HNI U - Captivate Your Employee Benefits
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Transcript of HNI U - Captivate Your Employee Benefits
CAPTIVATE YOUR EMPLOYEE BENEFITSHow Captives Drive Performance
Shawn Lanter | Director, Berkley Accident + Health
48
YEARS in operation
Berkley Accident and Health is a member of W. R. Berkley Corporation:
5where WRBC operates worldwide
7.1
in revenues in 2014
$BILLION
Source: W. R. Berkley Corporation year-end 2014 results. Fortune 500 property/ casualty ranking and #409 overall ranking, www.Money.CNN.com, June 2014. Best Managed Companies, ww.Forbes.com, 2007. Market capitalization as of May 20, 2015.
6.2
Market capitalization $ BILLION
14
LARGEST property/casualty insurance group
th
Best Managed Companies in AmericaCONTINENTS
BERKLEY ACCIDENT AND HEALTH IS A MEMBER OF W.R. BERKLEY CORPORATION:
W. R. BERKLEY INSURANCE GROUP 49 OPERATING UNITS WORLDWIDE
Insurance is underwritten by Berkley Life and Health Insurance Company, known for its financial stability:
BERKLEY ACCIDENT AND HEALTH
Source: www.ambest.com and www.wardinc.com, 2014.
Rated A+ (Superior) by A. M. Best (second-highest rating out of fifteen) A+Named a Ward’s 50 top-performing insurer for safety and consistency
CAPTIVATE ONLOOKERSAGENDA
1.Group Captives – What, Why, How, Who
2.The Market Climate
3.Berkley’s Group Captive Program
4.Financial Scenarios
5.Other Considerations
WHAT IS A CAPTIVE?
A Captive is a medium for taking risk.
It can be formed by a single company Or multiple companies
Single Parent Captive Group Captive
WHAT IS A GROUP CAPTIVE?
A Group Captive can be made up of companies in the same industry or different:
Same industry Different industries, sizes,or regions
Closed membership Open membership(Homogeneous) (Heterogeneous)
WHY DO GROUP CAPTIVES EXIST?
Group Captives exist to give employers: Control Lower overhead/inefficiency from insurance carriers Long-term stability Capacity Data transparency Collaboration/best practices
WHAT IS BERKLEY’S GROUP CAPTIVE?
Group stop-loss captives combine three strategies:
EmCap
Self-funded health plan
Group captive
structure
Collaborative health risk managemen
t
CAPTIVE MISCONCEPTIONS
• “Employee benefits captives are only for jumbo‐sized employers”• “All captive employee benefit programs must be approved by the
Department of Labor (DOL)”• “There’s just no way that Risk/Finance and HR will ever see eye‐
to‐eye regarding the advantages of a captive employee benefit program”• “The whole process is just too complex for us to deal with”• “We could get permanently locked into a program we’re just not
happy with”
Self-Funding w/Stop-
loss
Level Funding
Group Stop-loss Captive
Stay the Traditional
Course
Drop Coverage
Self-Funding Options to take
Control and Reduce Insurance
Dependency
STAY THE COURSE – FULLY INSURED
Affordable Care Act (ACA) hits fully insured plans the hardest
ACA’s Ten-Year Total Tax Impact = $164 billionSmall Employers +$2,760 single +$6,830 familyLarge Employers +$2,610 single +$7,130 family
ACA’s Tax Sources (in billions)
$102$34
$29 Health Insurance Plans (does not impact
self-funded plans)
Medical Devices
Prescription Drugs
Source: Effects of the PPACA Premium Tax on Small Businesses and Their Employees: An Update, http://www.nfib.com; Estimated Premium Impacts of Annual Fees Assessed on Health Insurance Plans, http://www.ahip.org; based on the ten-year period from 2014-2023; AHIP 2013.
Stay the Traditional
Course
Self-Funding Options to take
Control and Reduce Insurance
DependencySelf-Funding w/Stop-loss
Today, nearly all large companies self-fund their health plans
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0%
20%
40%
60%
80%
100%
13% 15% 17%13% 10% 10% 13% 13% 12% 12% 15% 16% 13% 15% 16%
60%67%* 66% 66%
72% 73% 75% 78% 77% 77% 77%83%* 82% 81% 83%
Large Firms (200+ workers)
Small Firms (1-199 workers)
Notes: For 2000, the large firm estimate is statistically different from the estimate for the previous year shown (p<.05). In 2006, funding status was not asked of firms with conventional plans, due to a change in the survey questionnaire. Therefore, conventional plan funding status is not included in the averages in this exhibit for 2006. Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2013, www.kff.org.
WHO SELF-FUNDS?
PROS OF SELF-FUNDING
Traditional Advantages• Risk is limited with stop-loss reinsurance• Cash flow advantages;
no pre-funding of claims with advantage to employer in favorable claims years
• Data transparency (detailed utilization data) allows employers to identify issues and promote healthier cultures
• Multi-state plan design; benefit flexibility; ease of administration
• Lower fixed costs• No premium tax• No insurance company profits• Lower long-term cost
Additional Advantages Under ACA
• Not required to provide coverage with minimum essential benefits
• Not required to participate in a risk-adjustment system
• Not subject to provisions, such as Medical Loss Ratio requirements and premium increases
WHY DO EMPLOYERS SELF-FUND?
Significant advantages to self-funding• They have the financial leverage to assume risk• They have the size to provide predictability (lower risk premium)• They purchase medical stop loss at a higher retention level
(mitigation/stability) = less dependency on insurance• They can implement best-practice health risk
management strategies (high-performing companies) to bend the cost curve
BENDING THE COST-CURVE
Using self-funding as part of a performance driven strategy to proactively manage your health risk• Impact is huge• Employer health premiums
have increased at a compounded rate of 9% for the last 10 years1
• “High-performing” risk companies have trend at or below 3%2
1Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2013, www.kff.org.2Towers Perrin, annual study of health insurance costs
2013 2014 2015 2016 2017$0
$250,000
$500,000
$750,000
$1,000,000
$1,250,000
$1,500,000
$900,000
$1,069,000
$1,270,000
$900,000 $955,000$1,013,000
Average9% trend
High-performing over 5 years
3% trend
STOP-LOSS REINSURANCE
How does Medical Stop Loss insurance work? • Covers catastrophic or unpredictable losses• Protects the self-funded employer’s assets• Individual/Specific Stop Loss
o Protects against high claims from any one individualo Protects against the severity of a single catastrophic claim
• Aggregate Stop Losso Provides a ceiling for overall claims liabilityo Protects against higher-than-expected usage or frequency of claims
from the entire group
CONS OF SELF-FUNDING
• Not good fit for companies with consistently bad claims ongoing (unfavorable loss ratios)• Requires strong balance sheet• Typically 100+ employees• Annual risk 10% - 25% of Expected Claims costs• Cash flow fluctuations• Reserves needed to switch back to fully insured• Requires more senior leadership involvement• Longer term commitment
Challenge: How do you create the large employer advantage for small and midsize companies? • Self-funding provides benefits typically enjoyed only by large
companies: o Controlo Transparency
• Group Captives can provide stability by spreading risk across its members
• Health risk management can lower short- and long-term cost trends:o Opportunity to control costs
WHY DON’T MORE EMPLOYERS SELF-FUND?
ANNUAL CLAIMSLow
High
PRO
BABI
LITY
Low
H
igh
Mid-Size Self-Funded Health Plan
WHY DON’T MORE EMPLOYERS SELF-FUND?
GROUP CAPTIVES MITIGATE VOLATILITY
ANNUAL CLAIMSLow
High
PRO
BABI
LITY
Low
H
igh
Shift expected due to law of large numbers
Self-Funded Health Plan moving into a Group Captive
ANNUAL CLAIMSLow
High
PRO
BABI
LITY
Low
H
igh
Shift expected due to risk management results
Self-Funded Health Plan moving into a Group Captivewith Health Risk Management
GROUP CAPTIVES + HEALTH RISK MANAGEMENT
Self-Funding Options to take
Control and Reduce Insurance
DependencyGroup Stop-loss
Captive
GROUP STOP-LOSS CAPTIVE
Group Captives bring it all together by allowing small employers to act like large employers:
1. Traditional advantages of self-funding2. Additional advantages with ACA3. Best practices for health risk management4. Collaborative financial strength5. Greater scale for predictability6. Buy less Stop Loss insurance (higher deductible)
CAPTIVE OPTIONS
1. Start one from scratch (single or multi-employer)• Considerations / Barriers:
• Time• Resources/Capital
• Creation can be a very costly value proposition. Ballpark to start your own captive from scratch can range from $500K to $750K.
• Regulatory requirements• Captive components and vendor selection
2. Join a existing captive
Domicile Actuary
Tax & Audit
BankingCaptiveManager
Asset Managemen
t
Reinsurance
MemberSpecific Vendors
Advisor
Pre-negotiated
Vendors
STARTING YOUR OWN CAPTIVETypical Captive Components:
JOINING EXISTING CAPTIVE
Segregated Cell Captive Option• Allows participants to create
something unique for its owner members• Industries, geographic location,
demographics, etc.• Join re-created established
captive model • Already Capitalized• Completed regulatory
requirements• Benefits of larger group, and
economies of scale - until critical mass is reached
ExistingStop-Loss Captive
Segregated Stop-loss
Cell
Target employers for a Group Stop Loss Captive: 50-1,000 employees eligible for health benefits Forward-thinking management team Good communication with employees on health care
costs Willing to implement robust health/wellness programs Financially stable and willing to take on a portion
of the risk for their health plan
WHO SHOULD CONSIDER A CAPTIVE?
RISK LAYERS: CLAIMS EXPOSURE/COSTSRetain. Share. Transfer.
Group Captive LayerPremium + Non-Premium Funding (collateral)
Employer 1
(SFR)
Employer 2
(SFR)
Employer 3
(SFR)
Employer 4
(SFR)
Employer 5
(SFR)
Berkley Retained LayerRetained Excess + Captive Aggregate Coverage + Fixed Costs
No risk sharing
Employers pay for claims up to
Stop Loss(Individual or
Aggregate claims)
Employer Layer
Risk shared among members
in captive
Risk assumed by Stop Loss insurer
>$250k individual and captive max
RELATIONSHIP OF PARTIES
*Includes plan, broker, TPA, and risk management strategies
RETAIN
CaptiveAgreement
Stop LossPolicy
ReinsuranceAgreement
SHARE
Group Captive
TRANSFER
EmployerPlan*
BerkleyStop Loss/
Excess
STEPS
1. Self Fund2. Buy Stop Loss Policy3. Join the Group Captive
STEP 1 – SELF-FUND
Each employer:• Chooses to self-fund its employee health benefits• Creates and manages its own self-funded health plan• Commits to a focused and consistent strategy of health risk
management• Pays for claims on behalf of its plan
STEP 2 – BUY STOP LOSS POLICY
Each employer:• Buys a Berkley Stop Loss policy1 with Specific and Aggregate
protection (individually rated; no group rates)• Determines own retention levels
($25k used for example purposes) • Pays premiums to Berkley for their Stop Loss policy• Gets reimbursed by Stop Loss policy for covered claims
above Specific or Aggregate level1Stop Loss policies are underwritten by Berkley Life and Health Insurance Company (“Berkley” or “Berkley Life and Health”)
STEP 3 – JOIN THE GROUP CAPTIVE
• Berkley Life and Health reinsures the layer between $25,000-$250,000 per individual to a captive
• The captive is a reinsurer of Berkley and does not issue policies
• The captive receive premium for the layer from Berkley• Each employer provides collateral to the captive, in case
premiums are insufficient, and pays a fee to cover the captive’s expenses
• Berkley limits the captive’s exposure with a program Aggregate
• Unused captive funds are returned to employers
Retain. Share. Transfer.
FREQUENCY OF CLAIMS
PER
IND
IVID
UAL
BERKLEY LIFE & HEALTH
Individual$25,000
per Individual
MEMBER RETENTION
Aggregate110%-125%
of expected claims
STOP LOSS POLICY STRUCTURE
Risk Layer FundingRetain. Share. Transfer.
BERKLEY LIFE & HEALTH
Individual$25,000 per Individual
MEMBER RETENTION
Aggregate110%-125%
of expected claims
FREQUENCY OF CLAIMS
PER
IND
IVID
UAL
EXPENSES
Individual$25,000
per Individual
MEMBER RETENTION (SFR)
Aggregate110%-125%
of expected claims
Berkley Life & Health retained excess, expenses, TPA
Up to $250k individual
Premium funding
Non-premium funding
(collateral)
GROUP CAPTIVE
LARGE CLAIM EXAMPLE
Employer has a $600,000 claim from a premature birth:
BERKLEY LIFE AND HEALTH Stop Loss policy reimburses $575,000 to the employer
GROUP CAPTIVE reimburses Berkley for $225,000
EMPLOYER funds first $25,000 through its self-funded retention
Sample EmCap Layers vs. Average Results
Self-Funded Reten-
tion70%
Captive Layer 25%
Collat-eral 5%
Expenses 15%
COSTS, RESULTS, AND FINANCIAL SCENARIOS
Sample Account: 200 Lives, Fully Insured, $25K Specific EmCap
ProposalSample Account EmCap Proposal
% of Fully Insured Premium Pie
Insured Premium $2,500,0000 100%
Expenses $375,000 15% FIXED
Self-Funded Retention $1,750,000 70% VARIABLE
Group Captive Retention $625,000 25% VARIABLE
Collateral $125,000 5% VARIABLE
Variable Costs $2,500,000 100%
Projected Minimum $375,000 15%
Projected Maximum $2,875,000 115%
COSTS, RESULTS, AND FINANCIAL SCENARIOS
EmCap Layers
Self-Funded Reten-tion70
%
Captive Layer 25%
Collat-eral 5%
Ex-penses
15%
Berkley EmCap programs are averaging 10-15% BELOW SFR
Berkley EmCap programs are averaging 7-9% CAPTIVE LAYER SURPLUS in 2012
Surplus at Captive Layer = No collateral draw
Past EmCap results are not a predictor of future results. Past performance does not guarantee future results. Current performance may be lower or higher than the performance data shown.
COSTS, RESULTS, AND FINANCIAL SCENARIOS
Sample Results: 200 Lives, Fully Insured, $25K Specific EmCap Proposal
* Past EmCap results are not a predictor of future results. Past performance does not guarantee future results. Current performance may be lower or higher than the performance data shown. **All unused funds are returned to the member.
Sample Account EmCap Proposal 2012 Avg Results*
Expenses $375,000 FIXED $375,000
Self-Funded Retention $1,750,000 85% $1,487,500
Group Captive Retention** $625,000 91% $568,750
Collateral $125,000 0% $0
Total Cost $2,431,250
vs. Insured Premium $2,500,000
EmCap Total Savings $68,750
Potential savings opportunity, plus data, stability, and transparency
COSTS, RESULTS, AND FINANCIAL SCENARIOS
QUESTIONS?
CAPTIVATE ONLOOKERSSUMMARY
Member organizations take control of their costs
Cumulative effect of retention = Long-Term Plan
1. Retain positive variability
2. Spread negative variability
Increased risk tolerance with experience/data
Surplus potential = collateral carryover
CAPTIVATE ONLOOKERSSUMMARY
"Pay Yourself" leveraged trend
Harness group purchasing power
1. TPA/Admin Fees
2. Network Contracts
3. Pharmacy Benefit Manager contracts (PBM)
4. Health risk management services
THANK YOU