Strategies for Controlling Medical Insurance Costs

How to stop the annual rate increase of 15% for medical insurance coverage.

Participants Traditionalvs.Captive
Moderator:
MichaelA.Schroeder President,RoundstoneManagement,Ltd.

Panelists:
DavidReynolds President,ChiefExecutiveOfficer, CapitolAdministrators BernieTillotson ManagingDirector,EmployeeBenefitsDivision, Andreini&Company

ProgramOutline Traditionalvs.Captive
Stabilizeescalatingpremiumswithgreatercontrol overthedeliveryofinsurance StandardStopLosscoverageissuedbyanArated insureralongwithCaptiveparticipation Premiumsavingsthroughinvestmentand underwritingreturn MedicalStopLossAdvantageProgram requirements
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TheStandardMarket Traditionalvs.Captive

TheStandardMarket=MinimalControl,NoTransparency Unanticipated rate increases Burdensome plan marketing Availableresponses

Changecarrier Changebenefitlevels Changecontributionschedule

Todaysannualcostincreaseswilldoublepremiumin6years

AverageAnnualPremiums CaptiveDefinitions
AverageAnnualPremiums forSingleandFamilyCoverage,19992009
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2,000 4,000
2,196 2,471 2,689 3,083 3,383 3,695 4,024 4,242 4,479 4,704 4,824 5,791 6,438 7,061 8,003 9,068 9,950 10,880 11,480 12,106 12,680 13,375

Single Family

6,000

8,000

10,000

12,000

14,000

16,000
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Source:Kaiser/HRETSurveyofEmployer SponsoredHealthBenefits,1999 2009.

LargerEmployers SelfFund Traditionalvs.Captive

PercentageofCoveredWorkers inPartiallyorCompletelySelfFundedPlans,byFirmSize,19992000

Source:Kaiser/HRETSurveyofEmployer SponsoredHealthBenefits,1999 2009.

WhyLargeEmployersSelfFund Traditionalvs.Captive
Controloverbenefitplanandclaims administration Completedataandcosttransparency Nationalplanconsistency,nostatemandates Cashflowbenefits(payasyougo) Customdesignedbestinclasswellness/behavioral programs
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WhyDontMidSizeEmployers Traditionalvs.Captive SelfFund?

Volatility employerscostscanvarysignificantlydue tolargeclaimsoranaggregationofsmallerclaims Turnkey Program Running a self insurance program can be intimidating. Plan design, TPA/Network selection, stop loss contract negotiations

Opportunity Traditionalvs.Captive

StopLossGroupCaptive Capture underwriting and investment income by combining Best in Class Companies into a medical benefit group captive.

CaptiveDefinitions CaptiveDefinitions
Captive
Aninsurance companythatprovidesinsuranceto andis controlled byitsowners.

Group Captive
Agroupcaptiveisaninsurancefacilityformedbycompanies joiningtogethertoshare risk. Eachhaveadesiretocontrol theirown risk.Membercompaniesmaintaingoodloss historiesandeffectiveriskmanagementprograms.

TheCaptiveDifference Traditionalvs.Captive

TraditionalProgram Cycle driven Transactiondriven Noalignmentofinterests Genericservices NoReturnonInvestment

CaptiveStopLossProgram SmoothesCyclesandCashFlow RelationshipdrivenwithTransparent Communication SkinintheGameforallParticipants SpecializedServices RetainU/WProfitandInvestment Income 10

ProgramDesign ProgramDesign
Allparticipantscommittedwithacapital investment(collateral)intheformofcash Participantsexposureislimitedtopremiumand collateral Participantstakeownershipingrowthand economicsuccess

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Traditionalvs.CaptiveMarket
Claimants
ClaimsPayments

A
StopLoss Premiums

StopLoss Reimbursements Reinsurance

Policy IssuingCarrier
StopLoss Reimbursements

Group Captive Facility

U/WProfitand InvestmentReturns

Collateral

Captive Participants A B C D E
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ReinsuranceStructure

GroupAggregateforCaptive

AggregateavailableforParticipants Deductibleexposure

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HeterogeneousRiskSharing RiskSharing
TheHierarchyofLossApplication 1. LossFundofeachParticipant 2. Then,theIndemnityCollateralof eachParticipant 3. Then,theLossFundofall Participantsproportionalwiththeir AssumedPremiums 4. Then,theIndemnityCollateralofall Participantsproportionalwiththeir AssumedPremiums. 5. AggregateReinsurer
1
ParticipantLoss Fund

2
Participant IndemnityCollateral

3
ProportionalShareofAll ParticipantsLossFund

4
ProportionalShareofAll ParticipantsIndemnityCollateral

5
Aggregate Reinsurer
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AssociationRiskSharing RiskSharing
TheHierarchyofLossApplication 1. LossessharedProRataofeach ParticipantsAssumedPremiums 2. Then,theProRataIndemnity CollateralofallParticipants proportionalwiththeirAssumed Premiums. 3. AggregateReinsurer *Individualemployeraggregatescanbe reinsuredviatheGroupCaptivelayer
1
ProportionalShareofAll ParticipantsLossFund

2
ProportionalShareofAll ParticipantsCollateral

3
AggregateReinsurer

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StartUpConsiderations GroupCaptive

TPA/Network Selection DeductibleLevels EmployerAggregate Issues Wellness/BehavioralPrograms

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GroupCaptiveBenefits GroupCaptive

Reduce operatingcostsovertimewiththebestoverallprice Realize underwritingprofitsandinvestmentincome Stabilize an unpredictableandcyclicalmarketplace Control claims,coverage,losscontrol,frictionalcosts

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UnderwritingGuidelines& SubmissionRequirements
UnderwritingGuidelines 50+employeeGroups Minimumof$20,000Deductible Supportcultureofhealthandwellness SubmissionRequirements CompletedApplicationorRFPoutliningcriteria CurrentDetailedCensus 3YearsStopLossPremiumandDetailedClaimsHistory CopyofCurrentPolicy CopyoftheCurrentPlan,ProposedPlan(s)and accompanyingdocuments Identityofthecurrentand/orproposedTPA

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Contact

Contact

826WestpointParkway,Ste.1250 Westlake,Ohio44116 703.966.9797/c 202.362.2154/p 440.617.0333x234/p 202.478.1858/f dmccully@roundstoneinsurance.com www.roundstoneinsurance.com

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