SOUTHAMPTON, Bermuda — Captive insurance can benefit both health care providers and employers as they look to address changes resulting from health care reform in the U.S., experts said during the Bermuda Captive Conference.

“The new structures in health care raise captives from an insurance solution to a strategic business solution,” said Anna Marie Hajek, president and CEO of consultant Clarity Group Inc. in Chicago.

“Providers know that they have to reduce expenses by a minimum of 10% to 15% just to keep up with the reduced reimbursements they anticipate,” Ms. Hajek said. “If you don't have a very strong balance sheet and you don't have strong data to support what you're trying to do from a cost perspective, it's going to be very difficult for providers to succeed.”

In that context, a captive can be a key strategic element, she said.

“It's a great way to control cost for hard-to-fund or expensive coverages,” Ms. Hajek said. Using the captive to cover employed or contracted physicians also provides a vehicle to get physician buy-in on risk, quality and safety management issues while promoting recruitment and retention of those physicians, she said.

From an employer perspective, the use of medical stop-loss group captives could be an attractive option to many small and medium-size employers, said Burt Wilson, senior vice president of captives at American International Group Inc.'s benefit solutions unit in Auburn, Calif.

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“That small to medium-sized employer is typically fully insured, and they're experiencing significant rate increases every year,” Mr. Wilson said. Captives allow those employers to pool risk with like-minded employers and mimic the risk pool of a large employer to reduce year-to-year volatility, he said. The captive also can provide access to better claims data that can help control costs, and could provide an underwriting profit and investment income, he said.

Kenneth Janis, vice president of health care finance at Kelsey-Seybold Clinic in Houston, described his system's efforts to use a captive cell as a risk financing vehicle to allow Kelsey-Seybold to offer employers capitated, fixed-price health care plans rather than fee-for-service health care arrangements. Additional stop-loss coverage protects the health care provider for costs that go beyond those retained in the captive layer, he said.

M. Page Rouse, managing director at AIG's Bermuda captive division in Hamilton, moderated the session.