The popularity of self-funding and medical stop loss (MSL) insurance is on the rise, spurred on by escalating healthcare costs and an unpredictable regulatory environment.
Over the past decade, the MSL captive market skyrocketed from a $7 billion market to a $26 billion market. And now, forecasts indicate that group captives could easily account for 25% of the total MSL market in the next few years.
But what exactly are MSL captives and how have they evolved over the years?
Let’s discuss.
What Are MSL Captives?
MSL Captives are an alternative risk transfer solution whereby groups can pool resources and risks, thus creating a protective screen from potential catastrophic healthcare costs.
In today’s environment, self-funded companies—particularly mid-size firms—can enjoy several benefits by participating in such a program, such as:
- Enhanced control and flexibility over the plan
- Reduced cost of providing long-term health insurance to employees
- Improved cash-flow management
- Stabilized risk assumption by spreading risk across the group
- Tailored, self funding coverage
- Augmented funding and underwriting flexibility
How Have MSLs Evolved?
MSL captives have changed significantly over the years, improving with each iteration:
- First generation of MSL group captives – The original offering simply spread a portion of risk between the stop loss carriers. But they did precious little to mitigate risks or control costs.
- Second and third generation of MSL group captives – The subsequent generations built upon the foundations of the original structure by providing a bundled platform of risk reduction and cost control initiatives that included offerings like:
- Centers of excellence networks for medical conditions
- Specialty pharmaceutical management
- Large claim review and repricing
- Fourth generation MSL group captives – Progressive captives function as a true risk-sharing partnership with a stop loss carrier. They eschew the commoditization of previous generations by offering continual progressive risk control and cost-containment initiatives, such as:
- Reference-based pricing structures
- Direct negotiated provider networks
- Data analytics and predictive modeling
Next Generation Captives
The current generation of captives, known as provider-sponsored captives, has become even more sophisticated at controlling costs and risks.
While previous iterations could respond to large claims after the fact, next-gen captives use AI-technology capable of identifying and reducing medical claim risks before an accident ever occurs.
The latest development has come via partnerships with regional health provider systems sponsoring self funding group captives that offer deep procedural and facility discounting as well as a mix of other cost-reduction initiatives.
The Problem with Traditional PPOs
With the conventional PPO stop loss arrangement, the negotiated procedural and facility discounts can vary greatly from one insurer to another because of the specific network agreement with each insurance carrier.
Typically, the ultimate goal of those networks is to attain the “deepest discount” from providers. As a result, the same facility could experience wildly inconsistent internal prices for the same exact services.
Pricing is entirely dependent on the carrier.
For instance, network A could receive a 50% discount from billed charges while network B only receives a 30% discount. And yet, network B could be charged less, and network A more.
Despite the deeper discount, the end cost the providers pay could be practically identical.
This is an inherently flawed arrangement.
Two patients could have the same exact medical condition, doctor, and hospital, and still be assessed completely incongruous treatment charges just because of their choice in insurance provider. Under such a system, the actual cost of care doesn’t matter. The only thing that does is the pre-negotiated charges.
This is why underwriters favor Reference Based-Pricing (RBP) arrangements over PPO networks. RBP offers enhanced proprietary discounting, consistency, and transparency over cost, with more favorable stop loss rates.
All in all, the structure of RBP results in greatly improved plan performance for captive members.
MSL Group Captives with Clark & Lavey
MSL group captives provide the solutions employers need to overcome the everchanging, ultra-competitive healthcare environment. Unlike PPO MSLs, stop loss group captives aren’t static.
They continuously evolve to better serve the needs of the owner-insureds.
And, at Clark & Lavey, our InCap® Solution is built to provide a bold alternative to traditional plans. Our negotiating power enables us to reduce insurance premiums, lower risk, and optimize tax savings.
Start saving by joining InCap® today.