By David Konrad, Regional Practice Leader
I recently reflected on the ten-year evolution of my introductory meetings with medical insurance advisors and employers. For the first 7 years, the meetings were captive and partial self-funding 101. Despite the basic needs of my audience, I had an uncanny ability to baffle everyone in the room by weaving in “impressive” wordy phrases like reinsurance quota share risk taking, and aggregating specific stop loss deductibles. Blank stares prevailed.
The proliferation of level-funded and captive programs from the BUCAs (Blues, United, Cigna, Aetna) has completely changed my first meeting approach. The 101 classes remain relevant, but today I focus on “what matters most.” That’s why we are all here, right?
3 factors working in tandem
When advisors or clients ask what matters the most to achieving a successful medical captive program, I consistently respond with the following:
1. Efficency of the captive pool
Most of the stop loss industry uses similar underwriting manuals resulting in premiums that don’t vary much from carrier to carrier. Therefore, the differentiating factor is the program that puts the majority of the stop loss dollars into the employer’s pool. The bigger the pool, the greater potential increase in return of those dollars. How do you accomplish this? Bind the program with the highest variable costs. This might sound daunting but if an employer’s variable cost is roughly 85% or more of their health care spend, they’re in good company. An efficient captive program drops 65 cents or more of every stop loss dollar into the pool.
And what about level funded programs that return “credits!” Is that analogous to monopoly money? Cash will always be king and most employers value cash over a renewal credit when looking to contain their health care spend. If you need to start writing algorithms for employer’s to actually receive anything back from the employer or pool’s performance, you probably loved my antiquated captive 101 presentations.
2. Down payment (price of admission)
How much of the premium dollar does the employer have to set aside for the pool’s reserves (collateral)? The lower the dollar amount the lower the barrier to entry. We could talk about how lower collateral numbers also reflect program economic efficiency but then I’d be slipping into my old, wordy ways.
Side note: In our captive marketplace, your clients may be asked by program managers to pay for a feasibility study. In the spirt of straight talk, why should your client pay for a term paper written by a novice? You keep their best interests in mind by recommending a captive program that does not charge up-front fees. Roundstone, for example, has experienced on-staff underwriters that do nothing but underwrite an employee benefit captive program 365 days a year.
3. Exceptional underwriting and communication
To achieve administration excellence, these factors are critical:
- Is quarterly reporting available enabling advisors to consistently consult with employers throughout the plan year?
- Are the dividends paid in a timely fashion (180 days after renewal)? If you change stop loss carriers annually, this cannot occur. Imagine the paperwork nightmare keeping track of the different carrier’s reinsurance and captive agreements as your pool migrates from carrier to carrier annually.
- Is the captive manager the program’s underwriter? Doing so gives you flexibility and consistency. This flexibility allows you to underwrite any cost containment, Third Party Administrator (TPA), network, RBP, plan design, etc., scenario desired by your client.
- Will your client have the same underwriter(s) reviewing the pool and its evolving cost containment culture? If the program’s cost containment providers are hard coded, the captive manager is not acting on your client’s best interest.
When underwriting and program management are under one roof, and this is all your provider does day in and day out, your clients will experience consistent, timely results. At the end of the day, you can deliver what matters most to employers – cash back where it belongs. In their hands.