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Group captives offer economies of scale for smaller employers


Some experts say group captives may be an attractive approach for small and midsize companies looking to use stop-loss coverage, and stop-loss may be appealing for large companies that already self-insure employee health benefits and have a captive.

For small to mid-market companies that take self-insured retentions from $50,000 to $150,000 and then purchase stop-loss coverage above that, “it can be beneficial for those companies to group together” in a captive arrangement, said Anne Marie Towle, senior captive consultant at Willis North America Inc. in Chicago.

Ms. Towle said she has performed 20 to 30 feasibility studies to evaluate whether to put stop-loss in a captive, and “50% to 60% go forward with this arrangement.”

She said it is feasible if the captive provides stop-loss coverage to benefit plans covering at least 5,000 lives, whether it is an individual employer or several employers collectively.

However, for a large employer that already has the ability to pay the first $1 million or more of each plan member's claims, putting stop-loss in a captive could potentially increase its costs, Ms. Towle said.

“When an employer retains additional risk in their captive, it will add transaction costs,” she said.

Mark Orzechowski, area senior vice president at Gallagher Benefit Services Inc. in Chicago, said he suggests using a captive for stop-loss whenever he meets with large employers that already self-insure their health care benefits and also have a captive for funding other company risks.

“I think it's a natural thought for these organizations,” Mr. Orzechowski said. “If they don't have stop-loss now, ACA almost forces their hand to consider something.”

Among organizations that already have an integrated human resources and risk management platform, “there's already greater awareness” of the potential use of the captive for this purpose, Mr. Orzechowski said.