I’ve been kicked out of my captive insurance program. What do I do now?

Captive health insurance allows small to midsize businesses to band together to provide their employees with medical coverage while minimizing financial risk. But what happens if you’re no longer a member of your captive program? 

Being asked to leave your captive can feel unsettling. Suddenly, you’re left scrambling to find new health coverage for your employees and wondering how this will impact your bottom line. The good news? You have options. Exploring alternative health benefits solutions ensures that you can support your employees’ needs and your company’s budget.

In this blog post, you’ll learn:

• Why companies get removed from captive insurance programs.
• The steps to take after removal to ensure seamless health coverage for employees.
• Alternative solutions that offer a customized approach to health benefits.

Need a review of how captive health insurance works? Read our full blog.

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Why would a captive insurer remove a member company?

While it doesn’t happen often, a captive insurer can remove a participating member. More commonly, an employer may choose to leave the captive voluntarily, such as switching to a different health benefit, like a health reimbursement arrangement (HRA). 

However, if your captive has decided to kick you out, it could be for several reasons.

Here are a few reasons:

1. Excessive medical claims. If your company continuously experiences high medical claims, it can put the captive’s pooled funds at risk. So, the other members may remove you to keep their investment secure.  
2. Disregard of financial obligations. To have a successful captive company, each member must be financially stable and commit a certain amount of funds. Suppose you fail to fulfill your agreed-upon financial obligations, such as refilling capital reserves or paying your stop-loss premiums. In that case, the captive can ask you to leave.
3. Risk adjustments: Members within group health captives must exercise proper risk management strategies to protect all its members. This includes following certain underwriting standards and loss prevention policies to minimize risk. It could be problematic if you have too many costly claims without taking steps to adjust your risk levels accordingly. 
4. Legal issues. Captive owners are subject to state insurance industry regulations. Any member who has legal trouble due to unethical behavior, fraud, or compliance violations puts the entire captive at risk. 
5. Organizational changes. Captive insurance companies often join employers with similar sizes, industries, or risk profiles. If your company’s risk level changes or a larger business acquires you, your new situation and goals may not align with the remaining members in the captive.

What steps should you take after being removed from your captive insurance program?

If your captive has removed your company from its program, there are a few steps you should immediately take to ensure your employees have as few gaps in coverage as possible. 

Here are a few key steps:

1. Find out the reason for removal. The captive should provide you with a formal termination of member notice. Review the notice carefully to determine if your removal was due to claims history, financial issues, legal problems, or other factors. This can help you determine if your business needs more risk management policies, liquid assets, or compliance regulation training in the future. 
2. See if they will negotiate. Some causes for removal may be up for negotiation if you address the issue that caused it. For example, a captive may consider your reinstatement once you adjust your risk management strategies and get costly claims back under control. Work with your captive to see if you can come to a solution.
3. Review your legal responsibilities. If negotiation isn’t possible, ensure you sign legal termination documents to ensure your departure is by the book. You should also check if you’re responsible for paying any penalties or fees for leaving the captive during the plan year. Most importantly, see if your policies have an exit grace period. This will give you a timeline for providing your employees with a new health benefit.
4. Ask about your capital contributions. The finances you’ve invested toward the captive’s capital may not be yours just yet. Check if you have any unpaid medical claims. If you do, the captive will manage any outstanding claims you have until the policy period ends. You may receive a refund if you have unused funds at the end of the plan year.
5. Work with an insurance broker: If you need help finding a new health benefit, work with a health insurance broker to help you find the best option for your company’s size, budget, and employees’ needs.

What alternative health benefits can you offer instead of captive insurance?

When considering alternatives to a captive insurance arrangement for providing health benefits, you have a wide range of options that offer greater flexibility, cost control, and tailored benefits.

Traditional self-funded insurance

A traditional self-funded health plan is similar to a captive insurer because the employer can design their own health plan. However, unlike a captive plan, you’re solely responsible for the policy’s financial risk—not a collective group of employers. This means you must pay your employees’ claims, stop-loss coverage premiums, and other administrative costs on your own. 

If you have the resources and budget to switch to a traditional self-insured plan, it can be a good option. Self-funding can save you money on premiums if your employees don’t have many healthcare claims. Plus, you’ll have the flexibility that comes with creating and managing your own health plan. But if you don’t think you can handle self-funded insurance independently, you have other options. 

Level-funded insurance

Level-funded insurance is a type of health plan where an employer pays a fixed amount of money to a third-party insurer each month. In exchange, the insurer covers the employees’ medical claims, stop-loss insurance premiums, and administrative costs for managing the plan.  

Here’s how level-funded plans work: 

1. You pay a fixed monthly amount to an insurance carrier. Acting as a third-party administrator, the insurer deposits your funds into a separate account to pay for medical claims, stop-loss premiums, and other administrative expenses. 
2. You use the money in the claims account to pay for your employees’ medical claims throughout the plan year. Typically, there is a set annual claim threshold per employee.
3. If a health insurance claim exceeds the threshold, your stop-loss will pay for any amount exceeding the limit.
4. At the plan year’s end, your insurer may refund you for any unused funds in your claims account. Not all plans guarantee refunds. Those that do may only return a portion of the surplus funds.

This type of coverage has aspects of fully-insured and self-funded plans. Employers have greater control over their health insurance plans but can still share some financial risks with insurers to safeguard their budgets. 

However, level-funded plans may offer less control over plan design, and premium rate hikes for stop-loss coverage can occur if you frequently exceed your claims threshold.

Individual coverage HRA (ICHRA)

An individual coverage HRA (ICHRA) is a customizable health benefit for companies of all sizes and industries. It allows employers to give their employees tax-free contributions for their qualified medical expenses.

The way it works is simple. You give your employees a monthly amount of money—called an allowance—to spend on individual health insurance premiums. The ICHRA has no contribution limits, so you can offer as little or as much money as your benefits budget allows.

Here are some key benefits of the ICHRA:

• The ICHRA can only cover W-2 employees and their qualified dependents. Participating employees must have a qualifying form of individual health insurance. 
• ICHRA reimbursements are free of payroll taxes for employers. They’re also income-tax-free for your employees. 
• You can vary ICHRA allowances and eligibility requirements based on employee classes. You can also differ allowances based on age and family status. This allows you to customize the plan according to your budget and your staff’s needs. 
• Applicable large employers (ALEs) can use an ICHRA to meet the Affordable Care Act’s (ACA) employer mandate as long as their benefit allowance is affordable. 

Remodel Health’s ICHRA+® solution makes it easy for employers to set up an ICHRA. Once you’ve set up your benefit, your employees can use our platform to shop for health insurance, enroll in their plan, and start using their ICHRA.

If you’re an ALE looking for individual guidance and support from a team of health benefits experts, check out Remodel Health’s ICHRA+® solution!

Conclusion

Losing your spot as a member of a captive insurance company can be for a few reasons. But whether your removal was due to an acquisition, financial issues, or a change in the captive’s strategy, you must find an innovative solution that keeps your employees covered. Being forced out of your captive health insurance is an opportunity to move to a more predictable and flexible solution.

As the leader in the ICHRA provider landscape, Remodel Health’s ICHRA+® lets you set a defined budget while empowering employees to choose the best coverage for their needs. Our software helps your staff review their healthcare options, and a customer service team is standing by if they have questions. If you’re ready to get started, we’ll help you take advantage of an ICHRA benefit!

Get our guide to everything employers, brokers, and HR professionals need to know about the ICHRA.

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