You may hear the word “captive” and get nervous. What is it and what’s the risk? Not only are captives not scary, they also provide added value to a go-it-alone self-insured healthcare program according to John Burke, Boston College’s Financial Vice President and Treasurer. A captive is an insurance company that is owned and controlled by its members to insure the risks of its member owners. “As a captive owner, you have input in the direction of the captive including plan design, which is critically important during these challenging times,” says John Burke.
Boston College implemented a self-insured employee health insurance program in June of 2009. “Making the transition to a self-insured program can be nerve-wracking for any large or small entity,” said John. “However, the benefits of moving to a self-insured program more than outweigh an entity’s concern.” Although the school was happy with its self-insurance program and that they were no longer paying profits to administrators on top of claims, it wasn’t satisfied with the stop-loss rates it was receiving from carriers.
In the early years of its self-insurance program, because of actuarially determined potential insurance claims, Boston College experienced double-digit increases in its stop-loss insurance rates. If BC experienced a better-than-predicted claim trend, it didn’t receive rebates on its stop-loss outlay. If the claims experience was worse, stop-loss rates would rise. “The inequities in the commercial stop-loss insurance market were the driving force for Boston College to become a founding member of edHEALTH,” said John.
Since joining edHEALTH in 2013, Boston College has experienced lower healthcare premium increases than it had under its own self-insured (and before that insured) program. “Our improved cost trends are mainly due to the purchasing power of the coalition,” said John. Lyndsay King, Boston College Controller, who has overseen forecasting and accounting for the school since the switch to self-insured in 2009 and then to edHEALTH in 2013, says, “While our claims experience has fluctuated over time, the move to edHEALTH has yielded clear savings in stop-loss premiums, administrative fees, and prescription drug costs."
Under a self-insured program, a school pays actual claims for the institution’s faculty, staff, and covered family members. In good years, the school pays less, and in the not-so-good years, the school pays more. The captive structure, including external stop-loss, pooled risk, and individual member funding (self-insured retention) provides customized risk protection. Each member chooses their own self-insured retention rate based on their risk tolerance, philosophy, financial status, and experience. edHEALTH works with each member institution to determine their risk tolerance and provides protection to minimize it.
“Due to our large size, Boston College picked a risk retention amount of $250K, meaning we are responsible for the first $250,000 of each individual claim,” said John. Smaller schools generally pick lower thresholds. edHEALTH and its excess stop-loss carrier covers any costs that exceed the retention amount. “As an educational institution assumes more risk through its retention amount, they have a lower stop-loss premium,” said John. “Conversely, if a school lowers its retention amount, it will pay higher stop-loss premiums. I sleep better with the stop-loss limit we selected.”
Boston College’s John Burke said the school can build up its subscriber surplus dollars in good years due to the ownership structure of the captive. Alternatively, in more challenging years, the school can use those funds to offset losses due to less than favorable results, although they haven’t had to do so. When you own your own insurance company, you’re able to smooth your claims experience over time, according to edHEALTH’s president and CEO, Tracy Hassett. “In our over seven years in business, only three of our 23 members have ever experienced a year with a loss, and they were able to use their own edHEALTH funds instead of dipping into institutional funds to cover those losses,” she said.
Captive member owners may have the opportunity to share in any surplus the captive earns. To date, edHEALTH has awarded dividends of over $3.2 million to its member schools. “I am happy to talk to any colleges, universities, or secondary schools that have questions about joining edHEALTH,” said Boston College’s John Burke. Send us an email for his contact details.
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