Captive Insurance for Healthcare Providers

The healthcare industry is an integral part of the U.S. economy. In fact, annual healthcare spending is now $3.4 trillion and experts predict that spending will continue to rise year-over-year.

Healthcare providers are working to meet the growing demand, but they undoubtedly face risks which may not be covered with commercial insurance. Risks such as loss of a key insurance payer (such as Blue Cross Blue Shield, Humana, and others), regulatory changes, and breach of privacy can wreak havoc on the reputation and profitability of a healthcare practice or business.

Forming a captive insurance company can combat these risks with custom-built coverages, eliminating high out-of-pocket costs in the case of a loss event. The financial benefits of captive insurance are an added bonus. The animated video below explains.

Have questions? Call Capstone at 713.800.0550, or submit your information via the form. One of our experts will be in touch. We’ll discuss how we can help you or your client form a captive insurance company to insure the risks of your healthcare business.

So here’s how it works:

Healthcare businesses pay premiums to the captive insurance company, just as they would to a commercial insurance company. Funds accumulate inside the captive and can fund losses in the case of a loss event. IRC 831(b) captives offer a 0% Federal income tax paid on the captive’s underwriting profits.

Moreover, if there is undistributed earned surplus, i.e. there are no claims made in a given year, the funds can be distributed as a dividend or as a secured loan back to the operating company. Premium costs are lower, because in the commercial markets, “special” coverages tend to be more expensive. These coverages may not be available at all commercially. Business owners have better control over their risk management efforts, more comprehensive coverages, and a more advantageous planning solution.

Coverages written under a captive insurance company may include:

  • Loss of a Third Party Payer
  • Employment Practices Liability
  • Special Risks – Regulatory Changes
  • Cyber risks
  • Loss of a Major Supplier

Bottom line: Captive insurance for healthcare providers is a powerful alternative to commercial insurance alone. Savvy business owners who form their own captive insurance company can count on a new level of risk management, as they combat risk in such a competitive industry.

For more information, watch this "Captive Planning for Physicians" video, featuring Capstone's CEO, Stewart A. Feldman.

Managing Capitation Risks Through a Captive

The Affordable Care Act or “the ACA” is changing the industry landscape for medical providers.

Doctors, accountable care organizations, and other healthcare providers are no longer being paid for the volume of work they perform. Instead, many have entered into risk-shifting contracts called “capitation contracts,” where profit is based on value and performance. This is commonly referred to as the “volume-to-value model.”

Under capitation contracts, healthcare providers are paid a fixed amount for each patient and it’s up to the provider to determine how and when to use this allotment. On the plus side, providers continue to be paid whether or not their patient requires medical treatment in a given month. But the more treatment a patient requires, the less profit a health provider can expect. This is referred to as “provider-sponsored risk.” Additional capitation risks include potential penalties imposed by the Federal government for non-compliance with certain program rules.

It is why medical providers are looking for ways to adapt and proactively mitigate these risks.

Here is a short video that explains how forming a captive can help healthcare providers combat capitation risks.

Comprehensive Captive Planning for Healthcare Providers

Capstone Associated Services, Ltd.

is the most integrated and largest outsourced provider of captive insurance services for the U.S. middle market. Capstone offers platinum level captive planning and administers property & casualty captive insurance companies that provide alternative risk financing services throughout the U.S.

With over 25 years of experience, Capstone provides turnkey services to businesses in the healthcare industry, and many others.

The company has an award-winning track record for standing with clients in the design, implementation, ongoing management, and defense of their property & casualty captive insurance programs. Capstone has successfully administered and successfully managed over 200 captives since 1998.

Capstone's staff of professionals includes Chartered Property & Casualty Underwriters, insurance experts, risk managers, claims personnel, accountants, and administrators. Capstone’s expertise is bolstered by long-standing relationships with outside CPAs, risk managers, property & casualty professionals, and actuaries.

Together, this team offers middle market companies the most comprehensive risk planning solution available.

Learn More About Captive Insurance


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