b'Associate News plan is protected from the perils of one individualthe claim fund. If claims exceed the amount in the(Part 2 of 2)with high claims threatening its solvency, and it isclaim fund, the stop-loss policy advances funds to also protected from high claim costs that are spreadthe plan to cover the difference. If funds remain at throughout the group as a whole. the end of the contract period (including a period Level-Funded Plans for claim runout), the funds are retained by the employer. One of the most popular aggregate-only When an employer isnt large enough or financiallyprograms is called Spaggregate and it is offered strong enough to comfortably take on the risk of aby TPAC Underwriters, Inc. traditional self-funded program or to ensure Captive Insurance Programsadequate risk spreading, the employer will often look for poor man alternatives. One such A captive insurance company is an insurance arrangement is known as level funding, and company that is formed for the primary purpose its basically a hybrid between fully-insured of underwriting the risk of the sponsor. In general, plans and self-funded plans. these captives can be divided into two types:In a level-funded program, the employer pays a flat(1) Pure captives that are formed by a single pre-determined amount every month to an insuranceowner (or by controlled unaffiliated businesses); company, and the insurance company divvies upand (2) Sponsored captives that insure the risk of those funds to pay for claims, administrative costsseveral participants.and premiums for stop-loss coverage. This fixedLike traditional stop-loss insurance, captive insur-amount stays the same every month for the term ofance costs will generally be broken down into fixed the contract (usually one year), and if theres moneycosts and variable costs. The fixed costs (which left over at the end of the contract period, a portionaverage 15-20% of the total spend) include admin-of it is returned to the employer (usually in the formistrative costs and reinsurance protection. The far of a credit against future expensesassuming thelarger portion of the costs are the claim expenses, employer continues the level-funded program). Ifand these can vary wildly.claims and other costs exceed the funded amount,Captive arrangements will often have three different the stop-loss insurance protects the employer fromlevels of claim retention: (1) the amount the spon-additional exposure. soring employer will self-insure and will be respon-There are certain advantages to a level-funded plan,sible to pay before any other sources of funds are but as is often the case with hybrid options, the ben- available (e.g., $10,000 per member); (2) the risk efits are somewhat tempered. Perhaps the biggestthe captive pool pays for all participating groups (and most unfortunate) difference between thesewhen a members claims exceed the employers programs and truly self-funded programs is thatretention (e.g., up to $500,000 per participant); and most level-funded programs offer credits against(3) the balance of the claim that exceeds the pools future claims and/or administrative expensesliability and is assumed by the reinsurance carrier rather than cash refunds or rebates. In other words,(e.g., $500,000+ per member).employers that implement a level-funded benefitCaptive insurance companies have a lot ofprogram must continue the program (even if theirflexibility and can offer many advantages to their business needs have changed and it is no longer amembers. They can work with different third-good fit) in order to reap the benefits of a year withparty administrators (TPAs), preferred provider low claims. If the company terminates the program,networks (PPOs), pharmacy benefit managers any outstanding or accrued refunds are forfeited.(PBMs), and insurance advisors, and they can On the positive side, some insurance companiesstructure their plans to match their specific needs that offer these types of plans allow for (limited)while offering much greater transparency andbenefit customization and options, more access tocontrol. Most importantly, if pooled funds exceed plan data, and the opportunity to mitigate pre- claim costs, the excess is refunded to the participat- If you have questions mium increases if they have a healthy workforce.ing member companies. Of course, as mentionedabout this article or These benefits can be a very good selling point forabove, just because risk is pooled amongst morewould like to discuss level-funded plans, especially when compared tomembers doesnt necessarily mean the costs to theyour companys health the restrictive and expensive cookie cutter plansparticipating companies will be less than other self- insurance progam, feel available on the market thanks to the Affordablefunded options or even a traditional fully-insuredfree to contact me at Care Act (Obamacare). policy, so companies should be careful and diligent(801) 263-8000 or Aggregate-Only Programs in their analysis before deciding whether to partici- email@example.com. A very simple stop-loss plan that is based on level- pate in a captive.funded principles is an aggregate-only program. InIf you would like to discuss this article or explore this type of program, the employer pays a monthlyhow self-funding might work for your company, premium amount and a fixed monthly claim cost.feel free to get a hold of me. SAs long as funds are available, claims are paid from 42 www.wpma.com /Fall 2022'