Strategies for controlling medical insurance costs
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This document discusses strategies for controlling escalating medical insurance costs through greater employer control and participation in alternative insurance models like captives. It outlines how traditional insurance results in annual double-digit cost increases and minimal transparency or control. A captive insurance program places employers in a group that shares risks and returns, gaining stability, transparency and the ability to retain underwriting profits and investment returns to offset premiums. The document provides an overview of captive definitions, design considerations, and underwriting guidelines to establish a captive program.
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Strategies for controlling medical insurance costs
- 1. Strategies for Controlling Medical Insurance Costs How to stop the annual rate increase of 15% for medical insurance coverage.
- 2. Traditional vs. Captive Participants Moderator: Michael A. Schroeder – President, Roundstone Management, Ltd. Panelists: David Reynolds – President, Chief Executive Officer, Capitol Administrators Bernie Tillotson ‐ Managing Director, Employee Benefits Division, Andreini & Company 1
- 3. Traditional vs. Captive Program Outline • Stabilize escalating premiums with greater control over the delivery of insurance • Standard Stop Loss coverage issued by an A rated insurer along with Captive participation • Premium savings through investment and underwriting return • Medical Stop Loss Advantage Program requirements 2
- 4. Traditional vs. Captive The Standard Market The Standard Market = Minimal Control, No Transparency • Unanticipated rate increases • Burdensome plan marketing • Available responses – Change carrier – Change benefit levels – Change contribution schedule Today’s annual cost increases will double premium in 6 years 3
- 5. Captive Definitions Average Annual Premiums Average Annual Premiums for Single and Family Coverage, 1999‐2009 1999 2,196 5,791 2000 2,471 6,438 2001 2,689 7,061 2002 3,083 8,003 2003 3,383 9,068 2004 3,695 9,950 Single 2005 4,024 Family 10,880 2006 4,242 11,480 2007 4,479 12,106 2008 4,704 12,680 2009 4,824 13,375 ‐ 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Source: Kaiser/HRET Survey of Employer – Sponsored Health Benefits, 1999 – 2009. 4
- 6. Traditional vs. Captive Larger Employers – Self Fund Percentage of Covered Workers in Partially or Completely Self‐Funded Plans, by Firm Size, 1999‐2000 Source: Kaiser/HRET Survey of Employer – Sponsored Health Benefits, 1999 – 2009. 5
- 7. Traditional vs. Captive Why Large Employers Self Fund • Control over benefit plan and claims administration • Complete data and cost transparency • National plan consistency, no state mandates • Cash flow benefits (“pay as you go”) • Custom designed best in class wellness/behavioral programs 6
- 8. Why Don’t Mid‐Size Employers Traditional vs. CaptiveSelf Fund? Volatility – employers’ costs can vary significantly due to large claims or an aggregation of smaller claims Turnkey Program – Running a self insurance program can be intimidating. Plan design, TPA/Network selection, stop loss contract negotiations 7
- 9. Traditional vs. Captive Opportunity Stop Loss Group Captive Capture underwriting and investment income by combining Best in Class Companies into a medical benefit group captive. 8
- 10. Captive Definitions Captive Definitions Captive An insurance company that provides insurance to and is controlled by its owners. Group Captive A group captive is an insurance facility formed by companies joining together to share risk. Each have a desire to control their own risk. Member companies maintain good loss histories and effective risk management programs. 9
- 11. Traditional vs. Captive The Captive Difference Traditional Program Captive Stop Loss Program Cycle driven Smoothes Cycles and Cash Flow Transaction driven Relationship driven with Transparent Communication No alignment of interests Skin in the Game for all Participants Generic services Specialized Services No Return on Investment Retain U/W Profit and Investment Income 10
- 12. Program Design Program Design • All participants committed with a capital investment (collateral) in the form of cash • Participants’ exposure is limited to premium and collateral • Participants take ownership in growth and economic success 11
- 13. Traditional vs. Captive Market Claimants Claims Payments A B C D E Stop Loss Stop Loss Premiums Reimbursements Reinsurance Policy Issuing Carrier Group Captive Facility Stop Loss Reimbursements U/W Profit and Collateral Investment Returns Captive Participants A B C D E 12
- 14. Reinsurance Structure Group Aggregate for Captive Aggregate available for Participant’s Deductible exposure 13
- 15. Risk Sharing Heterogeneous Risk Sharing 1 The Hierarchy of Loss Application Participant Loss Fund 1. Loss Fund of each Participant 2 2. Then, the Indemnity Collateral of each Participant Participant Indemnity Collateral 3 3. Then, the Loss Fund of all Participants proportional with their Proportional Share of All Participants’ Loss Fund Assumed Premiums 4 4. Then, the Indemnity Collateral of all Proportional Share of All Participants’ proportional with their Participants’ Indemnity Collateral Assumed Premiums. 5 5. Aggregate Reinsurer Aggregate Reinsurer 14
- 16. Risk Sharing Association Risk Sharing The Hierarchy of Loss Application 1. Losses shared Pro Rata of each 1 Participants Assumed Premiums Proportional Share of All Participants’ Loss Fund 2. Then, the Pro Rata Indemnity 2 Collateral of all Participants’ proportional with their Assumed Proportional Share of All Premiums. Participants’ Collateral 3 3. Aggregate Reinsurer Aggregate Reinsurer *Individual employer aggregates can be reinsured via the Group Captive layer 15
- 17. Group Captive Start Up Considerations • TPA/Network Selection • Deductible Levels • Employer Aggregate Issues • Wellness/Behavioral Programs 16
- 18. Group Captive Group Captive Benefits Reduce operating costs over time with the best overall price Realize underwriting profits and investment income Stabilize an unpredictable and cyclical marketplace Control claims, coverage, loss control, frictional costs 17
- 19. Underwriting Guidelines & Submission Requirements Underwriting Guidelines • 50+ employee Groups • Minimum of $20,000 Deductible • Support culture of health and wellness Submission Requirements • Completed Application or RFP outlining criteria • Current Detailed Census • 3 Years Stop Loss Premium and Detailed Claims History • Copy of Current Policy • Copy of the Current Plan, Proposed Plan(s) and accompanying documents • Identity of the current and/or proposed TPA 18
- 20. Contact Contact 826 Westpoint Parkway, Ste. 1250 Westlake, Ohio 44116 703.966.9797/c 202.362.2154/p 440.617.0333x234/p 202.478.1858/f dmccully@roundstoneinsurance.com www.roundstoneinsurance.com 19