Plumbers stop water leaks, but how do you stop profit leaks due to healthcare inflation?
When evidence of water infiltration arrives in your house, the solution resides with a plumber. Prior to service the plumber will identify the items you will pay for and the cost for each, such as: travel time and labor and materials. A Contract will be signed upon the plumber’s arrival and the agreement is clearly understood by both parties.
Continuously increasing healthcare costs drain an employer’s hard-earned profits. Traditional fully-funded or level-funded insurance programs provide no real transparency on healthcare cost drivers. Increased cost-shifting in the form of higher deductibles and coinsurance reduces employee total compensation. This adversely impacts employee morale along with the employer’s ability to recruit and retain quality employees and impedes the employer’s business objectives.
Self-funding is the solution to stop profit leakage for middle-market employers.
More than 70% of all employer sponsored healthcare in the US is self-funded. Self-funding increases an employer’s control over plan design and allows an employer to deliver healthcare benefits that more closely coincide with the firm’s financial, risk, and employee benefit objectives. Self-funding also improves transparency in terms of identifying specific cost drivers and claim trends within the plan and allows the employer to implement targeted risk mitigation initiatives. Self-funded employers also experience impactful cost reductions in insurance carrier overhead, reduced state premium taxes and avoidance of some ACA-mandated assessments. Employer plan sponsors contract with a Third-Party Administrator to provide medical and pharmacy benefit administration, under the employer’s direction, for covered members. Medical stop loss coverage is purchased by the employer to stabilize the plan against large individual claims or an unusual accumulation of claims attributable to the entire population of enrolled plan members. Human resource can focus on attracting the talent pool your company seeks and engaging employees based on your core operational values.
Capitalizing on control: Group Stop Loss Captives
Middle-market employers, those with 50-500 employees, can also take advantage of pooling principles and the law of large numbers by participating in a medical stop-loss group captive. By collectively replicating the risk profile of a much larger entity, medical stop-loss group captives are able to reduce the effects of medical inflationary trend and promote overall cost stability by spreading risk across a larger grouping of participants.
Considerations for selecting a captive program
Well run captive programs will provide complete transparency as to administrative and operational fixed costs that are part of the employer’s indirect participation expenses in the captive. Any participation bylaws that the captive requires or the employer to remain in the program, either time or cost impact, should also be clearly outlined up front. The impact of fixed versus variable cost increases and the ability to lower medical spend should be reflected in the program’s published financial results.
Supply and demand principles do not impact medical inflation due to hospitals lack of transparency. The solution for combating the negative impact of healthcare cost leaks on employer profits resides in self-funding. The middle market employer’s best and most efficient method is the stop-loss group captive.
Don McCully runs Medical Captive Underwriters LLC, (www.medicalcaptive.com). A program management company focused on alternative risk transfer solutions to lower employer’s costs in both accident and health & property and casualty insurance. Primary focus today is employee benefit advisors assisting them to lower medical spend and medical trend for employers enrolled in ClearCaptive. ClearCaptive is a 50 state open, stop-loss captive solution for middle market employers above 50 employees enrolled on the Plan.