As the January 2017 renewal season comes to a close and the dust begins to settle, Roundstone will again see a significant increase in mid-size companies entering our private and public captives. Despite the clear benefits of a company being self-insured in a group captive, we still see some common objections to this cost-effective model. Below are the five most common concerns from prospective employers:
1) “The maximum cost is greater than my fully insured renewal”
When an employer is considering a transition from fully insured to self-insured in a Roundstone medical group captive, this is an objection we hear often. In reality the average employer in one of our private or public captives performs at 97 percent of the expected cost and nowhere near the maximum cost. Our average captive participant receives an eight percent distribution from underwriting profit which is not considered in the maximum expected cost. Making a buying decision on an outcome that is the least likely to occur is not wise.
In a variable cost model like the medical group captive, when actual claims are less than expected, 100 percent of savings are retained by the employer. On the other hand, if an employer is fully insured, paying max cost is guaranteed. That’s why the Roundstone captive solution proposal does not fit well in a spreadsheet comparison. The Roundstone stop loss captive is a long-term solution which gives the employer the tools and strategies to contain cost and continue to offer a competitive benefits package to employees.
2) “My company is too small to be self-insured”
98 percent of companies with 1,000 or more employees are self-insured. Why? Because it’s the most cost effective solution to providing medical benefits available today. Roundstone has developed a model that allows companies with as few as 20 employees to enjoy the same plan flexibility and cost containment strategies as larger companies. When many of these smaller companies pool their risk, their risk becomes highly predictable which drives down premium. And when these employers collectively own the captive, any unused premium is returned to the employer at end of the underwriting year.
In addition, cash flow features of our policies such as Specific Advance Funding and Aggregate Accommodation assist employers with claims funding and make the self-funding experience cash flow neutral.
3) “Self-funding is complicated and requires additional resources”
In fairness when the concept of self-funding medical insurance is first considered by mid-size employers, it can appear intimidating. But once the concept is presented and budgeting or funding numbers are established, an employer can fund the plan on a monthly basis similar to a fully insured monthly premium. The difference being if at the end of the year your fund has a surplus, instead of the insurance company retaining the profit, 100 percent stays with the employer.
Roundstone approved and certified TPAs will help with employee enrollment, ACA reporting, claims processing, customer service call center, plan document, member on-line portal, etc. These TPAs offer best in class claim reporting, faster claim turnaround, and superior customer service at a more effective price than the fully insured market. These services are turnkey and require no additional staffing by the employer. One way to look at self-funding is it’s not more complicated vs fully insured, it simply offers more options.
4) “Not comfortable with lasers”
Lasers are an option for known large ongoing risks. They are essentially a separate deductible above the employer’s specific stop loss deductible to protect the underwriting results of the captive. At Roundstone our experienced underwriters offer lasers to present more cost-effective solutions that reduce the impact of large claims. This process often results in better outcomes and benefits the employer, the captive, and the claimant.
In the event that the large claim does not happen, under a laser arrangement the employer would save the cost of the claim. In a fully insured arrangement the employer would lose premium dollars that were charged to fund the claim. Also, when applying lasers to offset risk, it is easier to offer different risk sharing options to the employer. Conditional Lasers may also be available for certain health risks.
5) “Level funding is less risky vs self-funding in a captive”
Many of the large fixed cost insurance companies offer level funded programs to mid-size employers in an effort to realize some of the benefits from self-funding. Unlike being self-insured in a captive, level funded programs have high fixed costs that can reach 60 percent, offer minimal credit back to the employers for underwriting profit, provide limited plan design flexibility or control over other service providers, and the employer assumes 100 percent of claim volatility. Furthermore, costs to exit or renew level-funded plans tends to be very expensive. What is presented as less risk than traditional spec and agg funding is actually very risky. Level funded products are best described as fixed cost insurers trying to retain as much of the underwriting income as possible under the guise of self-funding.
In contrast when an employer is self-funded in a group captive, 100 percent of underwriting profit is returned to the participants, fixed costs are approximately 15 percent of the total premium, the employer has complete transparency and plan design flexibility, and the captive mitigates the risk for large claims above the specific deductible. Clearly the medical group captive brings all the benefits of self-funding with low volatility without the high costs of level funded products.