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Large firms often hold down health care costs by "self-insuring," or funding their employees' health expenses directly.

Your small-business clients should consider this strategy, too. Self-insuring gives clients a chance to take direct action to hold down their employees' health care costs.

But how can a small employer cope with the administrative costs associated with self-funding, and how can a small employer overcome the disadvantage of having a very small risk pool?

One possible solution may be offering a small business the option of participating in a health "captive."

A captive gives several employers a vehicle they can use to band together to fund all of the sponsors' health care costs.

A captive can provide all the benefits of self-funding, but with additional protection against catastrophic costs, because the captive covers many more people than any single small employer does.

An employer in a captive also can

  • Buy stop-loss insurance to further protect against big claims, just as it could if it were sponsoring a traditional self-insured plan. This add-on insurance can cover any health care costs above pre-set dollar amount, or attachment point.
  • Tailor its coverage to meet the needs of its employees, just as it could if it were sponsoring a traditional self-insured plan.
  • Get the kind of claims data it needs to create successful wellness and condition management programs, just as it could if it were sponsoring a traditional self-insured plan.

One risk associated with traditional self-funding arrangements is "lasering," or the possibility that a stop-loss insurer will refuse to cover some employees or dependents with high medical bills. A health captive may be able to protect the participating employers against stop-loss lasers.

— Read Understanding and Positioning Captive Insurance Arrangements on ThinkAdvisor.

Seth Denson Seth Denson (Photo: Denson)

Seth Denson is the principal and co-founder at GDP Advisors.

 

 

 

 

 

 

Anthony Evans Anthony Evans (Photo: Evans)

Anthony Evans is the President of Business Development at Henry Investment Group.

 

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