Managing Medical Stop Loss in Your Captive CLM014 Speakers: Karin Landry, Managing Partner, Spring Consulting Group Steven Bujarski, Manager of Risk Financing, Risk Management, Carlson
Learning Objectives At the end of this session, you will have learned about: Recent History of Medical Stop Loss Funding Captives as a Medical Stop Loss Funding Solution Evaluating and Designing Medical Stop Loss Coverage in a Captive Implementing a Captive Funding Solution for Medical Stop Loss from a Risk Manager's Perspective
I. Introduction of Speakers
Karin Landry Karin is the Managing Partner of Spring Consulting Group, LLC, has more than 25 years of experience in the insurance, health care, risk financing, retirement and benefits industries. She is an internationally recognized leader in captive insurance strategy, benefits and financing, and was named Captive Professional of the Year by Captive Review s 2014 US Captive Awards. Karin holds a B.S.B.A. from Babson College and has pursued graduate studies in Finance from Northeastern University. She holds Certified Employee Benefit Specialist (CEBS), Group Benefits Administrator (GBA), Certified Long Term Care Consultant (CLTC) and Associate in Captive Insurance (ACI) designations. Karin is a member of the Mathew Greenwald Board, Past -Chairman of the Board of The Captive Insurance Company Association (CICA), and member of the Board of Directors for Fallon Community Health Plan. Karin is also a Professor of Employee Benefits for the International Center for Captive Insurance Education (ICCIE).
Steve Bujarski Steve is the Manager of Risk Financing for Carlson, a global hospitality and travel company. Carlson s portfolio of businesses includes Radisson, and Country Inns & Suites By Carlson hotels, as well as Carlson Wagonlit Travel. Steve oversees the operations of Carlson s Bermudadomiciled captive insurance company, NAFCO Insurance Company, Ltd. Steve holds an Associate in Risk Management certification and is a former CPA. He served on the Board of Directors of the Captive Insurance Companies Association (CICA) from 2010 to 2014.
II. Recent History of Medical Stop Loss Funding
The Current Medical Stop Loss Landscape How employers have traditionally covered medical stop loss Employers that self-fund their employee benefit health plans purchase stop loss coverage from a qualified insurer to protect themselves form catastrophic or unpredictably high claims; Insurance company is liable for losses exceeding the employer s deductible Two types of coverage available: Specific Stop Loss Aggregate Stop Loss Stop Loss claims are paid through reimbursements to the employer
The Current Medical Stop Loss Landscape The impact of the Affordable Care Act (ACA) on self-funding and medical stop loss funding Employers seeking alternative funding options Employers looking to keep costs down Employers looking to regain control of their employee health risk Employers looking for flexibility in plan design
The Benefits to Medical Stop Loss Coverage in a Captive Structure: Cap%ve Limit Fron%ng Company or Reinsurer Risk Individual Claims Employer Limit Cap%ve Risk Employer Self- Insured Reten%on Aggregate Claims Employer Limit Cap%ve Limit
Potential Cost Savings with Medical Stop Loss in a Captive
III. Evaluating and Designing Medical Stop Loss Coverage in a Captive
Considerations for Setting up a Captive Self-insured Experience Loss ratio/lasers Captive Type Pure/Group/Fronted/Direct? Domicile Where do we have an advantage? Tax Issues Deductible premiums Insurance accounting Deposit accounting Accelerated deduction
Considerations for Setting up a Captive Layers/ Reinsurance Captive Legal Structure Stock/Mutual/Reciprocal/Cell Regulatory Compliance ERISA and ACA Captive regulations
Considerations for Setting up a Captive The cap%ve protects itself from excess claims by buying cover from an outside reinsurer for individual claims and total claims that could exceed 125% of expected Reinsurer 125% of Expected Claims Aggregate Claims Employer retains some risk to reduce their overall costs Employer Self Insured Reten%on (SIR) Level Individual Claims Cap%ve $250,000 The cap%ve holds reserves for the employer to pay individual claims over each member s retained risk SIR The cap(ve provides a secure way to self insure health risks
A Case Study Successful Group Medical Stop Loss Captive Colleges and Universities experiencing significant rise in health care costs Increased scrutiny of institutional spending as cost of education rises 6 colleges join up to form a group medical stop loss captive to: Leverage economies of scale Improve health care buying power Provide efficiency ion program design, administration and funding Group now consists of 11 schools with more looking to join Results: 2015 renewals average rate increase of only 0.5% compared to 7% industry average 4 member schools saw 2015 renewal rates either stay the same or decrease Fixed costs lowered from 10.3% to 7.7% of working premium in first 18 months
IV. Implementing a Captive Funding Solution for Medical Stop Loss
About Carlson One of the largest privately held companies in the world Carlson Rezidor Hotel Group encompasses more than 1,370 hotels in operation and under development in over 110 countries and territories Carlson Wagonlit Travel, a global leader in business travel management operating in more than 150 countries and territories.
Differentiating Medical Stop Loss from Property & Casualty Can be written directly or fronted Similar to Property & Casualty: Large deductible plan Captive takes layer and funds it Different Players Benefit team involvement Existing benefit broker and human resource team Paid from employer funds, not employee contributions
Implementation Process Do feasibility study Determine business partners Actuarial Consulting Develop program structure Attachment point, coverage period Reinsurance Don t forget other internal team members Accounting, legal, tax
Actuarial Analysis - The Basis for Pricing/Rates Risk analysis Available surplus Risk appetite (e.g. confidence level) Reinsurance Retention (selected by division) Methodology Employer demographics Underlying medical plans/networks Historical large claim experience (3-5 years) Stop loss industry experience Blended modeling
Dealing with Divestitures Sale of TGI Friday s decreased size of program by almost 50% Impacted ongoing reinsurance needs Caused review of pricing Impacted risk outlook for next year Purchased reinsurance at lower attachment point Make sure terms of sale account for underlying risk Know what liability you are left with Bring in advisors at beginning to ensure all angles are covered form the start
Program Results Financial results certainty For participating business units Competitive rates Captive underwriting income Stabilizing prospective pricing Providing cushion for potential unfavorable clams experience in future Strengthened collaboration between business functions
Key Success Factors Senior management support HR/Benefits and Risk Management collaboration Business partner expertise
Questions?