Employees will have claims every year, and some of those claims will be large.
Business owners want to provide their employees with health care coverage but the cost of that coverage is high and climbing.
Premiums from traditional insurers are volatile and unpredictable. Employers have little influence over rising costs.
To take control over these climbing costs, business owners are using private insurance. Private insurance provides coverage exclusively to its participants and affiliated entities.
Business owners take this approach for two key reasons:
- To control the cost of employee health care coverage
- To build equity with private insurance for business growth and expansion
To understand how private insurance can hold down employee health care costs, consider the case of a business owner who sets a fairly high deductible for each covered employee. The owner then works with an actuary, who reviews past claims, to determine how much should be held by the employer in reserve funds to cover employee claims for a single year. The actuarial recommendations set the deductible amount and determine the business owner’s upward limit of financial risk for a single year. Stop-loss coverage acquired from the traditional insurance market caps the business owner’s financial liability for any large and/or unusual claims that occur in that year. The business wins big if claims are lower than expected, but never pays more than they would have with a conventional insurance plan.
Private Insurance rewards effective risk management. After claims are paid, the equity remaining in the segregated asset plan retains any amount not used to pay for health care claims. Often, the remaining funds can be significant. Using private insurance allows the business owner to use this growing equity as collateral to underwrite future business growth and expansion.