NYSAE Members Introduced to Pooled Health Captives


August 2010 Inview

NYSAE Members Introduced to Pooled Health Captives

By James A. Woehlke, Esq., CPA, CAE

NYSAE member CEOs and HR directors were recently introduced to pooled health captives, an innovative and effective approach to contain health insurance costs. Pooled health captives combine three best practices: self-insurance subject to stop loss; pooled captive insurance companies; and wellness programs. When taken together, these best practices cut 13% or more annually when compared to fully insured health insurance programs.

Program attendees were reminded that over the past decade, average employee benefit costs had more than doubled from $5,791 to $13,375. "We seek to address this trend," NYSAE President & CEO Joel A. Dolci, CAE, noted. "NYSAE is exploring whether this health care captive approach is of interest to enough of our members to form a pooled captive of NYSAE organizations."

From the employee's point of view, pooled health captives operate just like other health plans. For instance, employees receive a card from the health care network. Typically, the network of doctors and other health care providers is the same network used by insurance carriers. Employees have co-pays and deductibles set by the employer, just as with fully insured plans. Pooled health captives are just a different way to finance group health insurance.

Self-insurance, one best-practice example of pooled insurance, has been used for decades by very large companies to manage property and casualty, workers' compensation, and employee health risks. Typically, the technique used by these companies was to create a solely owned captive insurance company. Also, these large self-insurers place a cap on their overall exposure with the use of very high-deductible stop-loss insurance policies.

In the 1970s, smaller companies began pooling their risks using group-owned captives to cover property and casualty and workers' compensation risks. Recently, these techniques have begun to be applied in the employee group health arena as well. Each employer designs its own health coverage and takes out a stop-loss policy. The stop-loss insurance company then re-insures part of that risk exposure with a captive insurance company owned by the employers participating in the group captive. Re-insurance is the practice used by insurance companies to share a portion of their own risk with other insurance companies, in this instance an employer-owned group captive.

The pooled captive is a financing technique that significantly cuts out the middle man (the group health insurance company), potentially saving the employer a significant amount of money while maintaining excellent health coverage for its employees. But a financial vehicle alone cannot attack the underlying causes of escalating medical costs: the absence of incentive in the current system to lead healthy lifestyles. Pooled health captives can be designed with a group dynamic where each employer participating in the group is encouraged to have an effective wellness program in place.

In 2004, the Centers for Disease Control (CDC) reported said that as much as 70% of all U.S. medical costs are caused by chronic diseases such as heart disease, cancer, and diabetes. (See, www.cdc.gov/nccdphp/burdenbook2004/pdf/burden_book2004.pdf.) In that report, the CDC wrote, "Although chronic diseases are among the most prevalent and costly health problems, they are also among the most preventable. Effective measures exist today to prevent or delay much of the chronic disease burden and curtail its devastating consequences." Some of those measures that can be built into these health care programs include providing incentives for:

  • Annual biometric screening;
  • Completion of health risk questionnaires annually;
  • Stopping smoking;
  • Healthy dietary habits;
  • Exercise programs;

    Over time, the use of pooled captive financing and effective wellness programs hold the promise of significantly eroding, if not reversing, the trend over the past decade for ever higher health insurance costs.

    To participate in a pooled health captive, employers should have at least 51 employees. Interested organizations should contact Joel Dolci at jdolci@nysaenet.org or MBL Benefits Consulting at jwoehlke@mblbc.com.

    James A. Woehlke, Esq., CPA, CAE, COO and general counsel, MBL Benefits Consulting, can be reached at One Penn Plaza, Suite 410, New York, NY 10119; 212-560-4442; jwoehlke@mblbc.com; www.mblbc.com.

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