CONSORTIUMS

A Consortium is a group of employers who come together to purchase stop-loss insurance collectively.

By pooling their resources, they leverage collective purchasing power to reduce volatility and optimize protection. Here’s what you need to know:

Non-Ownership: In contrast to captive arrangements, consortium members don’t hold ownership in the group. Instead, each member retains independent control over their company’s benefit plan.

No Collateral: Joining the consortium doesn’t require any upfront financial contributions from you.

Shared Risk: By combining their insurance risks, employers achieve greater stability and predictability in healthcare costs.

Cost Containment: Members of a consortium typically implement cost-containment measures and best practices to manage and reduce healthcare expenses effectively. This collaborative effort leads to more efficient use of resources and better control over high-dollar claims.

Shared Resources: A consortium often involves shared administrative resources, such as Third-Party Administrators (TPAs) and Pharmacy Benefit Managers (PBMs), which help optimize the management of claims and other administrative tasks.

CAPTIVES

For the right organization, Captives provide some intriguing advantages. The first is the opportunity for improved cash flow, as the employer pays only for the claims incurred under the Captive. Captive members also enjoy lower premium taxes, avoid the health care reform insurance fee, and have lower carrier fees. They also enjoy greater flexibility in designing the plan and don’t have to be concerned with state-mandated benefits.

For employers that self-insure, betting on themselves is enough. In a Captive they need to add to the uncertainty by betting on other employers as well as participating in the Captive.

Collateral Requirements: While joining a Captive often requires posting collateral, this financial commitment provides a level of control over your insurance program.

Profit Sharing: While there is potential for profit sharing, be certain to understand the goal of the profit sharing piece of the employer Captive. The reality is that many Captives are often designed to break even. This raises the question of why employers should assume the additional risk for potential cash flow.

TRADITIONAL SELF-INSURED, LEVEL FUNDED, FULLY INSURED

At a high level, a Self-Funded Group Health Plan (or Self-Funded Insurance Plan) is where an employer is financially responsible for healthcare claims incurred by employees and is responsible for providing employee healthcare benefits.

There is a large amount of risk with this kind of plan, as employers are responsible for paying for claims. While fully funded insurance plans are more expensive, they’re less volatile, charging a fixed premium to employers. A self-funded insurance plan can include medical, dental, vision, prescription medications, and workers’ compensation. The costs incurred can vary depending on the use of the health services.

To successfully create and manage a comprehensive healthcare plan, migrate associated risk, and ensure the insurance plan meets the needs of employees, self-insured organizations will employ other entities to help them with their plan:

• An employer may establish a special trust that includes both corporate and employee contributions to pay incurred claims.

• An employer, while planning their insurance plan, may consult a broker to help design different insurance plan options for their employee population.

• An employer or Broker will work with a stop-loss carrier to put together a stop-loss policy that will safeguard their organization against catastrophic claims.

• This entity will be brought in by a broker to administer the plan, be responsible for any healthcare customer service, process the medical claims, and arrange care services such as access to a network of hospitals, clinics, or doctors, and other administrative duties.

• You need this team for self-insured success. Here’s an example of how all these moving pieces work together:

Under a Self-Funded or Level Funded Insurance Plan:

• Your company determines the worst-case scenario for claims costs this year is $2,000,000. Your company pays $20,000 a month in fixed TPA costs and stop-loss premiums of $2,400,000.

• At the end of the year, your company’s claims total $1,000,000.

• By self-funding, your company retains the remaining $1,400,000 less the fixed costs.

Under a Fully-Funded Insurance Plan:

• Your company pays a premium of $2,400,000 for its health insurance plan, usually purchased from a Legacy Insurance Company.

• At the end of the year, your company only had $1,500,000 in claims and expenses.

• Your company “loses” $900,000.