Self-Funded Medical Benefit Plans

Health insurance premiums are one of the top three expenses faced by employers. And, with premiums expected to rise between six and ten percent a year, there is no end in sight.  In addition, as new, super drugs are developed to treat life-threatening diseases, such as cancer and heart disease, premiums will increase even more, since these drugs can cost as much as $10,000 to $20,000 per pill or treatment.  As a result, if employers want to continue to provide quality medical care to their employees, they will have to find new and innovative ways to address the problem of rising health insurance premiums.

Reducing the quality of healthcare is not an option.  Employers need to provide quality medical care to their employees in order to attract and retain top talent.  But, employers will have to find ways to contain costs.  Some employers have asked their employees to bear an increasing portion of the premium expense.  In addition, some employers have limited the networks available to their employees.  However, many employers are asking whether there is a way to contain their costs without shifting costs to their employees or lowering the quality of care.

For some employers, the answer may be a self-funded medical benefit plan with stop-loss insurance.  In addition, it may make sense to combine a self-funded medical benefit plan with a captive insurance company.  This article addresses the advantages of adding a captive insurance company to a self-funded medical benefit plan.

How does a self-funded medical benefit plan work?  First, an employer agrees to pay for a portion of medical expenses and administrative costs from its general assets.  This is the self-funded portion.  Second, in order to protect itself from unexpected and catastrophic expenses and cap its exposure, it obtains stop-loss insurance to cover claims in excess of a pre-determined amount.  In many cases, the sum of the employer’s self-funded portion and the stop-loss premiums will be less than the premiums it used to pay for health insurance.  So, the employer experiences immediate savings.  Furthermore, if the employer purchases stop-loss insurance from its own captive insurance company, it may realize other benefits, such as:

1. Premiums paid to the employer’s captive may be lower than premiums paid to a commercial insurance company, because the employer’s captive does not have expenses, such as commissions to agents, premium taxes, profit requirements and reserve requirements, all of which increase the cost of commercial insurance.
2. The employer can design its policy to meet its unique needs, instead of having to choose from an insurance company’s prepackaged program.
3. The employer will have greater control over the amount and timing of premium payments, which enable to employer to better manage its cash flow.
4. The employer, as owner of the captive, retains a certain amount of control over the investment of its premium dollars.
5. The employer’s captive, instead of an unrelated commercial insurance company, benefits from positive claims experience.
6. The employer gains access to the reinsurance market, which provides greater protection and may further reduce costs.
7. The employer can seamlessly transition from a fully-insured medical benefit plan to a self-funded program.

Large employers have used self-funded medical benefit plans for years to control costs and provide quality medical care to their employees.  Many large employers also have established captives to share in the risk and the profits.  These same concepts are now available to small employers, as well.  There are a number of stop-loss carriers willing to write insurance on groups with as few as 15 employees.  In addition, captives have become much more cost-effective for small employers.

How can RMC help you and your clients create self-funded medical benefit plans combined with a stop-loss captive insurance company? RMC is an international risk management company that provides you with:

1. Access to the worldwide reinsurance market;
2. Actuarial pricing models;
3. Access to cost savings programs;
4. Expertise in establishing and managing captives;
5. Knowledge in plan design;
6. Access to provider networks;
7. International partnerships for cost stabilization programs; and
8. Personalized employee presentations.

Our access to worldwide markets enables us to deliver the most effective and competitive programs available. For more information, contact RMC Group at 888.599.5553 or rmc@rmcgp.com.