Health Insurance Captives are being hailed as the latest means of maneuvering around the Affordable Care Act. Captives (or healthcare coalitions) are insurance groups controlled by a large group of employers who choose to participate for the explicit purpose of reducing risks and health care costs. Captives are being increasingly preferred by small and medium sized businesses (SMEs) because of their effectiveness.
This captive group is generally comprised of businesses which are too small or lack the proper capital for self insurance. The idea of sharing losses works best if the goal of each business is better aligned, for this reason businesses within the same industry (or overlapping areas) make up the coalition. The end goal is to drive down the cost of claims and administration, as compared to if they went through more mainstream insurance options in the market.
It’s a fact that successful captive health plans are able to decrease the employer’s cost of healthcare. If done right, businesses can shave as much as 30% to 50% off of their employees. This figure is irrespective of how many employees they currently have or their plans. All incumbents of the organization receive profits at the end of the year based on their level of involvement.
This new niche is selling like hot cakes among small business owners because of the simple fact that it allows them to hop over the legal complexities of the Affordable Care Act. All companies have to do is sign up with a like-minded group of businesses and the consultants will take care of the required legal and administrative work needed to properly derive maximum benefits.
But any successful captive plan must have the following points
1) It’s a numbers game
The primary reason why captive plans work is because of the power brought about by numbers. Any group should ideally have about 1000 employees. But when it comes to captives, bigger is always better because it increases stability and predictability.
2) Members need to share the same goals
While small businesses have some level of control over their employee health initiatives, they can do little to control the habits of the member community at large. If the larger group does not share the same wellness programs, environmental factors, work and life balance and industry trends, then such employers are better off opting out and finding groups more attuned to their aims.
The attempts to lower their costs may just end up increasing the amount of risk on their end if the group has different objectives. To learn more about the healthcare coalition, it is a good idea to make use of tools such as feasibility and case studies to properly gauge if the group would be a better fit for your business.
The health insurance captive market might work well on paper, but for it to properly deliver its promises it must have a large number of employers and a better than average claims experience to take over the mainstream health insurance market. Otherwise it seems like a gamble at best.
