Like all businesses in the United States, IMARK Group members are frequently faced with increases in the costs of providing high-quality health insurance for their employees.

The IMARK Health Care Insurance Committee has been working on this complex challenge over the past few years.

Their mission—to harness the power of IMARK Group in a way that helps member companies reduce and stabilize the cost of health insurance premiums.

Effective immediately, IMARK Group members can now join a Health Insurance Captive administered by Pareto Health.

IMARK Plumbing Now interviewed Tom Barker of Mid-Coast Electric Supply, the chairman of the IMARK Health Insurance Committee to get an update on this important initiative.

IMARK Plumbing Now: What is a health insurance captive?

Tom Barker: Captive insurance is an alternative insurance model in which a group of companies create their own insurance company to provide coverage only for the members of that group. The member companies then share the moderate level of risk among themselves and purchase “stop-loss” insurance to place the more catastrophic risk in the reinsurance markets. Essentially a well-functioning captive allows the member companies to keep the profits inside the captive that would normally flow to the traditional insurance company. Typically, a captive insurance group hires a “captive manager” to manage all the aspects of running an insurance company.

IMARK Plumbing Now: What will be the primary benefits of IMARK Group members who join the captive?

Individual members that join the captive can expect savings over a traditional fully funded insurance that will roughly correlate to the profit margin typically enjoyed by the traditional insurance carrier.

Additionally, members who are coming into the captive from traditional fully funded insurance may have experienced bad claims at sometime in the past. These “bad” years likely resulted in large rate increases in the subsequent year. The higher rate is baked into their baseline pricing structure for future increases. In other words, you almost never get a rate decrease even in years when your claims performance generated huge profit margins for the insurance carrier. In a captive insurance model, you will generally pay more for insurance in the “bad” years and less for insurance in the “good” years.

If you are currently in a self-insured model, it is likely you are experiencing major stop-loss rate increases of your higher running claims. In the Pareto Captive, stop-loss increases should be somewhat mitigated because the larger captive group has more negotiating power than you do as a standalone. Additionally, Pareto negotiates no new “lasers” with all stop-loss carriers. In terms of stop-loss coverage, a “laser” refers to an employee or dependent that is experiencing a high claim year that is likely to run into the next year. In this case, many stop-loss insurance companies will seek to exclude coverage of that individual in the subsequent year. This “lasering process” essentially shifts all costs and risk from the insurance carrier back to the company for the next plan year and beyond.

IMARK Plumbing Now: Who owns the captive?

Barker: It is possible for IMARK Group or its members to own the captive. However, we have chosen to join an existing captive group, Pareto Health, to benefit from its experience and network. If IMARK membership becomes a significant bloc inside of the Pareto Captive, Pareto will develop an IMARK-only captive in the future. It is also possible that IMARK could launch its own captive at sometime in the future if the group so desires.

IMARK Plumbing Now: Will all current health insurance policies and premiums be replaced by the captive?

Barker: Yes, the Pareto Captive will function as the sole provider of health insurance to members who join. To member companies it will look and feel much like their current insurance. Plan designs and networks will be similar or identical to what they have today.

IMARK Plumbing Now: What cost will be incurred for members who join the captive?

Barker: The premium structure will be much like members currently have today with their traditional insurance, especially in the first year. In subsequent years, the rates will be largely based on claims performance of the individual members and the performance of the group over all…The better the claims performance, the lower the rates will be.

Inside of the captive all claims history and costs become transparent. Member companies have a vote on the board of the captive and can attend an annual meeting and voice any concerns that they may have.

IMARK Plumbing Now: What cost(s) will be avoided/mitigated for members who join the captive?

Barker: The most direct cost mitigated by joining the captive is the profit margin of the traditional insurance company currently selling insurance to your company today. When you join the captive, essentially you become the insurance company, so you get to keep your own profit. For self-insured companies, your stop-loss cost will likely be reduced.

In the longer term, an effectively run captive has the control and ability to create more cost-effective plan designs and will have the ability to negotiate more effectively with provider systems to bend the cost curve down over time.

IMARK Plumbing Now: If we join the captive, will our network of health care providers change? How about co-pays, deductibles and other elements of employee coverage?

Barker: It is very likely you will be able to keep the network you are using today, but you will need to engage directly with Pareto about your company’s particular situation to review the networks that will be available to you. Typically, captives seek to use the predominant networks in each market.

It is also likely you will be able to use a plan design identical or very similar to what you are using today, but you will need to engage directly with Pareto about the nuances of your company’s plan design to confirm they can accommodate.

IMARK Plumbing Now: Why did IMARK select Pareto Health?

Barker: Pareto is the leader in health care captive insurance today. The task force and the board felt the membership would feel more comfortable joining a group with a proven track record, considering health care is such an expensive and complicated issue.

IMARK Plumbing Now: Must IMARK Group members apply to join the captive? Under what circumstances could they be denied membership?

Barker: Yes, any IMARK Group member who is interested in joining the captive, or at least getting a competitive quote, must contact the Pareto broker for IMARK, Risk Strategies to begin the discussion.

If a member is amid a difficult claims period, he/she may have difficulty gaining acceptance into the captive. However, catastrophic medical claims tend to have a short tail, usually 18 months or less, and it is possible that access to captive membership may become available in the subsequent year or two. Again, a private discussion with Risk Strategies will be able to answer this question more definitively.

IMARK Plumbing Now: What type of companies (self-insured, size, Blue Cross, Aetna user, etc.) will benefit the most when they join the captive?

Barker: Generally speaking, we believe that all IMARK Group companies would benefit from joining the captive over the long term because they would benefit from larger scale and volume inside of the captive than on their own.

The most profitable space in the health insurance market-place today is in the “fully insured middle-market.” In other words, companies with 50-500 employees that are currently buying insurance from Blue Cross, United Health Care, etc. are likely to see the most savings immediately in a captive.

IMARK Plumbing Now: When can we sign up?

Barker: Typically, you will want to consider joining Pareto when you are negotiating the renewal of your current health insurance. This is when you will be able to best compare cost to your current situation. Also, joining a captive on your normal renewal cycle will cause less disruption to your employees.

However, if you are currently using a fully funded insurance company, it is likely you can leave on a month’s notice, depending on the structure of your current contract. In this case, you could renew with your current provider today and switch to Pareto in three months with no financial penalty or additional risk.

If you are currently self-funded, it is recommended you look to join Pareto on the date of your current stop-loss renewal.