Page 27 - 2020 Peel & Holland Benchmarking Survey Results

WESTERN KENTUCKY EMPL OY EE BENEFIT S
BENCHMARKING SURVEY
HEALTH PLAN FUNDING 2017

ALTERNATIVE FUNDING METHOD

In the past, alternative funding solutions were primarily available to large corporations. However,
shifts in the group health insurance market have completely changed the landscape. Today, small-
and mid-sized businesses can also benefit from alternative funding options.

Group Medical Captive

A medical captive is a form of self-insurance that is a pool of small- to mid-
sized employers who are sharing the risk of their medical insurance by hosting
their own self-insured group, thus improving transparency, control and cost
savings. Its risk commences at a low, pre-determined individual stop-loss (ISL)
level and extends up to a high per-individual cap where a stop-loss carrier
then assumes the risk. Employers assume a portion of a claim’s cost by paying
for a share of each claim as it’s incurred. This allows employers to improve
cash flow, which ultimately results in reduced insurance costs for employees.

RISK | When you form a captive program, you are your own support system, and your
company must put its own capital at risk. You are more protected from bad years, but
you will be paying for the privilege. The fixed costs and up-front capital requirement are
higher than traditional self-funding. You also still retain the same risks of self-funding if
your claims pool begins to trend negative. There is also a possibility of barriers to entry
and/or exit. These barriers are designed to prevent unwanted changes to the insured
pool, but may make it more challenging to enter or leave the captive plan.

The captive protects
itself from excess
claims by buying
coverage from an
outside reinsurer
for individual claims
and total claims that
Reinsurance could exceed 125% of
(Risk Shifting) expected.
125% OF EXPECTED CLAIMS
The employer retains
some risk to reduce
their overall costs.
Group
Employer Medical
Self-Insured
Aggregate Claims Retention (Risk Sharing) The captive holds
Captive
(Risk Taking)
reserves for the
employer to pay
individual claims
over each member’s
retained risk level.
Individual Claims
$50,000 $500,000

PEEL & HOLLAND | 2020 Western Kentucky Employee Benefits Benchmarking Survey Results 25