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COVID-19 has been the biggest disruptor in the health care sector in years, catapulting change in the delivery of care and putting greater focus on the emotional and financial well-being of employees as part of a broader business resiliency effort. To manage this more expansive set of benefits, companies are increasingly turning to captives for their potential benefits that include greater flexibility and control over their health care expenditures.
A holistic approach
Many employers have transitioned from “check-the-box” benefit packages to a holistic approach to benefit offerings. Creativity and innovation of employee benefits bloomed due to the pandemic, especially for employers hit hardest by the economic realities of 2020. While enhancing traditional benefits wasn’t feasible for many, employers’ focus was on flexibility in work conditions and benefit offerings that catered to the financial and emotional well-being of their employees. In short, companies have worked to provide a foundation for employees to do their jobs, giving them perhaps one less thing to worry about as they deal with pandemic stress and different ways to use their employee benefit programs.
The biggest expansion of care has been the acceleration and acceptance of telemedicine benefits. Providers of care advanced their digital capabilities and rapidly rolled out the technological advancements necessary to offer telehealth options to patients. Employers that lacked telemedicine offerings prior to the pandemic have quickly added them as a welcome benefit to ensure their employees seek care without concerns over exposure to the virus. In addition, some employers have rolled out testing sites, access to personal protective equipment and improved employee assistance program benefits.
Employers are also taking an active role in education on the virus, offering behavioral health services, workshops, childcare and tutoring services for working parents, and flexible work hours to accommodate caring for loved ones, as well as additional paid time off for testing, treatment or vaccination – essentially creating an extensive support system that has not traditionally been the norm in the workplace.
In the future, voluntary benefits will likely increase as expenditures on employees are redirected and employers allow greater flexibility in a traditional workday. A larger remote workforce will lead to a reduction in employee dollars spent on wardrobe, transportation and parking, and could result in increased health and well-being offerings.
Turning to captives
Companies have increasingly turned to captive insurance to provide coverage for their more expansive, holistic, post-pandemic employee benefits programs. The trend toward companies self-insuring is not new; the Affordable Care Act was the catalyst for many employers to transition from being fully insured to self-insuring. Frustrated with the lack of claim transparency from their fully insured medical insurers, employers have increasingly sought ways to more actively manage risk and assert greater control over their health care spend. Many companies initially set up their captives to retain commercial property/casualty risks, then added medical stop loss to the captive to complement the longer-tail risk of other property/casualty lines.
Using an existing single parent captive or collaborating within a group captive insurance program is an extension of this market trend. Smaller and mid-size employers are joining group captives to reap the benefits of self-insurance while attaining protection from volatility by pooling risk.
Captive solutions can often provide employers greater insight into claims, exposure identification, and access to specialized partners to help manage risk. These solutions, along with medical stop loss, allow employer health plans to customize solutions and budget more often, which creates flexibility to offer new or improved benefit options for employees with cost stability. Flexibility like this was critical during the height of pandemic-induced uncertainty for many employers. Many insurers in the employer medical stop loss insurance sector helped alleviate concerns over coverage for furloughed team members, with several agreeing to extend coverage for furloughed employees by temporarily waiving the policy’s actively-at-work provision.
In addition to increased flexibility, there can be a cost advantage to shifting profit typically retained by the commercial insurer into the captive with a lower expense charge as compared with traditional fully insured coverage. Plan stability and savings are often created by captive retention and management of these layers of predictable risk, while insuring higher layers of risk that may not be as probable but represent potential volatility. Other financial advantages may include control of cash flow, flexibility of plan and cost containment measures, pricing stability and, in some cases, tax benefits and potential increased investment income.
As business models change, employers will continue to play a more significant role in their employees’ lives. The year 2020 was a good preview of how the employee benefit package will evolve to attract and retain talent and keep a workforce engaged. The potential for captive solutions to provide flexibility and cost benefits warrants consideration by employers as they seek to provide holistic benefits offerings to their employees.