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Captive insurers can hold down group health costs

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BOCA RATON, Fla. — Employers looking to hold down group health care plan increases should consider turning to their captive insurers, a consultant says.

Compared to purchasing coverage in the traditional market, funding group health care plan benefits through a captive can result in a “pricing advantage initially and at renewal,” said Debbie Liebeskind, a senior actuarial consultant at Towers Watson & Co. in Parsippany, New Jersey.

Speaking Wednesday at a session of the 25th annual meeting of the World Captive Forum in Boca Raton, Florida, Ms. Liebeskind says many employers can afford to take on some — but not all — of the risk associated with offering a group health care plans.

Those risks include jumbo-size individual claims, such as those triggered by the premature birth of babies, and much-higher-than budgeted claims costs.

To protect themselves against such risks, employers that self-insure can purchase stop-loss coverage directly from the health insurers providing plan benefits.

But such an approach can be expensive. Many health insurers “charge very high prices” for stop-loss coverage, Ms. Liebeskind said.

There is, fortunately, a much less costly way of funding the coverage, Ms. Liebeskind said. “If you have a captive, keep a slice of the risk” with the captive, with the captive then shifting part of the risk to reinsurers, she said.

Such a financing arrangement “is relatively straightforward, with a minimal upfront effort,” she said.

To be sure, employers, with captives, have several issues to consider before taking such an approach, with the most important one being how much risk the captive will assume and how much it will shift to reinsurers.

The captive may take a slice of the risk, and in some cases, such as for very large firms, their captives may assume all of the risk, she said.

Those employers who have decided to have their captives shift part of the risk to reinsurers have two issues to decide: how much risk do they want their captives to retain and which reinsurers do they want to utilize, said Jason Lichtman, a vice president with JLT Re (North America) Inc. in Weatogue, Connecticut, who spoke at the WCF session.

If purchasing reinsurance, “it makes sense to get quotes” from several reinsurers Ms. Lichtman said, adding that that the stop-loss medical claims reinsurance market is competitive, with more than half dozen major reinsurers offering coverages

In addition, employers should get quotes for coverages at different attachment points. “I like to have several different options,” he said.

Another step employers should take is checking to see if reinsurers have, as some do, contracts with provider networks that offer attractive pricing on services and procedures.

“There can be savings there,” he said.