What are the benefits of captives in healthcare strategies?

With captives becoming more prevalent in healthcare strategies, QBE North America has outlined several benefits to this growing trend and how companies can benefit from it.

As the cost of healthcare continues to rise and the regulatory landscape evolves, more companies are turning to self-funded healthcare plans, utilizing captive insurance subsidiaries to manage risk more economically.

A study from the National Association of Insurance Commissioners reports that about 90% of Fortune 500 companies now have captive subsidiaries, highlighting a significant trend in corporate healthcare strategies.

Tara Krauss, head of accident and health at QBE North America, elaborates on the increasing adoption of captive insurance solutions.

“Captive insurance solutions are gaining traction because they allow employers to maximize control, spread risk and enhance negotiating power,” Krauss explained. “With a self-funded health plan, companies are not just buyers of insurance, but stewards of risk management.”

QBE North America advocates for the use of captives in employee benefits for several key reasons.

Captives in healthcare strategies – what are the benefits?

Firstly, captives can reduce the frictional costs associated with employer-sponsored health insurance. QBE North America explained that by self-funding health plans and utilizing captives for medical stop loss – reinsurance that caps claim coverage – employers can minimize expenses, taxes, and underwriting margins, optimizing gross written premium.

Employing single-parent and group captives gives employers enhanced control over their risk management strategies, particularly regarding employee benefits. The insurer noted that incorporating stop loss within captives provides a strategic tool to manage risks and potential liabilities, such as specific deductibles for certain conditions.

Additionally, captives offer employers the flexibility to tailor medical stop loss coverage to their specific needs. This customization can include choosing service providers, setting coverage levels, and managing financial surpluses to better meet organizational objectives.

QBE North America also noted that single-parent captives can improve underwriting profit and investment returns from medical stop loss layers. Surpluses generated by captives can be returned to the employer via dividends or used strategically to offset future plan costs, enhance benefits, or manage financial volatility.

Finally, the company explained that single-parent captives allow for greater leverage in negotiating premiums, limits, and terms with carriers. Employers may choose to retain a certain risk layer within their captive rather than transferring it to a reinsurer. Group captives also enable mid-sized companies to collaborate, securing volume-related discounts and more stable pricing.

What are your thoughts on this story? Please feel free to share your comments below.