15 April 2016Actuarial & underwriting

Medical stop loss captive usage growing

QBE North America, an operating division of global insurer QBE Insurance Group, has released a new white paper about the increased use of medical stop loss captives by companies that self-fund their employee health insurance plans.  The white paper explains that a key advantage for large companies with their own captives is the ability to provide the stop loss coverage in the form of reinsurance instead of insurance. With this approach, front fees, premium taxes, collateralisation and other costs associated with issuing an insurance policy can be greatly reduced, it said.  Titled Medical Stop Loss Captives: Issues and Answers, the paper attributes the recent growth to several factors.  It said large companies that did not need to pair medical stop loss with their self-funded plans now find the coverage necessary due to rising healthcare costs, as well as mandates in the Affordable Care Act (ACA), such as unlimited lifetime benefit maximums. Large companies that already had a self-funded plan and medical stop loss coverage are also looking for more efficient methods to finance that coverage, according to QBE North America.  An increasing number of medium and small-sized companies are also converting to self-funded plans to manage the cost of complying with the ACA, according to the report. It said that as they do, they need medical stop loss coverage, and insurers are developing new group captive structures in response. Group captives allow small employers to gain the negotiating power of a large company, said the whitepaper, which QBE North America said can generate volume-related discounting with provider networks and other service providers to better manage costs. Captive participation in an excess coverage (medical stop loss) that supports a self-funded plan can amplify the benefits derived from self-funding alone, according to QBE North America. A captive can also efficiently absorb some of the risks often excluded by traditional medical stop loss policies, such as certain individuals with large, ongoing medical conditions, it said.  "We've seen interest for these types of plans double over the last few years," said Phillip Giles, vice president (VP) of sales and marketing for QBE North America's accident & health (A&H) business. He added: "There is a great opportunity for large companies that already have a captive established for their casualty lines to add medical stop loss as a way to augment the utility of the existing captive and provide a short-tail profitability hedge to longer tail coverages."  Steven McFarland, VP, underwriting for QBE North America's A&H business, added: "For smaller employers, we often look for various forms of group captive structures that pool the resources of multiple companies to achieve economies of scale. “Different options are available for groups of employers in similar or varied industry classifications. These options can be structured as a member-owned or even rent-a-captive."