What’s the Buzz Around Health Insurance Captives?

Health Insurance Captives are being touted as the new, hip way for firms to beat the Affordable Care Act.  Captives are insurance arrangements owned/controlled by its participating employers, and while they may not be new, they’re complicated.

Although many terms are used interchangeable, the flavor we’ll discuss in this article is the Group Medical Stop Loss Captives. These are typically used for small and mid-sized employers, which include all but a handful of CPA firms.

With a captive, the employer is at risk and therefore can benefit from the overall underwriting performance as well as income generated by invested reserves.  The captive group is made up of companies that are too small to self-insure and are typically in the same industry.  By combining a number of employers together, critical mass to self-insure as a group is achieved.  The carrot is that employers will (somehow) achieve a lower cost of claims and administration for their employees than they could through traditional market options.

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Affordable Fair Act?

ACAPolitical slants seem to creep into any discussions of the Patient Protection and Affordable Care Act (ACA).  Further clouding occurs as pundits, politicians and the media inter-mix terms, facts and opinions.  ACA enthusiasts sight the benefits of providing health coverage to the 47 million uninsured and reining in the insurance companies.  The government’s participation in a huge sector of the economy and disrupting the free market forces are at the core of ACA opponents’ arguments. 

As of this writing, over 40 changes have been made to the law since it was originally passed.  Most notably and recently, California passed SB1446, which delays many small employer ACA provisions until 2016. Note that most CPA firms and their clients are designated small employers under ACA.

Why the seemingly endless parade of changes and delays in implementing the law?  To begin with, the law is complex and cumbersome (over 900 pages itself) and its content controversial to say the least. Further, it lays out a framework, in many cases without important details.  And rather than a single answer, there are many factors contributing to the large number of changes on the fly:

  • The law contains ambiguities with many provisions needing the details filled in by government agencies;
  • Much of it was developed without industry input on how and what could be practically implemented, creating provisions that did not have apparent or practical implementation methods, technical limitations on how quickly computer systems could be deployed, and resources were not available to implement certain provisions.  

Examples of the above include the abandoning of the long-term care and free voucher programs, and the delay in the small business health options program exchange multi-carrier shopping capability.  Read more

Affordable or Unaffordable Care Act?

ACAFour years after the passage of the Affordable Care Act (ACA) there is still great debate on the law’s outcomes.  How many uninsured will enroll? Will ACA create doctor shortages? Will death panels ration medical care? And the trillion dollar question: will the cost of health insurance go up, down or stay about the same?

Political slants seem to creep into any ACA discussions.  Further clouding occurs as pundits, politicians and the media inter-mix macro and micro economics.  Presented here are the basic economics and human behaviors that will determine the macro-cost of health insurance across the entire population, and the micro-costs to individuals, businesses and families.

Although ACA introduces new regulations through the entire health care arena, for the most part, it set out to address the approximately 47 million uninsured.  Simply, the uninsured fall into two categories: people with pre-existing conditions that could not obtain insurance, and those who could not afford – or chose not to purchase -insurance. ACA eliminates pre-existing condition limitations and addresses affordability by providing subsidies.  It’s estimated that 90% of the uninsured will qualify for some level of subsidy.

As these two groups – one with higher than average claims costs due to their pre-existing conditions, and the other with below market premiums due to subsidies – enter the insured roles, these costs will be passed through to the population that does not qualify for subsidies.  Applying the “no free lunch” principle, the premium subsidy and high health care “utilizer” costs will be absorbed by the remaining population.

The subsidies will be funded by taxes from a variety of sources. ACA taxes on pharmaceutical, medical equipment and health insurance companies will all pass through to the consumer through increased premiums.  Individual and employer mandate taxes may not have a direct relationship to premium costs. Others, like the tax on “Cadillac” plans, may have varying consequences on premiums and benefits as companies and unions tactically avoid paying the tax.

The ACA will reduce the costs of caring for the previously uninsured, and these savings will pass through the insurance system.  The timing and magnitude of this effect is a great unknown and will ultimately decide ACA’s cost containment success or failure.

A number of ACA provisions combine to create winners and losers in the individual and small- group markets. Generally, younger individuals and larger families will pay relatively more than older individuals and smaller families.  Benefit mandates may increase premiums for some as they are required to purchase higher levels of coverage. Read more