Medical Stop-Loss Strategies in Captive Insurance

Medical researchers continue to develop extraordinary treatments capable of saving patients' lives. Unfortunately, while these treatments are great for patients' health, they can be downright deadly for the health insurance plans offered by their employers. From gene therapy to new medications, the high cost of these innovative therapies is leading employers to look for a cure of their own.

With some of these therapies (especially those involving long-term use of specialty medications), claim amounts can quickly accumulate to six- and even seven-figure levels. For employers who self-fund employee benefit plans, one of the best ways to manage the impact of these higher costs is to establish a captive medical stop-loss insurance program.

The idea of using medical stop-loss coverage to protect plans from extraordinary claims is nothing new. Plan managers have purchased this coverage from the traditional insurance market for some time.

Managing claim risk by establishing a captive insurer delivers a more practical and financially sound alternative than crossing one's fingers and hoping for the best. Captive insurance companies are inherently flexible, and those used with medical stop-loss coverage are no exception. If you already have a property and casualty captive, you could have an opportunity to incorporate a medical stop-loss program into it.

Well-managed captives deliver significant financial benefits to their owners. Instead of an expense that grows every year, insuring the risk becomes an investment. As the owners get better at mitigating risk, the captive returns even more on that investment. And because the captive puts them in control of their plan, they can build cost-controlled benefits around their employees' exact needs.

There are several general types of captive insurance companies. The simplest type is a cell captive, which is similar to renting an office in a large building and can usually be accomplished fairly quickly. A single-parent captive is typically intended for one organization. Finally, group captives bring multiple companies together to spread the cost and risks across them. As the choice of structure will impact the captive's performance, working with an experienced captive insurance consultant is prudent.

Most successful captive insurance companies emphasize reducing risk to reduce the number of claims. Federal requirements for pricing transparency have been a boon for captives, as they've provided access to an amazingly deep well of benefit-related data. That data sometimes has been readily available, but until recently, it's been incomprehensible. Data analysis and artificial intelligence developments are giving plan managers new insight into old questions. How exactly are employees using benefits? Are there more efficient ways to spend benefit dollars? What would our spend become if we moved to a different pharmacy benefit manager?

With so much data, it becomes easy to compare your claim history with similar businesses elsewhere. You can see which diagnoses rely on your stop-loss program the most. Are certain doctors more likely to call for costly surgery while others rely on physical therapy to create the same diagnosis? Could you develop a program to encourage plan members to get second opinions? The more you know about your data, the better you'll be at making key decisions about the plan. These tools allow closer examinations of factors such as the following.

• Medical spend by diagnosis, looking across the 21 major diagnosis chapters and comparing that to benchmarks to determine what's contributing the most to claims. 
• Pharmacy categories by paid amount offer insight into higher-cost specialty medications. 
• Pharmacy categories by volume call attention to increasingly frequent diagnoses. 
• Adherence metrics explain whether members use preventive care and medications effectively. 
• Chronic condition prevalence highlights treatments that might suggest underlying issues, such as a high musculoskeletal spend for employees handling specific tasks.

I've never met a plan manager who didn't want to do everything possible to keep employees healthy. If you want to ensure your employees can access the extraordinary care they sometimes need, a captive-based stop-loss program could make it happen without sacrificing the health of your bottom line. The new data is a treasure trove for captive owners. Not only can you better quantify the risk, but you can also fund programs to reduce those risks.

These data analysis tools let you spot patterns your eyes would miss, allowing you to shape your plan to meet your employees exactly where they are. For example, you may discover your plan has an unusually high rate of preventable musculoskeletal claims. You mandate training on stretching and proper lifting and fund that training through the captive. Your employee doesn't get hurt, so your company doesn't pay a hefty claim.

Medical stop-loss coverage is a time-proven concept. Combining it with the many advantages of a captive insurance program and today's extraordinary access to data lets you take control of healthcare costs and rewards you for making smart choices.