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Employers look to captive insurers for stop-loss coverage for health plans

Posted On: Feb. 3, 2016 12:00 AM CST

BOCA RATON, Fla. — Employers increasingly are having their captive insurers take on a new role: providing stop-loss coverage for their self-insured health care plans, experts say.

“You don't know when you will be hit with a high claim, so there is more interest,” said Debbie Liebeskind, a senior actuarial consultant with Willis Towers Watson P.L.C. in Parsippany, New Jersey.

Speaking Tuesday at a 2016 World Captive Forum session in Boca Raton, Florida, Ms. Liebeskind said tapping captive insurers to provide stop-loss coverage, such as paying for individual claims above a certain dollar amount, can be a cost-savings alternative for employers compared with securing the coverage in the commercial market.

While stop-loss coverage is readily available from commercial insurers, the cost can be high, Ms. Liebeskind said.

The design of such programs varies. For example, the captive may cover the cost of claims that fall between set dollar layers. The captive may assume all the risk, or, Ms. Liebeskind said, the captive may shift some of the risk to a reinsurer.

Employers have to decide their tolerance of risk, Ms. Liebeskind said.

“This works very smoothly. This has been a very successful program,” said Dave Arick, assistant treasurer at International Paper Co. in Memphis, Tennessee, which uses its Tennessee-based captive to provide stop-loss coverage.

Another attraction of the approach: Because the captive stop-loss coverage funded through a captive is not an employee benefit, U.S. Labor Department review and approval is not required as it is for employers seeking to fund benefits through a captive, Ms. Liebeskind said.

Still, there are some uncertainties, such as whether premiums paid to the captives for the stop-loss coverage are tax-deductible.

The tax issue “has not been definitively addressed” by the IRS, said Terry Richardson, a principal with PricewaterhouseCoopers L.L.P. in Dallas.