Most employers make it a top priority to properly handle healthcare expenses. Group stop loss captives is a smart way for employers who use self funding insurance to add another layer of protection from high individual or aggregate medical claims. Today, more than 60 percent of employees in the United States are covered by self funded plans. More and more small- to mid-size businesses are making the switch from fully insured plans to self-funded policies. Learn more about group stop loss captives and what it could mean for employers who choose to self fund.
What Is Group Stop Loss Captives?
Employers that use self funding insurance to cover their employees’ healthcare costs have the option to purchase stop loss insurance. Medical stop loss insurance is not considered actual insurance, but is rather a strategic solution for businesses that seek protection against unpredictable or catastrophic losses. Captive insurance companies offer medical stop loss coverage as an alternative to fully insured insurance which is far more expensive but with less risk. While self funding insurance is more affordable, it does come with a higher level of risk.
How exactly do group health stop loss captives work? Employers who participate in a group medical stop loss captive must maintain self funded health benefits that are separate from other members. With group health stop loss captives, employers are still able to customize their plan rules, coverage levels, and details such as deductibles and copays. However, employers must remain in compliance with the federal laws that govern self funded insurance policies. Employers are also able to choose their own provider networks and third party administrators. Members are connected through a stop loss program purchased through a medical excess insurer.
What Is Self Funding Insurance?
Self funding insurance, otherwise known as self-insured plans, consists of employers providing healthcare benefits to their employees at their own financial risk. With self funding insurance, employers pay for medical claims out-of-pocket as the claims are presented instead of paying an insurance carrier a pre-determined premium as with fully insured plans. To ensure that incurred claims are paid on time, most employers will set up a special trust fund to earmark money form employee and corporate contributions. A third party administrator (TPA) is usually responsible for processing claims for employee benefit plans.
There are a number of reasons why employers choose to self fund. First, self funding allows employers the opportunity to customize their insurance plan to meet the unique healthcare needs of the company’s workforce. Self funding also allows employers to maintain better control over plan reserves which helps to maximize interest income. Self funding can also be beneficial for a company’s cash flow as employers are not forced to pre-pay for coverage. Another major benefit of self funding insurance is the elimination of certain taxes. Employers who self fund are not subject to state health insurance premium taxes which typically range from 2 to 3 percent of the premium’s dollar value.
What are the Benefits of Self Funding?
As a business owner, it is important to weigh your options carefully when it comes to investing in employee healthcare. Self funding insurance offers a range of benefits that you will want to consider. Cost containment is a vital advantage offered to self-funded employers. TPAs who manage self funded insurance plans have the option to search beyond standard network discounts to find other cost savings. This ensures that employers are paying a minimum for healthcare costs. Self funding also allows for more flexibility. Unlike fully insured plans which have restricted benefits and limitations, self funding allows employers to customize a plan that best works for everyone involved.
Self funding insurance also allows for lower administrative costs. As self funded plans are void of insurance carrier profit margins, claim reserves, contingency margins, and premium taxes, employers can minimize the amount spent on administrative tasks. Self funded insurance also has a direct impact on a business’s cash flow. As self funding does not require advanced premium payments like fully insured plans, claims can be funded by their due date instead of ahead of time. This allows employers to maintain their funds in a bank account that can accrue interest in the meantime.
What Other Options Are There?
While self funding insurance is a popular option among many employers, it is not the only one. When it comes to controlling healthcare costs, it is important to consider all of your options. Those that prefer a more traditional approach to employer-sponsored healthcare opt for fully insured plans. With fully insured insurance, the company is responsible for paying a premium to the insurance company. Premium rates are set at a fixed rate for one year and the cost is based on the number of enrolled employees.
With a fully insured plan, the monthly premium only changes in a set year if the number of employees enrolled in the insurance plan changes. Once a policy has been purchased, the insurance carrier will then collect the premiums and pay any healthcare claims based on the coverage amount chosen. However, employees and their covered dependents are responsible for paying any co-pays or deductible amounts required by the policy chosen. There are a number of benefits of fully-insured plans, including less risk as the insurance company deals with all claims. Fully funded plans also eliminate the need for administrative expenses related to healthcare plans.
Learn More About Group Stop Loss Captives
Captives are created by employers just like you for the benefit of self funded employers. With group stop loss captives, employers are able to obtain more predictable claims up to a specified amount. For catastrophic claims, the costs are covered by a separate insurance company which helps protect against healthcare claims that exceed the annual cap. If you are looking to boost your control and transparency, group stop loss captives may be right for you. To learn more about self funding insurance or group stop loss captives, contact a professional benefits consultant.