Ask any corporate executive and they’ll tell you their firm pays too much for healthcare. This is hardly a new problem; according to the annual Kaiser Family Foundation/Health Research & Educational Trust survey, premiums have risen a whopping 113 percent in the last 10 years. And yet, companies aren’t addressing this issue aggressively as they would for tax or product waste problems.
Due to the lack of innovation, firms are left with the following alternatives: using standard third-party coverage or engaging in some form of third-party, self-funding. However, neither of these options offers the company truly meaningful alternatives. Rather, they are essentially different sides of the same coin.
That’s where a healthcare captive insurance program enters the picture. Its primary benefit is the ability to capture health care savings in a separate corporate entity. For example, assume a company pays $1,000,000 per year in health insurance premiums, yet on average, only files claims averaging $650,000/year. The difference between premiums paid and health care used goes to the health insurer’s bottom line (after paying for administration fees and expenses). This example assumes that health insurers haven’t padded their premium estimates to insure some specific level of profit. By using a captive program, the company can capture some of that savings for its benefit, not the insurers.
Most importantly, the premium increase history of this program is 1%-6%/year, giving you a very predictable prospective cost structure for one of your most variable expenses.
Ask any corporate executive and they’ll tell you their firm pays too much for healthcare. This is hardly a new problem; according to the annual Kaiser Family Foundation/Health Research & Educational Trust survey, premiums have risen a whopping 113 percent in the last 10 years. And yet, companies aren’t addressing this issue aggressively as they would for tax or product waste problems.
ReplyDeleteDue to the lack of innovation, firms are left with the following alternatives: using standard third-party coverage or engaging in some form of third-party, self-funding. However, neither of these options offers the company truly meaningful alternatives. Rather, they are essentially different sides of the same coin.
That’s where a healthcare captive insurance program enters the picture. Its primary benefit is the ability to capture health care savings in a separate corporate entity. For example, assume a company pays $1,000,000 per year in health insurance premiums, yet on average, only files claims averaging $650,000/year. The difference between premiums paid and health care used goes to the health insurer’s bottom line (after paying for administration fees and expenses). This example assumes that health insurers haven’t padded their premium estimates to insure some specific level of profit. By using a captive program, the company can capture some of that savings for its benefit, not the insurers.
Most importantly, the premium increase history of this program is 1%-6%/year, giving you a very predictable prospective cost structure for one of your most variable expenses.