Rising Demand for Self-Funded Health Plans Fuels Growth in MSL Group Captives

 Editor's Note: This article, provided by Captive Resources, LLC, examines the rising demand for medical stop loss (MSL) group captives. It explores how these captives help employers manage healthcare costs, control claims volatility, and leverage collaborative strategies to enhance the self-funding experience.

Medical stop loss (MSL) insurance has become increasingly vital for companies that currently self-fund their health benefits plans and those looking to transition to self-funded plans. According to a report from Oliver Wyman, stop-loss insurer premium volume increased to $35.5 billion in 2023, an 11.9 percent increase from 2018.

As the popularity of self-funded health plans and MSL coverage continues to rise, it's important for employers to understand how MSL coverage supports self-funded employers, what's driving demand for MSL coverage, and how MSL group captives are helping employers realize the benefits of self-funding.

Why MSL Coverage Is Vital for Self-Funded Employers 

Self-funding gives employers more control and visibility over healthcare costs than traditional health plans; however, it can also increase employers' exposure to high-cost claims. MSL coverage helps mitigate this concern by covering claims exceeding a predefined stop-loss deductible, serving as a safety net against unexpected or catastrophic expenses.

It's important to note that not all self-funded employers utilize MSL coverage. However, according to the US Department of Labor, most self-funded plans other than those for very large employers (think 10,000-plus employees) have some stop-loss coverage to protect against large claims. 

What's Driving Demand for Self-Funding and MSL Coverage

Perhaps the number one driver behind the increased interest in self-funded health plans is the relentless rise in healthcare costs. Employers are increasingly faced with seemingly never-ending price hikes during renewal season, making them eager to find alternatives that offer more control.

Consider the following statistics. 

• Mercer reports that employers expect health benefit costs per employee to increase by an average of 7 percent in 2025, barring significant cost-control measures.
• Kaiser Family Foundation's 2024 Employer Health Benefits Survey reported that family coverage premiums have surged 24 percent over the last 5 years, outpacing both wage growth and inflation.  

There are myriad reasons for these cost increases, but let's examine a tangible example for illustrative purposes: specialty drugs. These medications, used to treat complex and chronic conditions such as cancer and multiple sclerosis, now account for half of US drug spending despite making up only a small fraction of total prescriptions. 

Here are a few statistics that illustrate the challenges specialty drugs pose for employer-sponsored health plans.

• According to the US Department of Health and Human Services, specialty drug spending in the United States reached $301 billion in 2021, marking a 43 percent increase since 2016.  
• Recent research from Oliver Wyman showed that healthcare providers apply an average markup of 42 percent on specialty drugs, contributing to increased premiums for commercial health plans.
• Evernorth reports that plan sponsors experience an average annual cost of $38,000 per specialty drug patient, compared to just $492 for patients on traditional medications.

Given these cost pressures, self-funding offers an attractive alternative for many employers looking to control costs. While large companies have flocked to self-funded plans in recent years, many small and medium-sized businesses lack the necessary scale. This is where medical stop loss group captives offer a compelling solution.

How MSL Group Captives Help To Self-Fund 

As more employers look for alternatives to more traditional healthcare programs, MSL group captives have proven to be an effective solution for a diverse set of companies. In an MSL group captive, multiple companies join together to self-fund their health benefits in a more stable, predictable environment. The captive overlay enables members to share risk, while the stop-loss coverage enables them to shift catastrophic risk to a fronting/excess insurer. This arrangement allows companies—especially small and midsize businesses—to enjoy many of the advantages of self-funding but with the support of other like-minded organizations.

"[MSL captive insurance] is the fastest growing segment within employer-sponsored, self-funded health plans," explained Steve Gransbury, president of health solutions at Captive Resources, in a recent article.

There are many reasons for this rise in popularity, chief among them being the ability to control costs.

"When someone buys a fully insured plan, that's the price," said Mr. Gransbury. But that's not the case for companies that self-fund in an MSL group captive. By retaining a predictable layer of risk, group captive members have more control and support to implement targeted and innovative cost control measures. And the captive layer allows members to share risk and manage claim volatility.

"Every industry has claims of all sizes, and they all have health plans," Mr. Gransbury noted. In an MSL group captive, employers can "open themselves up to the right partnerships to be able to manage and control costs."

A few of the key advantages MSL group captives* provide include the following.

Increased Control 

Employers have increased control over the structure of their benefits plan—including setting deductibles, copays, and out-of-pocket maximums and selecting third-party administrators (TPAs), networks, and other partners. 

Greater Transparency 

Employers enjoy increased transparency into program details and cost drivers, allowing member-companies to implement targeted cost-control measures. 

Networking and Collaboration 

A collaborative approach among member-companies drives innovation and enhances risk management strategies.

Dividend Potential 

Members are eligible to recoup unused underwriting dollars in the form of dividends when excess losses are less than actuarially projected. 

Cost Stabilization 

Group captives underwrite members based on individual performance rather than as part of a larger pool, which helps bend the renewal curve compared to the traditional stop-loss market. 

Access to Preferred Partners 

MSL group captive members have access to vetted partners that can help employers enhance program performance and contain costs.

Combined, these advantages can have a significant impact on a company's bottom line. For example, a member-company within a group captive supported by Captive Resources achieved a 20 percent reduction in healthcare costs from Rx savings alone in just 1 year. An MSL group captive helped make these savings possible in several ways. 

• Increased transparency into claims data allowed the company to identify several costly prescriptions. 
• Collaboration with other member-companies helped the company learn about a carve-out solution to control Rx spend. 
• Enhanced control over program components allowed the company to onboard partners to make the carve-out possible.

The growing popularity of self-funding reflects employers' need to find ways to effectively manage healthcare costs and claims volatility. Group captives offer a compelling solution for small and midsize companies to enjoy the benefits of self-funding in a more stable and collaborative environment. As more organizations explore this model, captives are poised to play an even greater role in the future of self-funded health plans.

*These advantages pertain to MSL group captives supported by Captive Resources and do not necessarily apply to all health benefits captives.