Employer-Sharing Discussion: Captives and Other Financing Mechanisms

Business Group on Health held the latest of a series of monthly calls for employer members to network on the most pressing issues impacting their workforces around the world. This call was focused on how employers can utilize captives to support and implement their overall global consistency strategy.

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September 29, 2022

Background

  • A captive is an employer-owned insurance company that bears the financial risk associated with health insurance and works with fronting networks to provide insurance benefits to employees around the world.
  • A poll found that 44% of companies participating in the discussion currently use a captive, and an additional 6% are considering one for the future.
  • In a captive arrangement, the employer has increased control and cost savings but also takes on the total risk ownership.

Implementation

  • One company implemented a captive over a decade ago and continues to grow it to include additional subsidiaries. In its early days, subsidiaries were not required to become part of the captive but were encouraged to do so. As the captive has grown and the company has done increased education throughout the company, more subsidiaries have joined. The plan moving forward is to make participation mandatory unless there is a significant business reason not to, which applies to a limited number of subsidiaries and countries.
    • This company noted that the captive has given the business more freedom in financing, greater flexibility in assisting employees, especially during the pandemic, and overall increased opportunities to support employees.
  • Another company highlighted its similar experience with a captive, including increased flexibility in plan design changes. This company was able to remove restrictions on preexisting conditions through its captive arrangement.
  • For companies with a captive, using a global broker has helped implementation, but it’s important to ensure that the broker has experience with captives, as some may be hesitant to work with them.
    • One employer utilizes a captive consultant to accomplish some tasks a broker would take on. The company evaluated the situation country by country to determine when a broker was needed based on the typical local function of brokers. The captive consultant covers some underwriting tasks, eliminating the need for a broker in the countries where underwriting is the main job of the broker.
  • One employer highlighted a lesson learned from captive migration: the need to do a side-by-side comparison between current incumbent insurers and the captive to make sure there are no coverage or quality gaps.

Benefits of a Captive Arrangement

  • Global employers utilize their captive arrangement to enhance their global consistency strategy as well as implement other initiatives that may not have been feasible without a captive.
  • One company plans to implement a global umbrella policy for Diversity, Equity and Inclusion (DEI) using its captive.
  • Another employer used its captive to remove preexisting conditions and waiting periods. In addition, this company launched a supplemental plan for all employees, using its medical captive to provide coverage for care that may not be covered in local or statutory plans or is limited in coverage. This allows the company to ensure that all employees have access to this important care, providing employees with an additional layer of coverage to ensure access to diverse and inclusive care.

Fronting Networks

  • Most employers participating in the discussion use two-to-three fronting networks, depending on which insurers they contract with in each country.
  • Some companies have needed to add additional fronting networks to address gaps when current insurers are not part of the fronting network in a critical country.
  • One employer brought in an additional fronting network to handle and administer its new supplemental medical plan. The fronting network works with employees and local providers to ensure that existing benefits have been exhausted before the supplemental plan can be utilized.
  • Some companies utilize their fronting networks’ enhanced reporting capabilities to develop their own claims analytics programs.
  • One company has four fronting networks and is looking to consolidate to fewer partners.

Other Financing Mechanisms

  • A poll found that local self-insured arrangements and multinational pooling are the most common financing mechanisms, while global underwriting is used as well.
  • One employer noted that it has heard from consultants that global underwriting comes with several restraints. This company is doing a feasibility study to determine next steps in financing and whether it will utilize global underwriting or a captive.
  • Some companies highlighted limited data and analytics as a challenge with global underwriting.
  • Global underwriting can be more beneficial for risk components like life insurance and disability. It’s more difficult for medical, which is what makes more employers turn to captives, which give them more control over their medical plans.

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