Health Benefits Captives

[brandeeno]

Not sure who you work for either, but we are working on the same thing. That's the goal for me too. We've had one in place now for a while now, but I'm not proud of it. Not my best work.

One problem is that I'm making assumptions about dependents that don't necessarily hold true in smaller groups. The variability in average contract size is too great.

 

[leevena]

Not sure who you work for either, but we are working on the same thing. That's the goal for me too. We've had one in place now for a while now, but I'm not proud of it. Not my best work.

One problem is that I'm making assumptions about dependents that don't necessarily hold true in smaller groups. The variability in average contract size is too great.

I sent you my phone number and email at work. I will be happy to share ideas and thoughts if you want.
Lee

 

[Bruce]

I have a few observations and questions. I assume the captives being discussed are targeting small (<500) as well as large group. And, if the captive is going to market into increasingly smaller group size pace, please apply a "multiplier" of your choosing to my comments.

I. On Renting Major Carrier Networks
I do not doubt this can be accomplished. However, I see two scenarios and only two:
1. You rent from Carrier A, who does not (for whatever reason, i.e., geographic area) market in the same space. Since they do not, you will get a decent price, on a Cost + X basis, where X is Carrier A's expenses as well as contribution to profit.

The question begged here is ... How do you compete with Carrier B (assuming their discounts are similar)?

2. You rent from Carrier A, who DOES market in the space. You are paying for that. How, again, do you compete.

I suppose if your target market is outside major population areas and/or multi-state groups, it's possible.

II. Captive Organization
Questions: How are your captives run? Are you using a TPA for all the Admin? Who is doing the UW? What are you using for manual claims cost projections?

III. Risk Selection
I see that you are working on risk selection models for small groups that can help brokers "easily identify" superior small group risks.

Honestly, I am not sure how to react to this sort of claim. On one hand, I suppose congratulations are in order. On the other hand, I'm just a tad skeptical as such models, based on demographics, have never worked. Now, over some short or intermediate timeframe, Carrier X could certainly do a better job than Carriers Y or Z in assessing area and industry factors, but over time, not so much. Maybe I'm wrong.

Question: Can you share which demographic factors are positive drivers in your models?

IV. PBMs, Wellness Vendors
I absolutely believe there are significant savings to be had in these areas.

V. Experience and Credibility
Question: To what extent are you using experience of whatever sort you can get on smaller groups for new biz?

Question: For your inforce, what credibility levels are you assigning to your own experience for 1st/2nd year renewals? Aware that it depends on case size, assume 50 employees.

I've been involved with small group since 1984, started in Actuarial, couldn't make ASA and moved into Sales/Sales Management. I managed a block of 2500 groups with $500Million EAP and have some firm beliefs about inforce business:

1. All groups -- as a whole -- get worse at some expected rate.
2. "Good" groups get worse at a rate faster than expected.
3. "Average" groups get worse at the overall expected rate.
4. "Bad" groups get worse at a slower than expected rate.

In other words, in a simple example of three cohort (identical demographics) groups all with first year renewals with Good getting Trend - X%, Average getting trend and Bad getting Trend +X, Bad will outperform Good in Year 2.

Question: Am I wrong? Or, do your own tenures have you believe otherwise?

VI. Dependent Assumptions
I would anticipate this being difficult and increasingly so inversely to group size. This is one factor that makes assigning high credibility to small group experience problematic, especially on the new business side.

I'm certain carriers have a better handle on their own dependent experience now than 10 years ago when I was still on the carrier side but I really do not see much change in terms of what, if any, is available when rating prospects. I've always kept current as much of a dependent breakdown as possible for my own clients and have found it useful when switching carriers. But not all that often.

Anyway, some useful reading on dependent assumptions as well as credibility, is around on the Society of Actuaries website, www.SOA.org. I especially recommend the papers/presentations by Chuck Fuhrer.

VII. Market Objections To Your Captives
I probably should have stopped more than a couple minutes ago but will overstay my welcome just once more...
Question: What sort of objections/obstacles to selling are you getting from prospects?

Anyway, good luck with your projects and I wish you great success. Sorry if I rambled on.

 

[leevena]

Wow, just a few questions uhh? Lol Iwill take a stab and hope to answer all.

For context, my focus is on groups from 50-400 for acooperative risk sharing captive. I don'tfocus on creating captives for single groups. I say 400 because for the most part groups of this size can self-fund ontheir own.

Renting networks is the least of my worries. We have access to all of the usual middle ofthe road (Multiplan, First Health, PHCS, AetnaSignature, CIGNA-GW, regionals,etc.), as well as top tier such as Aetna's PPO2 and others. I don't have access to Blues. If need be I can layer multiple networks.

Target market is not outside of major population centers.

Captives are operated on a rental basis, but we wouldconsider someone wanting to create their own. Always a tpa, along with other vendors such as captive managers, pbm,network, etc. Depending on the groupsize we either use individual medical underwriting forms for all (smallergroups or groups without claim data) and regular claim data information for thelarger ones, when they have it and it is credible.

Risk selection is not on demographics. It is based on the use of individual medicalunderwriting forms required (for the smaller groups).

PBMS, Wellness—I agree.

Renewals based on a combination of the groups' riskprofile and the performance of the cooperative risk sharing layer. Just saw your note about being anactuary. Think of a cooperative riskpool as the pool the carrier places all their small book of business into. The renewal is then a function of how thepool is performing.


If you would like to talk, let me know.

Lee

 

[brandeeno]

Nice to see other actuary types on here.

 

[ABC]

I still don't understand the benefit to using a captive over a ASO plan.

You are claiming that you can deliver a 50% discount to the client on a cigna network. Why would I not just go to cigna and a do an ASO plan and get the full network. Also I bet on 400 live I could negotiate a higher discounted rate.

I just don't understand where the savings is using a captive.
You still have a TPA with Admin fees, so what is the captive bring to the table? Is the captive the reinsurance?

 

[leevena]

A captive that allows multiple employers to share a portion of the risk (say 25,000 to 250,000) is the difference. You are correct that a 400 life group could probable stand on their own with an aso contract. Captives like this are for smaller groups that cant stand on their own.

 

[ABC]

A captive that allows multiple employers to share a portion of the risk (say 25,000 to 250,000) is the difference. You are correct that a 400 life group could probable stand on their own with an aso contract. Captives like this are for smaller groups that cant stand on their own.

So captive is acting as the reinsurance?

 

[leevena]

No, it's not reinsurance. A cooperative risk sharing captive is different.

Let's assume 10 employers are participating, all have a $25k spec, and a risk sharing level of $25,001-$250,000. Each group is underwritten on it's own, which means they have their own contract and costs.

The first difference (compared to an ASO contract you are used to) is the costs. You are used to seeing a quote similar to this; $50 pepm for admin, $300 pepm for spec, and $150 pepm for agg. The employer pays the admin every month and budgets for the claims. Claims are paid as they are presented.

In a cooperative captive it is slightly different. The costs are something like this; $50 for admin, $300 for individual stop loss, and $150 for the cooperative risk corridor ($25,001 to $250,000). To make this easy, i am not addressing the need for collateral.

Instead of the employer paying claims as they come due, we charge the employer the full amount ($50+$300+$150=$500 pepm). The $50 goes directly to the vendors for administration, just like in a self-funded group. The $300 goes into that employers account for the $25,000 spec and the $150 goes into the cooperative risk sharing pool, with all the other 9 employers monies. No paying claims as they come due, it's a pay up front and anything left over is yours.

Let's assume that in the first month that one employer had a single claim for $35,000. The administrator takes $25,000 out of the employers spec account and the other $10,000 from the cooperative risk account. This $10,000 is actually $1,000 from each of the 10 employers.

I have kept this simple, there must be advance and accommodation for the stop loss so that if the spec account (as in this situation) does not have enough money in it, the carrier advances the funds.

Hope this helps

 

[brandeeno]

Also I bet on 400 live I could negotiate a higher discounted rate.

I bet you couldn't....