How does stop-loss insurance work in a captive?
It’s similar to your current stop-loss experience. Each group receives an individual stop-loss contract. Each group is individually underwritten for proper premium assessment. Rates are competitive with the standard stop-loss market.
How is the specific deductible set for each individual group?
Each participating employer maintains their own current specific stop-loss level.
How is the aggregate set for each captive employer?
If an employer has aggregate insurance, it stays the same. Typically this is 125 percent of expected claims, which is standard in the industry.
Will stop-loss contracts be paid or incurred?
Either approach can be accommodated, based on the employer’s specific deductible and the contract they choose.
What type of stop-loss contracts will be issued?
We recommend a 12-month contract with a three-month runout (12/15) but can accommodate a variety of arrangements. Dividends will be paid to captive members roughly six to eight months after the plan year ends.
Can an employer who has a stop-loss renewal date other than Jan. 1 join the captive? Are there options to help them cover the gap?
The captive will renew on Jan. 1 each year. A group that renews its plan on a different date can purchase a short contract to cover the stop-loss gap until Jan. 1. The group does not need to realign the entire plan to a Jan. 1 renewal date; only the stop-loss coverage must be adjusted.
Some stop-loss policies “laser” individuals covered by the plan to either limit their coverage or exclude them from the plan altogether. Is there potential to “laser” individuals upon renewal or joining the captive?
Yes, “lasers” are still a possibility as part of the normal renewal cycle. If a stop-loss carrier chooses to “laser” a patient, it will be disclosed on their quote.
How is a stop-loss claim paid?
The same process is used for paying a medical claim through either the captive or through another stop-loss product: The TPA requests reimbursement from the fronting carrier (a reputable stop-loss vendor). Any interaction between the fronting carrier and the captive occurs behind the scenes and is not seen by the TPA or the individual group.
What is a “fronting carrier”?
A fronting carrier is a licensed insurance company that is paid a premium for providing services to the captive. Services provided by the fronting carrier may include:
- Issuing the captive’s reinsurance policy and performing reinsurance functions.
- Complying with any regulatory requirements under state laws.
- Paying premium taxes or other fees.
What is the collateral layer?
The collateral layer is the dollar amount of risk that lies between the pooling layer and the aggregate stop-loss coverage. It is typically negotiated to fall between 20 to 30 percent of the pooling layer. In 2018, ShareCap has set collateral to be equivalent to 20 percent of total fees.
If the captive as a whole has a bad year, will employers ever be at risk to pay stop-loss claims?
No. Employers are responsible to pay for claims under the stop-loss specific deductible they have selected. Claims over the specific deductible are paid first by the pooling layer, then by the collateral layer, then by the captive’s reinsurance. In the worst-case scenario of a “bad year,” the entire collateral layer would be spent on claims. In a “good year,” this investment, as well as any remaining dollars in the captive, will be returned to the captive member.
How are dividends paid to members?
The potential dividend is set at year’s start, based on the member’s percentage of the pooling layer. So if a captive member contributes 12 percent of the pooling layer, that member is then eligible for 12 percent of any potential dividend.
What happens to dividends if members do not renew?
Members who leave the captive at year-end still get their share of any dividend as well as their share of any remaining funds in the collateral layer.
How will members renew in the captive?
This captive will run during the calendar year. The renewal process begins in roughly July using a process that:
- Reviews expected funding needs for the entire captive for the next calendar year.
- Provides each member with a unique stop-loss renewal quote based on each member’s risk for the coming calendar year. Based on how a member’s claims compare to the whole group within the captive, it may be higher or lower than the aggregate. The collateral layer is funded at each renewal. This flexibility keeps the captive sustainable, year after year.
What is The Alliance vision for the captive over the next three to five years?
The Alliance’s vision for the captive includes:
- Growth to reach more cooperative members.
- Engaging members in controlling their health spend. This includes enhancing captive requirements to encourage members to work together to expand their use of value-based purchasing.
- Offering additional captive “cells” that give Alliance members different options for controlling their stop-loss layer.
How will Moreton and The Alliance be compensated for administering the captive?
Moreton and The Alliance will each receive a fixed fee (not a percentage). These fees are fully disclosed when an employer receives a captive proposal.
What are the requirements for being part of the Alliance captive?
Each participating employer must:
- Be an Alliance member
- Have their summary plan document (SPD) reviewed to protect the employer and captive; and
- Be willing to participate in three meetings each year.
How can I get a quote?
The first step is to sign a letter of authorization so we can analyze your data. That will determine whether it is worthwhile to advance to a quote for captive participation.
What are the main benefits of an Alliance captive?
The biggest benefit is the potential for reduced stop-loss insurance costs due to the leveraged purchasing power of a local captive. The opportunity to receive a dividend if the pooling layer performs better than expected helps reduce stop-loss costs.
Is this a long-term commitment?
No. Participating members annually sign a one-year contract. This leaves them free to decide year-by-year whether they will continue to participate.
What happens when a captive member leaves The Alliance captive before the renewal date?
As with any stop-loss solution, this captive will have a minimum premium requirement that must be paid even if a member leaves mid-year. Members who leave before year-end also forfeit any dividend and lose their contribution to the collateral layer.
If the captive as a whole has a terrible year, could an employer be held liable for a portion, or all, of any stop-loss claims?
No. If the pooling and collateral layer are both spent, aggregate coverage pays any claims. This coverage is unlimited so it covers all eligible claims. Outside of the pooling and collateral level, captive members should not have any additional claims expenses.
What happens when a provider delivers a stop-loss claim after a stop-loss contract has closed?
As with any stop-loss policy, a claim submitted after the contract period ends falls back to the member. Employers make the same decisions about coverage and risk with a captive as they would with any other stop-loss policy. Moreton sees all large claims and works to close out claims, which includes making sure providers are aware of contract limits.
What happens if an employer submits their data and advances in the process to obtain a quote, but decides not to participate? Will the employer also get an individual quote so they are guaranteed stop-loss quote coverage?
Yes, employers will get an individual quote. Moreton will request bids from the stop-loss market as a check against the competitiveness of the captive. Moreton is happy to show employers and their brokers these quotes as they compare to the captive. The employer will be able to choose either the captive stop-loss or a traditional stop-loss option. Brokers are kept informed throughout the process.
Who is Moreton and Company?
Founded in 1910, Moreton & Company is the leading insurance employee benefits broker and consultant in the state of Utah. Moreton serves a diverse group of long-term clients in multiple industries, ranging from small businesses to large publicly traded corporations, and government organizations of all sizes. Moreton was introduced to The Alliance by an Alliance member who uses Moreton as a consultant.