The top 5 reasons companies exactly like yours are flocking to Healthcare Captives.
Unfortunately, there is nothing “sweet” about these sixteen industries when it comes to complying with the Affordable Care Act.
Security Guards | Janitorial Services | Landscaping Contractors | Restaurants | Hospitality | Home Health Care | Convenience Stores | Retail Stores | Industrial Laundry | Fast Food and QSR’s | Livery | Call Centers | Amusement Parks and Family Recreation | Senior and Child Day Care | Warehousing
Companies that operate in these industries all rely on a low-wage hourly workforce to deliver their products or services. While managing a workforce with these demographics in and of itself is a challenge, providing an ACA-compliant employee benefits program in which employees want to participate and that they can afford can be an incredibly tricky proposition and often prohibitively expensive for the sponsoring company.
This problem is fueling an exodus from the traditional benefits markets and driving the unprecedented growth of sponsored healthcare captive insurance companies. Captive insurance companies typically fall into two main groups. The first type is a Pure Captive, which is owned (directly or indirectly) by its insureds. It is a captive insurance company with one corporate owner, insuring only the risks of the parent organization or its subsidiaries. It is also referred to as a single-parent captive. The second type is a Sponsored Captive, which is owned and controlled by parties unrelated to their insureds. Sponsored captives usually do not require their participants to contribute any capital, participate in the management of the captive, or pool their risk. Sponsored captives operate on a “segregated cell’ structure, where each cell is legally and financially segregated from the others and protected from losses that may occur in another cell. With the statutory (sometimes referred to as core) capital being funded by the captive sponsors, purchasing group medical insurance from a sponsored captive in many ways mirrors buying employee benefits from a traditional insurance company.
Even though the process of purchasing group medical insurance from a sponsored healthcare captive may be similar to buying the same benefits in the traditional markets, that is where the similarities end. The product array available from sponsored captives is light years ahead of those available from the BUCA-PPOs (aka Blue Cross; United Healthcare; Cigna; Aetna) The products have been specially designed to solve the unique problems collectively confronting its participants.
While you may not be aware that sponsored captives have been formed exclusively to address the ACA compliance issues confronting these sixteen specific industries, it would be wise to familiarize yourself with their innovative offerings before your next open enrollment and subsequent renewal. These captives offer an opportunity to place your medical insurance with a company that intricately understands your industry and labor model along with the challenges of providing medical coverage for a low-wage hourly workforce.
A clear example of an advantage of using an insurance company that understands your business is evident by the fact that sponsored captives writing medical insurance in this niche have all waived minimum employee participation requirements. If you are responsible for purchasing the medical insurance for a security or janitorial contractor, you know all too well that 50% employee participation in the company-sponsored medical plan will never happen. BUCA-PPOs still require 50% or more participation amongst the eligible employees. This minimum participation requirement fuels a cat and mouse game among the client company, broker, and insurance company, often raising questions about the validity of employee waivers, abuse of ACA look-back eligibility rules for newly hired employees, and blatantly false answers on applications for group medical insurance. Speaking of which, have you ever looked carefully at what you are signing while attesting to a 50% or greater employee participation rate? I have included excerpts from one BUCA-PPO’s large group insurance applications below **, would you want to be the corporate officer to sign this? The sponsored captive insurance companies serving your industry have created innovative products and underwriting models to protect against the inherent adverse selection problem that comes with single-digit participation rates. They understand that employee participation rates under 10% are the norm for a low wage hourly workforce, and they don’t expect your company to be any different.
** The purpose of this form is for Blue Cross Blue Shield of Georgia, Inc. (BCBSGa) and Blue Cross Blue Shield Healthcare Plan of Georgia (BCBSHP) and Greater Georgia Life (GGL) to evaluate rating for the company’s request for group insurance coverage. Please answer all the questions. This form must be signed and dated by an officer of the company.
The Employer certifies that 75% of employees are eligible to make an application for coverage on the date of this Group Master Application, and agrees that or more of all eligible employees will have made an application for membership before the Effective Date of Coverage. Otherwise, this Group Master Application will be deemed to have been withdrawn. Further, the Employer agrees to maintain minimum enrollment participation equal to the greater of 75% of all eligible employees, or while the contract, if issued, is in force. We may terminate coverage with sixty (60) days’ notice, or convert the group to another category if the Employer fails to maintain the minimum enrollment participation. We may cancel this contract immediately for fraud.
If you are like most executives, chances are you have not given much thought to who prevails when there is a direct conflict between your company’s best interest and your insurance company. We are all aware of a participant’s or a patient’s rights in a medical plan, and ERISA requires summary plan descriptions to outline procedures for appealing decisions regarding an individual’s access to care, the exclusion of experimental treatment options or claim denials based on the lack of medical necessity. However, what about your rights as the employer and sponsor of the medical insurance program? To clearly illustrate the unfortunate answer to this question, all we need to do is look at an example. Managed care insurance companies have set many precedents for being slow or refusing to adopt efficient treatment options when it represents a conflict of interest to their business model.
To illustrate this issue, look at the lethargic pace at which traditional PPOs are integrating telemedicine in their healthcare delivery model. Telemedicine (def. the remote diagnosis and treatment of patients utilizing telecommunications technology) has experienced staggering growth and acceptance in the United States over the last ten years. Consider for a moment that The Centers for Disease Control and Prevention in Atlanta, GA, recently reported that the majority of the one billion (1,000,000,0000) visits to a physician’s office that occur each year in this country are medically unnecessary because of the advances in telemedicine.
Additionally, an independent study by Truven Health Analytics concluded that 83% of the physical office visits to primary care physicians could be as accurately diagnosed and treated with telemedicine. About 71% of employer-sponsored trips to the emergency room were medically unnecessary, according to a recent study sponsored by Teladoc, the industry leader in telemedicine. The same study also concludes that each telemedicine session completed by an employee, on average, results in $647 of savings to either the employer or health plan. These savings are driven by financially incenting employees to seek appropriate levels of care and steer them away from unnecessary, inefficient, and expensive treatment options such as unnecessary visits to a doctor’s office, an urgent care facility, or the emergency room.
All insurance companies can purchase a fully funded and best-practices telemedicine platform for their subscribers (and their entire families) for under ten dollars a month. This platform has no deductibles, co-pays, or per session charges to either the employee or the insurance company. With the potential of astronomical savings in claim dollars, why is it that we are only now beginning to see telemedicine emerge in traditional managed care models? Here is a more perplexing question: If telemedicine is so inexpensive and saves $647 in claims cost per use, why would a BUCA-PPO require the employee to pay the same co-pay for a telehealth visit as they would for an in-office doctor’s visit? To properly answer that question, we need to ‘peel back the layers of the onion’ at these managed care organizations.
PPOs make most of their money (and profits) by contracting with physicians to build a ‘managed care” network that offers significantly discounted services to its subscribers. The PPO then charges a monthly per capita network access fee, which is in turn embedded into the medical plans they sell. These per subscriber fees range from $12.50 - $22.00 PEPM. Contract negotiations with network physicians are complicated, cumbersome, and very often contentious. The crux of the relationship between the parties is the PPO promises to deliver a robust and steady stream of patients to a doctor, in exchange for managed care discounts. Quite naturally, the doctor is looking for additional patients to fill his or her medical practice; the PPO is looking for bigger discounts to build their subscriber base and fees.
Now, consider how the PPO’s physicians network would view the adoption of a telemedicine platform by the PPO. The efficiency of telemedicine drastically drives down the number of physician office visits. So, to appease the physicians in their PPO network, the insurance company designs their plans so that there is no financial incentive for the subscriber to use telemedicine, irrespective of the efficiency and claim savings it produces. In fact, many contracts that a PPO has with their network physicians prohibit them from entering into contracts with other providers that would give them a greater competitive advantage to attract more patients.
This practice alone generates billions of dollars of unnecessary claims that the system must absorb (and are passed on to your company as higher premium); the business and contractual interests of the BUCA-PPO are going to outweigh your interest of efficient delivery of healthcare and premium affordability every single time. It should not surprise you that sponsored captives fully embrace 24/7/365 unlimited and free access to telemedicine for your employees and their entire families. Additionally, the $674 in claims savings realized from each telehealth visit that an employee uses is passed on to you as a captive participant through lower premiums.
Sponsored captives provide access to plan designs that not only your employees want to purchase; they are also entirely compliant with the ACA Employer Mandate. At Corporate Benefits Alliance, we marvel at the ingenuity of a sponsored captive that has demonstrated their imagination by “reincarnating” the beloved “mini-med” plan. These plans used to be so popular with hourly workforces, but unfortunately, they went the way of the dinosaurs with the passage of the ACA. Not only are these hybrid plans ACA-compliant, but they are also actuarially built to exceed the 60% minimum value requirement outlined in Section 4980H (b) of the Employer Mandate (aka Penalty B).
Typically, these plans require an employer contribution of less than a hundred dollars per month, thereby eliminating the potential for unaffordable aggregate company cost-sharing the expense. This cost savings holds true irrespective of how many employees choose to participate in the plan. In the recently released 2017 Kaiser Foundation Employer Health Benefits Survey, it was revealed that the average annual cost of employer-sponsored medical insurance had reached $6,690 for single coverage.
Some basic math affirms that if an employee who is earning $12.50 an hour selected this medical plan, the company’s required contribution under ACA Affordability rules would be more than $400 a month. To illustrate how problematic this can be, even at only 9% of eligible employees participating, a Quick Serve Restaurant Chain with 7,500 hourly employees would have an annual expense from company cost-sharing of $3,240,000. A sponsored healthcare captive could reduce that expense to $810,000 a year while absorbing the financial risk from adverse selection, which is a real and inherent problem in any self-funded health plan.
Sponsored captives have fully integrated and embraced the cost-saving strategies of referenced based pricing and Medicare Plus claims adjudication models. With a captive insurance company, these common-sense cost containment features are already incorporated into the most affordable PPO plans. One of the most credible proponents of these strategies, David Chase, wrote an article in 2016 titled Have PPO Networks Perpetrated The Greatest Heist In American History? If you are not familiar with Dave Chase's writings or this particular article, you owe it to yourself (and your shareholders) to read it. Incidentally, you can find Dave Chase right here on LinkedIn.
It is an unfortunate and misguided benefits strategy that the least expensive PPO plans (that exceed 60% minimum value) offered to employees traditionally have the highest deductible and out of pocket maximums allowable by the ACA. These plans provide little value or benefits to employees except when a catastrophic illness strikes. It is a perverse irony that after an employee pays their share of the premium, they do not have enough money left over to afford care for routine and ordinary illness! A compassionate and well-thought-out strategy would be to offer a modest deductible for hospitalization and cover routine care for diagnostic testing, primary and specialist doctors’ visits, and RX needs with low co-pays. The plan then can be affordable to both the company and the employee by limiting facility claim payments to a fixed percentage of Medicare allowable charges.
I can persuasively make the case that this effective cost reduction strategy does not reduce either the availability or quality of healthcare an employee receives. What it does do is force the employee to become a well-educated consumer of health care services or financially assume the risk of choosing not to do so. To be clear, we are not talking about token or chump change savings here.
Consider the following: A healthcare captive that Corporate Benefits Alliance regularly recommends to our clients offers a $3,000 deductible, 80/20 PPO plan (networks offered include PHCS, CIGNA or even Blue Cross) with a $6,900 individual MOOP. Nationally, the average large group composite rate for the plan is around $325 a month. While this plan offers popular physician network options for professional claims, its facility claim payments are non-contracted and paid at 135% (or 150%–175%, depending on what constitutes fair and defensible claim payments in the corresponding region of the country) of Medicare allowable charges. You may find it very interesting that in some markets this same plan design is directly available from a BUCA-PPO provider, but at a price point between $550–$650 per month. Furthermore, a close look at the PPO plans out-of-network facility claims payments often reveal they are capped at 135% of Medicare.
So, what is your employee getting for the additional $225–$325 monthly expense? (which incidentally is 100% borne by your company because of ACA Affordability limitations). It appears that the answer may be absolutely nothing.
A captive insurance company offers all the advantages of a guaranteed cost employee benefits program without incurring the expense of state-mandated benefits and federal essential health benefits. Captives enjoy the same exemptions from these regulations as self-insured plans do, but they eliminate the financial risk of self-funding. State health mandate laws now include up to 70 distinct “health benefits” that can add as much as an additional 30% to your total insurance premiums. The last 25 years have seen more than 2,000 such statutes adopted among the 50 states. As an example, New Jersey is one of the 15 states with an infertility insurance mandate in place, which requires insurance plans to offer or to provide coverage for various infertility treatments, including an almost unlimited expense associated with in vitro fertilization. The Great State of New Jersey might consider it essential that every health plan in their state cover these expensive procedures; sponsored captives believe you may not agree. With a captive program, you are the one, not the state, who makes that decision.
So, who are the sponsors of these captive insurance companies? How financially stable are they? Typically, the sponsors are private for-profit healthcare management companies that partner with an A-rated life insurance company that is active in writing medical stop-loss insurance policies. The entities operate on a quota-based arrangement for premiums and losses up to some attachment point when the captive’s reinsurance kicks in. A typical captive structure might be the healthcare management company, and the life insurance each absorb the first $50,000 of any medical claim on a 50/50 quota share basis. Claims that exceed the $100,000 threshold are re-insured 100% by the life insurance company, with no aggregate dollar limit. Our experience is these captives are exceptionally well-managed; all use reputable US-based trustees to handle and disperse premium and claim dollars and follow all federal, state and captive domicile requirements meticulously. They are also very transparent and allow you total access claims information, unit cost of health care data, utilization frequency, Rx data, etc. Try to get that information from a fully insured plan. Several of the sponsored captive companies that we are aware of are willing to profit share or offer multiple year rate guarantees with large participant companies, thereby assuring that all interests are aligned in the same direction and towards the same goal.
So what should the goal be?
I would suggest the efficient and cost-effective delivery of quality healthcare to your employee population, which incorporates well thought out plan designs and common sense cost containment measures to assure the long-term sustainability and viability of your company sponsored medical plan.
Bruce S. Monteith
Bruce Monteith is President and Chief Operating Officer of Corporate Benefits Alliance, a benefits design and consulting firm. Corporate Benefits Alliance’s practice is exclusively dedicated to mitigating the complexity and financial burden of ACA compliance for sixteen specific industries. These sixteen industries share the common characteristic of relying on a low wage hourly workforce to deliver their product or service.
Bruce earned his bachelor’s of science degree in economics from The University of Delaware and his Associate in Risk Management from The Institute of Risk and Insurance Knowledge. He also has earned the designations of Certified Insurance Counselor, Certified Professional Insurance Adviser and Accredited Advisor of Insurance.
If you would like to explore how a sponsored healthcare captive insurance company could benefit your company you may contact Bruce at bmonteith@TheCorporateBenefitsAlliance.com