to benefit from a captive solution.

Faiella began by setting out the origins of the consortium, explaining that it was “a group that was put together, developed by municipalities for municipalities to provide health benefits”.

The consortium was originally formed in 1989 after New York State local government entities participating in the state health benefit programme were notified of significant rate increases.

“They announced double-digit rate increases three weeks prior to the beginning of the fiscal year,” Faiella said. “Many of the local governments at that time had already adopted budgets.”

Early structure

Faiella said that under New York State law, government entities are permitted to join together through inter-municipal agreements to purchase benefits collectively.

“That provision of law allowed several municipalities in Westchester County to band together,” he said.

In its early years, the programme did not include risk sharing or stop-loss protection, with each municipal entity making a monthly contribution to make their claims that were incurred by that entity’s part of the enrolment.

“There was no risk sharing. There was no stop-loss protection. For a smaller community with maybe 100 or so employees, any catastrophic claim could put them in a negative balance position,” he added.

Sharing risk

MEBCO introduced a shared risk layer in 2013, marking what Faiella described as the beginning of a more sustainable structure.

Under the structure, claims above a defined threshold were shared across the group.

“There was a shared layer for anything over $75,000,” Faiella said. “That shared layer provided entities with protection against high-cost claims.”

Despite these changes, regulatory concerns emerged around the shared risk pool.

“The state’s Department of Insurance had regulatory guidelines, and when they spoke with us, they realised this concept and they were very concerned,” Faiella said. “Their concern was that failure could require the state to bail out the unfunded portion.”

Captive move

In response the group moved to find an alternative captive arrangement. After two interviews, the group moved into a carrier-sponsored captive cell in 2019, which satisfied the regulator, and at first the members.

“They were pleased that it was now an insured environment, and it made the transition seamless for the entities,” he said.

However, Faiella said that operating in a sponsored captive environment ended up leaving MEBCO with limited control, and feeling like “passive participants.”

“We used to get to March and suddenly see claims show up at the end of the year,” he added. “We were very concerned about something we didn’t have control over.”

As a public entity answerable to taxpayers this issue of needing control was further amplified.

“We wanted to programme so that, had a taxpayer shown up at a meeting, and asked about our employee benefits, we could give them the full story from dollar one all over,” he said.

Owned captive

The group operated in a different captive manager-sponsored cell from 2023, which provided slightly more control, but MEBCO soon began designing a long-term captive solution to achieve the full level of control desired by members.

“We said, ‘let’s design something that’s a long-term solution here, that gives us maximum control, maximum visibility,’” Faiella said.

The result was the formation of a Delaware-licensed special purpose series LLC in January 2025.

“We were required to form a C corporation,” Faiella said. “The reason we formed that is because local governments cannot own a corporate structure.”

The facility operates on a zero-profit basis. All the invoices that come in for services are passed through with zero markup.

The captive includes a non-risk-bearing administrative core and a medical stop-loss cell which carries MEBCO’s risk

Governance and transparency

While the facility carries with it higher costs to operate for MEBCO, it enables full administrative control and full transparency.

Faiella said governance and reporting had been central to the captive’s design.

“Every month, each member of our consortium gets a financial report,” he said. “We have meetings every month with the stop-loss carrier. We have a very good understanding now of what the reserve amount looks like and what claims development may be.”

According to Faiella, engagement from consortium members has increased as the structure has evolved.

“They wanted that engagement,” he said. “They wanted to know more. They wanted to be advised of where things were.”

Additional cells

Faiella said the Delaware captive cell facility has been designed to allow for additional cells to be formed by other qualifying local government entities.

“We’re on this journey now to look at how do we build more cells in this and what does this offer other local government jurisdictions throughout the country,” he said.

Under the structure, any new participants would be required to meet specific eligibility criteria, abiding by the Internal Revenue Code’s Section 115 for governing government entities.

But the structure has been intentionally built for public-sector use, and new cells could write different risks to medical stop-loss, such as property or liability risks.

Governance would expand alongside participation, with new cell owners represented at board level.

“All the heavy lifting has been done, and what we’re showing is this has been a very positive thing for us,” Faiella said of the group’s experience operating through a captive structure.

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