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Fully-Insured vs. Self-Insured Captive: What’s Best for Your Company?
By Burnham

Authors: Dan Exceen, Executive Vice President and Sydney Dougherty, Consultant


Like with most lines of insurance, COVID-19 impacted the pricing, availability of coverage, renewals, and underwriting trends in the health insurance space. Employers are interested in looking at other options outside of the traditional, fully insured model that are more cost-effective. and exploring the self-insured model inside a captive for purchasing their medical benefits. The most popular alternative option is a self-insured captive model for medical benefits. The National Association of Insurance Commissioners estimates that today, there are over 7,000 captives globally compared to roughly 1,000 in 1980.

Captive insurance refers to a subsidiary corporation established to provide insurance to the parent company and its affiliates. A captive insurance company is a viable option for organizations that want more financial control over their insurance spend by managing risks and underwriting their own insurance rather than paying premiums to third party insurers.


Benefits of Captives

Moving from a fully insured model and establishing a self-insured medical captive often provides significant benefits to organizations. By underwriting your own risk, you gain greater transparency and improved data on your actual claims cost and utilization. A self-insured medical captive also increases flexibility with plan designs, administration, and offered services, and it is very likely you can keep the same plan design and network with little disruption. Using a captive also grants organizations avoidance of state-mandated benefits. The transition from a fully insured model to a captive model is seamless for employees, with Human Resources and finance managing administrative changes on the backend.

Additionally, having a captive company can reduce the overall cost of risk because you pay claims as they are incurred instead of paying a fixed, fully insured rate provided by the insurance carrier that does not change regardless of how many or how few claims you incur. In a captive model, the owner of the captive keeps premium funds if it runs well. If the captive perform poorly, employers should purchase stop-loss insurance (also known as excess insurance), which provides protection against catastrophic or unpredictable losses. Stop-loss insurance plans are highly customizable.

As fully insured models become less sustainable for companies each renewal period, consider establishing a self-insured medical captive to gain more autonomy and financial control over your benefits expenses.


Is a Captive Right for Your Organization?

Self-insured medical captives continues to increase in popularity as an alternative or enhancement to purchasing fully insured insurance in the traditional marketplace. Managing and financing risks are important aspects of overall business strategy.

However, when deciding whether to form a self-insured medical captive, companies need to consider whether the organization’s insurance premiums are sufficiently large enough to justify the investment of time and resources needed to form and operate a successful captive.

Innovative, forward-thinking companies who want control over their health care spend and like the fee for service model are good candidates for captives. Organizations with a minimum of 50 enrolled employees on a medical plan with a total of 50-300 full-time benefit eligible employees should consider establishing a self-insured medical captive.

The world of captive insurance can be confusing, which is why it is important for any organization considering the formation of a captive to hire professionals experienced in accounting, tax and legal issues. Burnham’s team of experts knows captives, and can help you reap the benefits of a self-insured model.

For example, one of Burnham’s clients with about 300 employees moved to a captive model and saved a significant amount of money. With the savings, they were able to offer additional benefits to their employees, Spring Health, a wellbeing app, and Stork Club, a fertility and parental services benefit.


Contact the Burnham captive team today to learn if captive insurance is right for your business. You might be surprised at the savings and added benefits you can reap from this model.


For Additional Assistance
Reach out to your Burnham team for any questions or email us at inquiries@burnhambenefits.com.