Captive health insurance and traditional health insurance are very different in terms of who controls an insurance policy.
Knowing the pros of captive health insurance vs. traditional insurance can help you make informed choices.
Captive health insurance is a type of health care self-insurance for businesses whose owners want to have more control over premiums, risk distribution, and policy plan options, according to CIC Services.
Other benefits of captive health insurance include controlled drug costs, a PAYG model, transplant coverage, and wellness program access, EverlongCaptive.com reported.
"The thing we talk about internally a lot is the employees, right?" Doug Truax, founder and CEO of Everlong Captive, said. "What's the impact on the employees? You think about where we've been. Basically, the health insurance carriers have been making a lot of money. If you look at the S&P 500 over the last 10, 15 years and see how the health insurance carriers did compare to the average, it's really pretty crazy."
Captive health insurance works as a "subsidiary of a business owner's company that writes the insurance policies for the business owner’s company," according to CIC Services. Business owners can lower their monthly premium cost, take advantage of tax write-offs, invest long term, and have less risk since it is distributed more throughout a cell by purchasing health care insurance this way.
Traditional health insurance, on the other hand, is purchased through a company that then transfers "risk to a third-party company that charges a premium and requires a deductible," CIC Services' website said. When purchasing traditional insurance, premiums are determined by calculating the probability of risk based on the large pool of risks that the company insures.
Traditional insurance offers a simple setup with low start-up costs, tax deductions on premiums, and risk distribution. Premiums paid to the traditional insurer are not returned like they are in a captive insurance set-up. Traditional insurance premiums also increase yearly or after filing a claim, and those premiums have to be paid whether a claim is made by a business or not.
Other possible downfalls a business owner can face include "annual risks of claim denial (due to restrictive policy language), exorbitant rate hikes, and/or capacity problems," according to CIC Services.
Initial start-up costs for capitalization requirements serve as a negative aspect of captive health care insurance. Also, it does not allow a business to have the option of working with a reinsurer to pool premiums with other captive insurers and mitigate risks.