{"id":51052,"date":"2023-11-29T00:00:49","date_gmt":"2023-11-29T05:00:49","guid":{"rendered":"https:\/\/roundstoneinsurance.com\/?p=51052"},"modified":"2024-08-28T14:04:05","modified_gmt":"2024-08-28T18:04:05","slug":"how-to-find-the-best-stop-loss-captive-for-your-employee-health-plan","status":"publish","type":"post","link":"https:\/\/roundstoneinsurance.com\/excelsior\/blog\/how-to-find-the-best-stop-loss-captive-for-your-employee-health-plan\/","title":{"rendered":"How to Find the Best Stop-Loss Captive for Your Employee Health Plan"},"content":{"rendered":"

Captives are an innovative way for small and mid-size businesses to self-fund their employee health benefits<\/span><\/a>, proving to be a better alternative to the traditional, fully insured approach. Self-funding with a captive offers companies more transparency, control, and savings year after year.<\/span><\/p>\n

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Roundstone was the first to pioneer stop-loss captives<\/span><\/a> for self-funded health insurance back in 2005. Since then, many have caught on to the effectiveness of this model, and new captives seem to be popping up every day. Roundstone is glad to see the industry catching on and employers begin to move away from the \u2018set it and forget it\u2019 mentality of fully insured plans, taking a more active role in their employees\u2019 health benefits. But it\u2019s important to <\/span>realize not all captives are created equal<\/span>. They can differ widely when it comes to cost, savings allocation, and flexibility.\u00a0<\/span><\/p>\n

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Whether you\u2019re a benefits advisor or an employer, it\u2019s important to do your homework and read the fine print when comparing captives. Here are the important questions to ask when <\/span>choosing the right captive for your self-funded health plan<\/span><\/a>.<\/span>\u00a0<\/span><\/p>\n

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What is a Stop-Loss Captive and How Does It Work?<\/h2>\n

A typical insurance captive pools many businesses together, effectively distributing risk and enabling them to <\/span>self-insure their healthcare benefits with greater confidence<\/span><\/a>.\u00a0<\/span>\u00a0<\/span><\/p>\n

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In a stop-loss captive, like Roundstone\u2019s Captive, you have an added layer of protection. In this three-tiered model, employers pay for healthcare costs up to a specific deductible, share some costs above that deductible across a pool of hundreds of other employers in the captive, and finally, shift costs to a stop-loss carrier to cover any catastrophic claims.\u00a0<\/span>\u00a0<\/span><\/p>\n

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Self-funding with a stop-loss captive<\/a> allows companies to pay directly for the healthcare of their employees. Unlike fully insured plans, where companies pay a set premium to their insurance carrier that\u2019s often more expensive than the actual cost of their healthcare claims, self-insured plans allow companies to pay only for the insurance they use. This prevents wasteful spending on unused benefits, which would otherwise be pocketed as profits by the insurance carrier.\u00a0<\/span>\u00a0<\/span><\/p>\n

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When choosing a captive for your employee health plan, it is critical to evaluate your options based on a few key financial metrics and the operational philosophy working behind the scenes.\u00a0<\/span>\u00a0<\/span><\/p>\n

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What\u2019s the Price of Admission? Evaluating Collateral<\/h2>\n

When considering a stop-loss captive for a self-funded health plan, take a look at the price of collateral \u2013 which is essentially the price of admission into the captive. <\/span>Collateral is a percentage of the stop-loss premium<\/span><\/a>. A stop\u2013loss premium works like a safety net \u2013 it is the amount you pay to protect yourself in case the healthcare costs of your employees go way above what you expected.<\/span><\/p>\n

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The collateral is there to help cover any unexpected costs that might be more than the amount the captive has received as premium. However, if you\u2019re joining a large, well-established captive, like Roundstone\u2019s, the likelihood of having to dip into the collateral is extremely rare.<\/span>\u00a0<\/span><\/p>\n

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As the price of admission, you want collateral to be as low as it can be. Roundstone\u2019s is 7% for new business, paid one time upon entry \u2013 this is the lowest in the industry to date. In the world of captive insurance, most collateral tends to be between 11% and 15%, though sometimes it can be as high as 25%. And some captives will require you to pay collateral two years in a row \u2013 this is known as \u2018stacked collateral\u2019 – causing you to pay twice as much.<\/span>\u00a0<\/span><\/p>\n

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What happens to your collateral if you decide to leave the captive? While some captives keep your collateral, at Roundstone, we consider this to be your money. Not only do we return your collateral payment when not needed to pay excess claims, but we also return the investment interest your money gains. We don\u2019t believe in handcuffs.<\/span>\u00a0<\/span><\/p>\n

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What is the Size of the Captive Loss or Return Fund?<\/h2>\n

The captive loss fund, also known as the captive return fund, is another key attribute of a financially efficient captive. This is the pool of funds accumulated from the stop-loss premiums paid by the employers participating in the captive.<\/span><\/p>\n

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Throughout the policy period, claims within the captive layer are paid out of this loss fund. When there is a surplus \u2013 meaning that the total premium dollars reinsured to the captive exceeds the sum of all claims and operational expenses \u2013 this excess can be distributed back to the employers, in the form of a cash distribution.<\/span>\u00a0<\/span><\/p>\n

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Essentially, 68 to 70 cents of every stop-loss dollar goes into Roundstone\u2019s return fund. In comparison, most captives only deliver 50 to 60 cents on the dollar into their fund available to pay claims. Additionally, Roundstone pays investment interest on these dollars while other captives do not.\u00a0<\/span>\u00a0<\/span><\/p>\n

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Since its inception, Roundstone has distributed over $72 million back to captive participants. How is Roundstone able to reliably pay a distribution to its employer groups, when other captives don\u2019t? Simple \u2013 with a commitment to keeping fixed costs low, applying effective cost containment solutions, adhering to sound claim adjudication principles and passing any surplus back to employers where they belong.\u00a0<\/span>\u00a0<\/span><\/p>\n

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What is the Expense Load of the Stop-Loss Captive?<\/h2>\n

The expense load of a stop-loss captive refers to the various operational and administrative costs associated with running the captive and providing stop-loss coverage. It\u2019s important to find a captive that prioritizes keeping these costs as low as possible. Some captives will retain more for their services, requiring a higher expense load, effectively eliminating any possible surplus that would otherwise be distributed back to participants.\u00a0<\/span>\u00a0<\/span><\/p>\n

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A lower expense load can be achieved with a commitment to lower fixed costs whenever possible and by actively negotiating expenses like excess reinsurance and fronting fees. Some captives will pay more for these expenses while also retaining more for their captive management services, resulting in little to no surplus left for their participants. <\/span>\u00a0<\/span><\/p>\n

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Roundstone was recently able to negotiate a sliding scale reduction of fronting fees with our reinsurance partners, bringing it down from 5% to 2% of stop-loss premium. Rather than pocketing these savings by raising our management fee, we instead pass these savings on to our groups by reducing our captive\u2019s expense load, resulting in a higher return fund and thus a higher possible distribution.\u00a0<\/span>\u00a0<\/span><\/p>\n

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By remaining committed to a philosophy of alignment and always acting in the employers\u2019 best interest, Roundstone is able to provide one of the lowest expense loads for a stop-loss captive available in the industry.<\/span>\u00a0<\/span><\/p>\n

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