FAQ: Captive Health Insurance with Blackwell

A group medical captive is a legal entity jointly owned by a group of unrelated companies and formed primarily to insure the risk of its member-owners. Blackwell Captive Solutions is defined as a heterogeneous group captive since we can accommodate a wide variety of industries. Group captives are typically used for smaller to mid-sized self-funded employers with less than 1,500 lives (target 50-1,500 lives).

Employers share risk with health insurance captives at Blackwell by participating in the captive which serves as a reinsurer of the insurance carrier that issues the stop loss policy. The carrier transfers risk via a reinsurance agreement to Blackwell. The employer has an agreement with Blackwell (“Participation Agreement”) that sets forth their obligation and beneficial interest in Blackwell Captive Solutions underwriting performance.

Self-funded insurance is good for employees and members because the business chooses the stop loss level that is appropriate for their risk tolerance. After that, the maximum risk for a captive member is limited to their contributed collateral. This is equal to approximately 10-13% of total annual stop loss premiums.

Collateral in captive health is the non-premium contribution the employer makes to secure the solvency of the risk layer assumed by the captive. The captive serves as a reinsurer for the layer of risk it assumes from the stop loss carrier. If the captive’s claim liabilities exceed the funding premium, the collateral is used to reimburse the stop loss carrier. Collateral may remain intact through successive policy periods and is refundable with positive underwriting results.

Blackwell’s medical captive exposure is limited because the captive serves as a reinsurer to the issuing carrier for a floating $250,000 layer of claims above the employer’s specific deductible. The carrier assumes all claims above the layer transferred to Blackwell. Blackwell’s maximum exposure is capped, and the members will never be required to fund any additional risk outside of their premium funding and collateral.

Employer expenses associated with participation in Blackwell’s captive include stop loss premiums which are determined by the employer’s plan design, demographic profile, and loss history. The posting of collateral is also required to secure the participation in Blackwell’s risk layer. Unused collateral is returned, along with any Experience Rated Refund due (as defined in the Participation Agreement), following the formal close out of each policy period.

Collateral is paid with Blackwell at the start of the captive treaty. This can be done with a Letter of Credit or can be secured with cash. If collateral is paid in cash, it can conveniently be paid monthly, quarterly, or in an annual lump sum.

Experience Rated Refunds are determined by surplus which is the amount of profit generated by unused premium dollars and investment return. At the end of the treaty, the eligible surplus is returned to captive members in the form of an Experience Rated Refund. The calculation of Experience Rated Refund is determined by the captive’s directors and is spelled out in the Participation Agreement.

Captives promote long-term rate stability for members because participation enables the membership to collectively replicate the size and risk profile of a much larger entity. This enhances a self-funded employer’s ability to budget for and retain the more predictable levels of risk while continuing to transfer the more unpredictable, large-loss, segments to the carrier. The increased ability for greater per capita risk share increases the dividend reward potential for each member.

Captives offer enhanced underwriting credibility and loss predictability through greater actuarial, underwriting, and pricing accuracy. Having an increased spread of risk also allows for the application of pooling principals, unavailable in a traditional self-funded plan, for an improved ability to diffuse and balance risk through increased diversification and distribution.

Captives enhance efficiency and reduce costs through collaboration among like-minded employers promoting sharing of best practices and enhances the adoption and effectiveness of risk management programs. Increased data integrity and information sharing improve Blackwell’s ability to identify claim trends and specific cost drivers and to develop targeted risk control initiatives. The larger unified membership of a captive helps to improve service component discounting from providers, networks, TPAs, and specialty management vendors.