Using Captives For Health Care and Worker's Comp. Coverage

     The US Tax Code divides insurance companies into two sub-types: life and “non-life.”  The former underwrites risks on people while the latter insure risks associated with property.  Historically, the 831(b) market has largely focused on property insurance because it’s easier to create and manage these companies.  But with the increasing costs of health care and, in some cases, workers comp, captives that insure the risks associated with people are growing in popularity.   
 
    Two recent articles highlight this growing trend.  The first focuses on the general trend:

For certain lines of coverage, such as group-term life insurance and long-term disability, the cost savings — compared with buying the coverages in the traditional market — range from 15% to 25%, panelists said.

“The captive earns the underwriting profit and investment income earned” on premiums paid to the captive, said Kathleen Waslov, a senior vice president with Willis Towers Watson P.L.C. in Boston.

Another advantage to the approach — compared with buying coverage in the commercial market — is that the captive sponsor has greater control over the design of the benefits offered to employees, Ms. Waslov said.

One of the most common statements I hear from potential captive owners looking at a workers comp or health care captive is, “I pay “X” in premiums and have rarely filed annual claims above that number.  We’d like to earn that profit.”  If a company is able to effectively manage its risks, then the savings will build-up in the captive.

   The second article looks specifically at health care captives:

Health care liability captive insurers can be a key tool in improving the quality of patient care, captive experts say.

The volume of claims data that can be accessed through a captive, in the right hands, can help health care institutions improve safety practices and ultimately save lives, they say.

And working in partnership with captive reinsurers, captive owners can drill down into even more extensive data and improve medical processes, they said Tuesday during a session of the 2016 World Captive Forum, being held in Boca Raton, Florida.   

A key benefit of forming and managing a captive is the ability to obtain a large amount of data.  For example, suppose the employee census shows 15% of the workforce regularly purchases cholesterol lowering medication.  The company could use this information to tailor various wellness programs such as dietary seminars and sponsored gym memberships.  The possibilities are endless.

   Who would most benefit from this strategy?  Here are a few factors to look for:

1. A minimum of 50 employees
2. A company that already has a high deductible for its policies
3. Free cash flow of at least $300,000-$500,000 for the last few years.

Please call us at 832.330.4101 if you’d like to learn more.