Creative Funding 101 Private Exchanges and Insurance Captives

Transcription

1 SEBC Spring Annual Educa1on 2014 Conference Creative Funding 101 Private Exchanges and Insurance Captives Employee Benefits: What s the Buzz? Concurrent Session III 2:15 p.m. 3:15 p.m. Room 324

2 Introduc1ons Suzannah Gil Senior Associate Mercer Health & Benefits Atlanta, GA Moderator Nick Allen NaEonal PracEce Leader for Actuarial Services Wells Fargo Richmond, VA Kevin Doherty Partner Nelson Mullins Nashville, TN

3 Private Healthcare Exchanges: What you need to know RIGHT NOW Presented to Southern Employee Benefits Conference Nick Allen National Practice Leader, Actuarial Services Wells Fargo Insurance September 9, 2014

4 Healthcare Exchange Discovery An introduction to exchanges

5 Introduction to private healthcare exchanges How do YOU define an exchange? Private health exchanges are an insurance marketplace for employers to purchase a healthcare plan or combination of a major medical plan and supplemental plans Their purpose is to organize the buying and selling of insurance in an environment of abundant benefit choices and a defined employer contribution Conventional wisdom is that exchanges are most effective as part of a defined contribution (DC) philosophy Available for self-insured or fully-insured employers 5

6 What has brought us to this point? Continued emphasis on consumerism Changing workforce Continued rise in healthcare costs Affordable Care Act (ACA)

7 Types of exchanges High Employer engagement and control Low Traditional model: Employersponsored benefits Group plans Private single-carrier exchanges Group plans Private multi-carrier exchange Group plans Private multi-carrier exchange Individual plans Public exchanges Individual plans and group plans (<50 or 100 employees) Employersponsored group benefits (defined benefits) Employer oversight is high (main decision maker) Insured or selfinsured Defined contribution Employersponsored group benefits Employer oversight is high Insured or selfinsured Defined contribution Employersponsored group benefits Employer-delegated plans Insured or selfinsured Insured viewed as slice business by insurers Online shopping for individual policies Allows employer to disengage while providing access to policies Insured Does not allow pretax funding for medical coverage State- or federallyhosted exchange Allows employer to fully disengage May offer health and wellness Insured Subsidies available 7

8 Public and private exchanges State or federal exchange Oversight and administration by government or non-profit Initially, will serve federally or state subsidized individuals and small employers (<50, then <100 in time) Specific rules for plans that can be offered Lower income individuals can get access to federally funded subsidies Insurance carriers will view risk profile state by state Governmental service and product model ó ó ó ó ó ó Private exchange No restrictions on sponsorship or administration Will offer individual, small, and large group solutions More flexibility in product design and product offerings No access to federally funded subsidies Carriers will view risk profile by sponsor population Commercial insurer service and product model 8

9 Private exchange knowledge baseline Q: Are private exchanges drastically different than historical benefit offerings? Yes No Maybe A: Generally not. They are used by employers with a specific set of needs to organize their benefit offerings in a way that employees can understand Q: In order to move to defined contribution, does an employer have to offer a private exchange? Yes No Maybe A: No. Any employer can move to a defined contribution strategy at any time, without the help of an exchange. The need for an exchange is dictated by an employer s goals. Q: If an employer moves to a private exchange, can they keep their traditional contribution-setting policies? Yes No Maybe A: Absolutely! Defined contribution is just one employer strategy for managing cost. We think it makes sense to move to a defined contribution as part of your strategy to join an exchange, but it is not required and you may use whatever contribution-setting policy that you want. Q: Will a private exchange reduce an employer s healthcare costs? Yes No Maybe A: Maybe. Exchanges don t reduce cost; employer strategy reduces cost. A common perception is that the exchange, by nature, may save costs because of plan choices and competition. Realistically, the employer s strategic choices create opportunities for savings, and the exchanges can facilitate that. Q: Are private exchanges are a fad? Yes No Maybe A: We don t think so. Given the success of the public exchanges and expensive marketing campaigns funded by those in the private exchange business, exchanges will probably be an option for the foreseeable future. However, we doubt that exchanges will ever achieve 100% employer enrollment, or anything near that percentage, even as exchanges evolve over time. 9

10 Components of a private exchange Benefits Administration Multiple medical plans/carriers Decision support systems Defined contribution philosophy Stakeholder Engagement

11 CAPTIVE INSURANCE 101 Southern Employee Benefits Conference Fall Fly In, Atlanta Georgia Tuesday, September 9, 2014 Kevin Doherty Partner Nelson Mullins Riley & Scarborough, LLP Phone:

12 What is a Captive? Definition 1960 s An insurance company formed by its parent for the sole purpose of insuring the risks of the non-insurance parent. Currently A limited purpose, licensed re/insurance company to mainly insure the risks of the captive s owners, participants, or affiliates. 12

13 Sham or Insurance Company* *The IRS does NOT define insurance. Captives insure and manage risk so they must qualify as an insurance company to obtain primary benefits of (1) premiums paid into it as bona fide business expenses and (2) reserving. Business purpose not solely a tax planning; Require capital; Arms length calculation of premiums Risk shifting and risk distribution (FASB 113); Real risks with real possibility of loss; Pay claims; Managed and regulated as an insurance company. 13

14 Risk Shifting and Risk Distribution Risk shi\ing connotes the transfer of the risk to separate party. Risk distribueon mandates that enough independent risks are being pooled to invoke the actuarial law of large numbers. DO NOT FORM A CAPTIVE SOLELY FOR TAX REASONS. 14

15 Captive Insurance Benefits Cash flow flexibility Accelerated tax deduceons v. self insured Reduce insurance costs/expenses Access reinsurance markets Realize dividends and investment income Stabilize an unpredictable and cyclical marketplace Control and manage claims more effecevely New product development/create 15

16 Common Types of Captives Single Parent Captives - Single owner, for whom captive provides insurance coverage. Association or Group Captives - Formed by an association or group to provide insurance coverage for members. Risk Retention Group Liability only insurance company that is owned by its policyholders. Once licensed by its state of domicile, an RRG can insure members in all states. Protected Cell Captives (PCCs) A company which separates into "protected cells" through in which the assets and liabilities are separated from the main assets ( core ) of the company. 16

17 Traditional Market Solutions No or lihle leverage or control- one versus carrier. Results profit carrier not necessarily policyholder. Expense raeo not controlled by policyholder perspeceve. Mostly non- negoeable vendor agreements/services. Nature of insurance cycle makes planning and forecaseng difficult in both so\ and hard market phases. 17

18 Captive Considerations Predictable losses Parent/Owner/Group has strong and reliable financial resources Long term outlook Strong risk management resources Current insurance premiums 18

19 Line of Coverage Workers CompensaEon Property Liability Commercial Liability Cyber Risk Professional Liability Medical Stop Loss 19