In this post, we'll showcase how our clients can save up to 30 percent on health insurance using captives and the concept of reference-based pricing. Those already familiar with captives know that there are two fundamental ways to use 831(b) captives. Clients can use them for either enterprise risk and exclusions or traditional insurance risk. 

Ideally, business owner clients with more than 100 employees and offer group medical benefits to the employees will benefit the most from these savings. 

What Is the Cost of Health Insurance?

For an average firm with around 100 employees, group benefits can cost approximately $1,000,000 per year. If you increase that number to 300 employees, it will cost $3,000,000 per year, and for 500 employees, it'll go up to $5,000,000 per year. A lot of business owners state that their second-highest expense after payroll. As a result, reducing the cost by 30% represents significant savings and will positively benefit any business. 

The Typical Structure

Traditionally, a typical captive structure for group medical benefits would go through the traditional route. Then the employee will take on a particular portion of risk themselves. This is typically known as the employer's loss fund. The employer then pays a premium to the captive concerning the employers' loss fund. 

In the traditional structure, the premiums stay deductible, and the underwriting profits accumulate in 831(b) captives. The issue since 2016 has been that the average cost per employee has been steadily increasing. The main reason behind this increase is that the models that most businesses are still following gained popularity during the 80s and 90s. 

It's startling that we still use the same models for insurance solutions while other avenues have seen so much technological development. 

Why Is Healthcare So Expensive in the US?

One of the main reasons is that, due to a law, 85% of all the dollars must increase the number of claims that their clients make. As the number of claims increases, their profit rises significantly. While there's a limit on the percentage earnings, there's no limit on the number of claims that the health insurance companies can make. 

Additionally, it's not just the health insurance companies. Even though attempts have been made to curtail the increasing costs of healthcare, they've still been increasing steadily. 

What Do You Need to Know to Reduce Health Insurance Costs?

There are three essential tips that all business owners need to know to lower your health insurance costs:

90/10 rule

The 90/10 rule dictates that the sickest 10% will spend 90% of your dedicated portion of healthcare costs. As a result, companies need to make strategic decisions about how they can reduce the need for healthcare costs among the 10%. Encouraging healthy habits or contributing to reducing workplace stress or two things that can prove helpful.

Hospital 50% rule

Essentially, half of all the healthcare costs that you'll encounter occur in hospitals. By controlling the hospital costs, we can help organizations provide more free benefits to their employees while simultaneously reducing their costs. 

Varying Medical Costs 

What most business owners fall to realize is that aside from Medicare, hospitals and healthcare facilities also have the option of charging 500% mark-ups over the Medicare price. Health insurance companies typically negotiate higher prices on purpose so they can earn more profit. It's a widespread practice, and hospitals won't say no to earning significantly higher margins. That's where we introduce clients to the reference-based pricing system.

What Is Reference-Based Pricing?

While we're not the pioneers of reference-based pricing, it's a technique that a lot of businesses are using to help reduce their health insurance costs. Under reference-based pricing, we take the Medicare prices that healthcare facilities accept and offer a 40% mark-up on that price.

Even with the 40% mark-up, we can report a 99.5% acceptance rate with healthcare facilities. By using this method, we ensure that our clients get access to significantly lower claims than health insurance companies that work the traditional way. 

At the same time, third-party negotiates contracts with healthcare providers to ensure that the costs don't increase incessantly over time. By employing these tactics, we can help significantly lower the health insurance costs for a business. 

Risk Distribution

For most large businesses, the highest cost that they encounter after payroll is health insurance. Reducing 30% of these costs results in significant savings for the company and allows them to improve their profits. By signing up with our services, businesses can ensure that they save significantly while still providing group benefits.

If you would like to lower cost while simultaneously improving benefits to your employees then click this link for a FREE GROUP BENEFITS ASSESSMENT: