How captives can take medical stop loss to the next level

In the COVID-19 era, employers are intensely focused on the wellness of their workforce, how to facilitate positive change and how to cut health-related losses. Captive strategy is one way in which organisations can proactively manage healthcare costs.

If a captive is targeted at claims that are going to hit the stop loss layer, there are several ways to take it to the next level, Karin Landry, managing partner for Spring Consulting Group, said in a Q&A session as part of CICA’s Building the Best digital education series.

These include carving out drug programmes, the use of centres of excellence, second opinion bundled payments and transparency tools.

“More and more captives are providing resources to employers,” she added. “We have a client that didn't have enough money in their budget to provide a certain type of care management in their self-insured layer. The captive decided to hire that person and provide it in the captive layer. I think that's the next generation.

“A lot of people have done typical stop loss, or maybe they've even purchased a bundled turnkey captive solution. If it's a turnkey solution, the frictional costs associated with it might be pretty substantial. The ‘next generation’ for them might mean spinning out either into their own cell or their own standalone pure captive, and then they just have to worry about: how do they fill the void that the turnkey solution provided?”

She also highlighted the potential for funding retiree medical liabilities, having worked for many years on the long-term retiree medical stop loss programme offered by Energy Insurance Services (EIS), a South Carolina-sponsored captive insurance company and subsidiary of Energy Insurance Mutual (EIM) which offers cell captive solutions to EIM’s members.

“It's produced fantastic results for the participants, returned millions of dollars,” she said. “It is a long term stop loss type of programme that funds that liability and lowers the cost.”

Elaborating on this, EIS COO Randy Martin said its advantages include the cost benefit of having your investment portfolio grow uninhibited by taxes.

“From an accounting standpoint, our assets and liabilities effectively remain in equilibrium with one another, which really provides an advantage as investment income rises,” he added, noting that based on the claim experience from the previous year, census, and actuarial projection for the following year, the level of coverage can actually grow.

“In fact, with the run up of the equity markets over the last seven to eight years, it continues to grow,” he said. “That value of expanding that benefit back to these insureds, has been phenomenal.” He cited the example of one of the earliest policyholders, going back to 1995. “They pre-funded their entire premium inside the first two or three years,” he said. “They have been paying out millions upon millions of dollars, year over year, and their investment portfolio today is nearly equal to what it was 25 years ago.”