Meritain Health® - In the Booth

Financial Advantages to Alternate Solutions

August 23, 2021 Meritain Health Season 2 Episode 12
Meritain Health® - In the Booth
Financial Advantages to Alternate Solutions
Show Notes Transcript

In our second In the Booth podcast on Captive solutions, we are pleased to have Bridgette Cassety from Broker Engagement, Mark Morgan, Head of Underwriting and Business Analytics, and Dan Day, Head of Middle Market Sales discuss the financial advantages of Captive solutions.

(00:05):

Welcome to another edition of in the booth. My name is Bridgette Cassety and I'm head of broker engagement here at Meritain health. And today we're going to discuss captives and the financial impact of captives, which is really a second part of the conversation that we started earlier with Dan day. And today I'm joined again by Dan who's, our national head of Middle-Market sales here at Meritain and also by Mark Morgan, who is head of our underwriting and business analytics. So I thought it'd be great for us to share both Dan's and Mark's perspective as we started to explore a little bit more about the financial impact of captives and the financial side and advantages that it can provide our customers and our plan sponsors. So, mark, there's certainly a lot to talk about when we talk about captives and the financial advantages that can come along with that. So I thought we could begin with, maybe you speaking a little bit about how captains can be an effective way for customers to sort of move out of that fully insured environment that they might've been in for a long time into a self-funded arrangement. Like the captive.

(01:05):

Yeah. I'm happy to Bridgette. Thanks for the question. Certainly. Yeah, there's a lot to talk about here. So I'll try to get to the meat of it. As, as we're thinking about transitioning from the polling church space to self-funded captives, really help the employers predominantly the smaller segment we're talking about. And just for clarification, that's probably 250 employees or less could be a little more, but predominately two 50 and less w the captains have found a really good opportunity to support those clients transition and what they provide is, is, is pretty fundamental in regards to, if you think about a transition from a fully insured space to a self-funded space as an individual employer, especially in the smaller segment, it's difficult to deal with complications around stop-loss you deal with complications about previous experience in certain markets things of that nature.

(02:02):

It just more difficult. What captives really allow is an easier transition, and they do that by leveraging their size. It's, it's a captive population. They look at the fully insured arrangement that the employer group was under, prior to the quote unquote shadow price, or try to put a best price based upon the information that's available. And they pull that population into their captive pool or their captive cell. And by leveraging that size or leveraging the greater population, it helps mitigate or reduce the complexities that a smaller client going out and going out this on their own would have transitioning from fully insured now with captains, for sure. There's depending on every captive is a little bit differently, but if we think about some of the more robust ecosystems there's, buy-in, that's needed from the employers around wellness programs, any type of risk mitigation programs, because fundamentally the captive arrangement and what we're trying to do with those, or what the captains are also trying to do with those is help curb some of the healthcare spend. And if you have a higher availability to some of the programs that are out there in the marketplace, or you have a more engaged population base that does help reduce the risk associated with the healthcare spend. So that's probably when I think about at a high level, the transition from fully insured to self-funded and how captives, can help around that. Dan, do you have anything you think you would like to add to that?

(03:37):

Yeah, great example, mark is a large case that we were given an opportunity to work with in central California. And that employer was coming out of a fully insured trust arrangement. There was very little experience available. There are about 200 employees, 400 members, and yet they wanted to go more deeply into a self-funded arrangement for some of the reasons that you just mentioned. They wanted to be able to adopt some further point solutions, but they also wanted insight into what their experience was going to tell them, and that could help provide them a strategy on a go-forward basis. So we worked with in this case, it was a consortium I'll explain the difference in a while that was able to shadow price, the fully insured arrangement, because we felt that the current trust had the experience thus was giving them a rate that was based on what their experience looked like. And we can use that as a launch point to basically base their rates on a go-forward basis. So we were successful in moving them from that fully insured trust arrangement into a, I would say, semi self-funded arrangement with the consortium, and now they have insight into data. Now they have insight into what they want to do as far as the strategy and the different point solutions that they want to adopt.

(04:50):

I think Dan, you bring up an excellent point when you use that word insights, right? Because that data analytics piece that comes along with transitioning out of fully insured and into these arrangements is really useful. And I think that that leads nicely into the next question that I was going to get Mark's perspective on, which is how did, how does being part of that impact of renewal rate and the risk over year over year. So, mark, what would your thoughts be on that?

(05:15):

Yeah, it's an interesting question. Bridgette and it's, it's complex, right? For sure. When we're dealing with these captive arrangements, we're working alongside the captive arrangements and we're what we've seen historically. And we've seen on, on actual examples obviously is, is you can curb the cost structure or the overall spending year over year when you're in a captive arrangement relative to if you're going at it on your own meaning if you're leveraged trend or rating freeze typically, you know, average, for example, 10% maybe you're getting a couple points or a point or two, or maybe a little bit more a better financial situation going out with a captives what we also see. However, is when you're thinking about the capital arrangement is the longer-term stability of your rate action. And again, if we're talking about the segment, that's two 50 and under, or in the smaller group space, or what have you, you, you will tend to, and you can have experiences where you're seeing these large increases year over year.

(06:18):

And one of the really benefits that one of the great benefits that caps is bringing to the market is longer-term stability is you're not seeing significant increases one year or not. You're trying to find different solutions or arrangements because of the rate increases because of this larger population, the captive risk is evaluated based upon based upon that total population. And then the groups within that population may have, you know adjustments upwards or downwards relative to the average increase. But considering you're looking at a larger population and an individual small group, we'll see some of the advantages that a larger alternate funded or self-funded client would receive by going out with a captive arrangement, some of the programs that we've worked with depending on how they will for a forecast for model this out, we'll for sure show some of the savings. We've seen the savings as well. But every situation is a little bit different, but on an overall basis, we see the stability and we certainly see some of the financial savings that the clients have experienced going through the capital arrangement

(07:26):

In today's environment, sort of managing that volatility, right, managing that, that, to that longer-term stability that you talked about is really important to clients and customers and our current and our current business environment. So I think what you're saying is, is resonating with our, with our listeners today, for sure. And I wanted to circle back to something that you said earlier in the conversation with talking a little bit about captives versus consortium. And so I thought maybe you could spend a few minutes and talk about the difference and how sort of this conversation plays into both.

(07:59):

Yes, as mark alluded to before with the captive, essentially what you do is you have the differences that come into it are capitalizing and insurance solution. So they are all contributing to making sure that their own insurance company, their own insurance solution is working. Therefore they are typically members and they're contributing members. They also buy into, as mark alluded to before different wellness solutions point solutions to help mitigate risk. So it's a different sale and it's a different purchase on behalf of the customer with a consortium, they typically do not lead with different risk mitigation strategies or point solutions. They merely group all the clients together from an underwriting perspective. So they alleviate or flatten out those volatility of that volatility that can happen with large claims. So they even out that risk and they look at it as one big risk, I want to say my, for the captive does they also, what they haven't common is the modeling. They used to pull people from fully insured arrangements into the self-funded environments using that shadow pricing technique that we talked about before. So there's a similarity there, but really it's a membership buy-in experience versus a we're going to pull you and underwrite you as one big risk experience with a consortium. Those are the distinct differences between the two.

(09:23):

And I think Dan, you, you know, you bring up some good points, which is sort of comparing and contrasting the captives versus the consortium. The key is, is both are trying to leverage size to minimize some kind of costs. But I think that when I think about the conversation that we're having here today, there's a few key elements around the captives that are unique and different is obviously that strategy to transition away from fully insured and an easier way. And mark, you talked about the ability to get stop-loss being a whole lot easier, sort of managing that volatility. And by having those integrated point solution strategies, there's a way to do that. The captives are, are an excellent option for that. And ultimately that reduces the leverage trend with which saves money and produces that, that long-term stability that mark referenced earlier in the conversation.

(10:11):

So those are some of the key things that I took away from our conversation today that I think are important considerations when, when people might be thinking about captains and, and contemplating whether that's a good strategy for them and for their customers. So I appreciate both of you joining me today. So thank you, Dan and mark for taking some time out of your day and talking about sort of those differentiations in financial strategies that can be deployed as part as an alternative strategy with captives. Thank you to our listeners for joining us today. And I hope that you'll tune back in for another edition of, in the booth.