Benefits stop-loss captivesallow employers to band together to purchase and manage theirstop-loss risk differently. (Photo: Shutterstock)


Captives sometimes get a bad rap.


When businesses hear the word "captive," they typically assumethe solution is only for property and casualty, far too complex fortheir company, or simply unnecessary to meet their needs. However,benefits stop-loss captives provide undeniable cost savings and areextremely simple to implement.


Related: Bail out of the fully insured jail with captives –with Jim Hoitt


Health care costs continue to chart a staggering upwardtrajectory. According to the Millman Medical Index, a family offour in the U.S. spends an average of approximately $28,166 peryear on health care and prescriptions, up significantly from$23,215 in 2014. Employers continue to subsidize their employees'health care costs by paying an average of 56 percent of the totalcosts. As health care costs rise, this burden will only intensify,and companies need to find a way to contain these expenses.


Until now, there have been few financially feasible methods formid-sized companies to self-insure and responsibly take the risk.Benefits stop-loss captives allow employers to band together topurchase and manage their stop-loss risk differently. This securitycan give mid-sized companies the kind of control and costtransparency enjoyed mostly by large employer groups. They can alsohelp keep employee health care costs down and more consistent yearover year.


Considering the state of health care costs today, benefitsstop-loss captives can serve as a powerful tool to protectself-insured companies from year-over-year volatility and to helpfully insured companies gain better control over their costs. Yetmany businesses still avoid using them. In reality, benefitsstop-loss captives are a great fit for many mid-sized companies. Inorder to help shine a light on the advantages, we explain the truthbehind four of the largest myths around benefits captives:

1. They're too complex

There is much confusion about what exactly a benefits stop-losscaptive is. In simple terms, employee benefit group captives givesmall- to mid-sized employers a way to gain control of the cost ofemployee benefits. When employee claims are extensive, your groupcaptive absorbs the shock. When employee claims are modest, youessentially pocket a portion of the profit that would normally havegone to an insurance carrier.

2. It's too much of a change

Adding a captive to an existing self-insured structure orswitching from a fully insured structure is simple andstraightforward. In most cases, employers can keep theirthird-party administrator (TPA), their network, and their plandesign(s). The biggest change an employer will notice will be fulltransparency into claims and the various cost containment solutionsnow available to them.

3. Employees won't like it

Implementing a benefits stop-loss captive is typically a smoothtransition for companies. But it is an even smoother transition foremployees, who likely won't notice any change at all. Under abenefits stop-loss captive approach, employers contract with a TPAthat handles all of the day-to-day logistics of the plan, includingadjusting claims, providing ID cards, and providing both employerand employee customer service. If the company already works with aTPA, chances are they can keep them under the captive, which meansno change to the network of doctors and hospitals the employees seetoday. In fact, employees will have no idea that their employer hasmoved to a captive model.

4. They're too risky

Many employers are scared off by the possibility that they'll betaking on a "risk they cannot afford." While it's true a fullyinsured employer will be taking on some risk, the employer isprotected by the strong reinsurance contract provisions thatprotect from both large claims and high claim frequency. Also, thisstructure represents inherently less risk than being 100 percentself-insured. One of the key advantages compared with atraditionally self-funded strategy is the captive offers a "no newlaser" provision… for as long as you are in the captive.

5. An employee benefits consultant's value

Benefits stop-loss captives offer employers the ability to gainclarity and consistency when it comes to their employee health carecosts. But when transitioning to a benefits stop-loss captive, it'simportant to go in with an experienced partner. Employers are wiseto consult a broker that's knowledgeable in the intricacies ofthese structures and can advocate for them to make sure their needsare met. These professionals can make sure the process is seamlessfor both leadership and employees.


Joseph Curcio is vice president and seniorsales leader on Conner Strong & Buckelew's employee benefitsdivision. Raymond O. Burke is vice president,employee benefits captive manager.


Read more: 

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and events
  • Access to other award-winning ALM websites including and

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.