Presentation is loading. Please wait.

Presentation is loading. Please wait.

Employee Benefits and Healthcare – Current Captive Impacts Presented by: Moderator: Anne Marie Towle, CPA, VP & Senior Consultant, Willis Troy Filipek,

Similar presentations

Presentation on theme: "Employee Benefits and Healthcare – Current Captive Impacts Presented by: Moderator: Anne Marie Towle, CPA, VP & Senior Consultant, Willis Troy Filipek,"— Presentation transcript:

1 Employee Benefits and Healthcare – Current Captive Impacts Presented by: Moderator: Anne Marie Towle, CPA, VP & Senior Consultant, Willis Troy Filipek, FSA, MAAA – Principal and Consulting Actuary, Milliman Mark Smidt – Director, EBMS Re Kyle Plath – Senior VP, Trean Re Wednesday, September 281:30 – 2:45 pm

2 Agenda Healthcare Captives – Why and how? Impact of Healthcare Reform (PPACA) Case Study – EBMS and Trean Re Discussion and Questions

3 Healthcare Captives Why Captives for Healthcare? Similar as for other lines of business... – Reduced insurance expenses – Possible tax efficiencies – Cash flow management – More efficient use of capital (i.e., float) – Ability to develop custom insurance programs – more flexible than commercial market

4 Healthcare Captives But healthcare is also different... – Short term vs long tail expenses – Generally predictable claim patterns – Uncorrelated exposures relative to traditional risks held in captives – PPACA pressures

5 Healthcare Funding Three types of funding mechanisms traditionally – Fully insured – All risk transferred through premiums – Self insured – All risk retained; use health plan to access network and pay claims – Hybrid – Self insure with stop loss (aggregate and/or specific) to transfer catastrophic risk Stop Loss – Specific – Per person catastrophic – Aggregate – Total employer costs

6 Option 1: Jumbo Employers Works for sponsors with > 10,000 ees Huge advantage to already have a captive in place that insures other uncorrelated risks Option 1a - Medical stop loss coverage only – Generally includes steep risk margin in commercial market – More later in case study Option 1b – Reinsure ERISA benefits (e.g., group life, disability, AD&D) – Employer acts as reinsurer and needs Prohibited Transaction Exemption (PTE) – Administra tive and regulatory requirements big Results – Lower costs for same protection – More premium and spread of risk in captive

7 Option 1: Jumbo Employers Administrative and Regulatory Issues – DOL must approve PTE under Option 1b since ERISA prohibits economic gains from providing benefits Need A-rated fronting insurer per DOL Need competitive rates and year 1 benefit enhancement – Capital and surplus requirements – Need competencies in running captive – Beware NAIC tightening of stop loss model law – Forces employers of all sizes to retain larger portion of risk

8 Option 1: Jumbo Employers PTE Process (Option 1b) – Conduct feasibility study (cost/benefit analysis) – Get help fast Captive manager Attorneys Independent fiduciary – Opine on PTE compliance – US branch approval – domiciled jurisdiction if not a US captive – Negotiate contract with A rated fronting insurance company – File for PTE with the DOL and implement plan

9 Option 2: Smaller Employers See some sponsors with < 100 ees push to self funding under PPACA Pool together risks across employers Hybrid funding noted earlier – stop loss through captive Historically, RRGs used to get around state licensure requirements, but state lawsuits slowed this trend Employer specific self funded plan, attachment point, pricing, etc. Results – Lower costs than fully insured – Lower costs than commercial stop loss

10 PPACA Influence PPACA – Health Insurance Reform Costs continue to rise and many fear PPACA makes it worse New issues and concerns – No annual or lifetime benefit maximums – New mandates (e.g., $0 preventive with expanding definition) – New entities – Exchanges, Co-ops, Accountable Care Organization, etc. – New regulations (e.g., no medical underwriting, minimum loss ratios) and fees (e.g., insurer fees)

11 PPACA Influence Employers - Much more interest in self-insuring to: – Avoid community rating for groups with better than average risks – Avoid fees imposed on fully insured plans – Avoid benefit mandates – Take advantage of new offerings from savvy brokers and carriers

12 PPACA Influence Other entities – Provider groups / ACOs: Historical management of financial risk did not go well, consider other options with financial risk coming back – Co-ops: Not for profits established to compete with insurers, likely will need help with risk management / transfer / funding

13 Using Captives to Smooth Out Medical Stop-Loss Insurance Expense Mark Smidt – Director of EBMS Re Kyle Plath – Senior VP of Trean Re

14 Time-Frame EBMS Entered the Stop-loss Arena – Significant Cost Adjustments from Stop-loss Insurance Markets – Stop-loss Carriers Actions to Correct Soft-Pricing Included: Lasers Steep Renewal Increases Non-Renewals

15 Objectives of EBMS Captive Program Stabilize Stop-loss Insurance cost through: – Eliminating lasering and non-renewals – Pooling the risk Renewals based on actuarial models, not individual experience rating = effectively eliminating spikes – Profit sharing – achieved thru renewal discounts (Premium Discounts) – Create efficiencies by eliminating duplications of efforts – Specific Reimbursement turnaround times – reimbursement authority – Renewals able to be locked-in based on 10 months of experience – Create a partnership atmosphere for clients – Annual Advisory Meeting – Access to underwriting staff

16 Captives Risk Layer Leverage Trend offset at the Captives risk layer 2002 = 150k multiplied by 10.5% (8) = 368k

17 Current Specific Risk Assignment Plan Sponsor's Risk Layer = Spec Deductible/SIR EBMS Res Risk Layer - First $300K above SIR XS Reinsurance Risk Layer - Up to $1million xs of EBMS Res Retention XS Reinsurance $1M xs $1M XS Reinsurance $3M xs $2M XS Reinsurance $5M xs $5M XS Reinsurance $10M xs $10M XS Reinsurance $Unlimited xs $20M

18 Gross Premium by Underwriting Year (Millions) ESTIMATED

19 Average Specific Deductible by UY (Weighted by Employee Lives)

20 Premium Credit Triangle – Block Calendar Year: Clients % of Total Prem 100% UY 2002:Maturity Period30%15% 5%20% Final Adjustment UY 2003:Maturity Period30%15% 5%20% Final Adjustment UY 2004:Maturity Period30%15% 5%20% UY 2005:Maturity Period30%15% 5% UY 2006:Maturity Period30%15% UY 2007:Maturity Period 30% 15% UY 2008:Maturity Period30%15% UY 2009:Maturity Period30%

21 2002 to 2009 Combined Allocation of Income (Inception to Date)

22 Program Flow Chart Benefit Plan EBMS Stop-Loss Administrator EBMS Re EBMS Captive (Reinsurer) Issuing Carrier Stop-Loss Carrier Excess- Loss Reinsurer Net Results Pooled Stop Loss Policy Administration Agreement Quota Share Reinsurance Contract Premium Discounts Excess of Loss Reinsurance Contract

23 Considerations in Forming a Captive Domicile – EBMS originally selected Cayman Islands and redomesticated to Montana Captive Structure – EBMS originally formed as a single cell captive and has transitioned to a segregated cell structure in Montana

24 Considerations in Forming a Captive Capitalization and Ownership – EBMS chose to fund the start-up capital and maintain 100% ownership of the captive Risk Structure – EBMS purchased Specific Excess Reinsurance from the inception of the program, increasing its retention as the premium volume has grown

25 EBMS Res Structure Issuing Carrier – Excess Loss Carrier (or Issuing Carrier) on the program – Has given the Captive the authority to underwrite and issue stop-loss policies in their behalf – Maintains the necessary ratings and licensures for the captive to operate. – Contracting body for the programs reinsurance carriers & ensures the financial integrity of the entire program EBMS Captive – Quota Share reinsurance company on the program as well as the underwriting body Professional Reinsurer – Provides Excess Loss reinsurance coverage for the program …cont.

26 EBMS Res Structure Trean Reinsurance Services – Programs Reinsurance Intermediary. Facilitates the marriage of all the carriers and reinsurers associated with the program EBMS – Staffing support in: underwriting, policy issuance, administrative support, claim auditing, management, marketing – Capital Investment

27 Questions???

Download ppt "Employee Benefits and Healthcare – Current Captive Impacts Presented by: Moderator: Anne Marie Towle, CPA, VP & Senior Consultant, Willis Troy Filipek,"

Similar presentations

Ads by Google