As published in The Self Insurer, SIIA Publication:
Recent news highlighting court decisions, legislative action and market dynamics is providing a boost to the group captive insurance approach. Considering the financial implications of choosing another form of group or pooled insurance for your workers’ compensation or health benefits, group captives present a compelling and convincing alternative. See for example, the recent confirmation by the U.S. Supreme Court that they will not entertain a review of New York’s Workers Compensation Board authority to assess any remaining self- insured groups close to $1 billion of liabilities left by more than 50 failed self-insured groups or trusts. Yes, that’s $1 billion with a B and their definition of joint and several liability means you pay claim obligations of other employers outside of the group you joined.
Judicial Enforcement of Joint & Several Liability
The idea of joint and several liability beyond the insurance facility that you participate in is a very bad outcome for the self-insured group industry and a very good example of why the group captive approach is a superior insurance vehicle. There is no joint and several liability among separate captive entities and most captive insurance companies organizational documents remove joint and several liability beyond the captive participants contributed capital. In other words, if the New York employers considering how to fund their workers compensation risk chose to proceed under the group captive approach rather than the self- insured group or trust approach, they would have avoided the $1 billion assessment they are now confronting.
Legislative Attack on MEWAs
State legislative bodies have a long history of making life difficult for health plans known as multiple employer welfare arrangement or MEWAs. Now, the federal government has picked up the lead and included dramatically increased criminal enforcement and reporting requirements in PPACA (Patient Protection and Affordable Care Act also known as “Obama Care”).
Common sense indicates reserves for known and unknown claims are necessary for any viable insurance facility. The difficulty arises when an insurance facility does not know or anticipate who or how those reserves will be established. This is the environment that MEWAs face with regulators throughout the states. While MEWA assessments have not to this writer’s knowledge reached the $1 billion mark like New York workers compensation groups, many an employer funding its health benefits through a MEWA have received a disturbing letter informing them their estimated health premium was not enough and they now must pay more. Adding insult to injury, the determination that the reserves are not enough often appears arbitrary, unfounded and even a veiled attempt by the state regulator to push the MEWA out of the health insurance business.
Compare this uncertainty with a group captive program insuring health benefits where there is no such thing as an assessment. Premiums, reserves and the process for establishing are determined upfront before an employer/participant joins the group captive. No ex-post facto surprise that the budgeted premium expense was not enough and more money is due.
It’s the Price *#X%!
If joint and several liability along with federal and state regulatory pressure on self-insured groups and MEWAs is not enough to push an employer into a closer look at a group captive insurance program for its workers compensation or health benefits, then how about the ultimate cost. Today’s market for health insurance is doubling every five years. Double digit premium increases are the norm in many markets and workers compensation coverage is unavailable for many classes of business. Yet, all of our workers compensation and health benefits group captives returned distributions to their participants this year. This is especially impressive when you consider these programs compete with the standard market from an upfront premium expense perspective.
The market dynamics that group all insureds together when doling out premium rate increases provide a fertile ground for employers to exit the standard market. Employers are better served by joining with other like-minded employers in a group captive offering a lower overall cost through the return of underwriting and investment profits. Just make sure the insurance facility does not allow for surprises like regulator assessments.