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An Honest Look at Captives for Voluntary Benefits

A Brief History of Captives 

Captive insurance arrangements have been a valuable tool for companies for decades, commonly used to manage liability, environmental, cybersecurity, and property risks. In the early 2000s, their scope expanded to include certain ERISA-regulated benefits such as medical stop-loss, basic and supplemental life insurance, and accidental death & dismemberment (AD&D). 


However, insuring ERISA benefits through a single-employer captive requires approval from the Department of Labor (DOL), a process that is both costly and time-consuming due to the need for an individual prohibited transaction exemption.


Can Captives be a Solution for Voluntary Benefits? 

More recently, employers are beginning to explore whether captives could be a viable solution for voluntary benefits like accident insurance, critical illness insurance, and hospital indemnity insurance. These types of supplemental health benefits have traditionally been fully insured and funded almost entirely through employee-paid premiums, with employers relying on carriers to manage the financial and administrative aspects of the plans. 

However, the lack of transparency and fiduciary responsibility in supplemental health benefits plans has led employers to scrutinize these arrangements more closely. What they’ve uncovered is troubling: Carriers often retain high-profit margins but provide limited financial transparency, and brokers frequently collect disproportionate commissions compared to other benefits. 

As a result, companies are questioning whether captives might offer a more efficient and equitable approach for voluntary benefits.


The Appeal of Captive Models 

Captives, when structured effectively, can offer several advantages for managing voluntary benefits. First and foremost, captives provide a level of financial transparency that is rarely available in traditional carrier-insured models. Employers participating in a captive gain access to detailed data, including claims costs, administrative expenses, and profit margins. This allows for better decision-making and greater control over how employee-paid premiums are being used. 

Additionally, captives can reduce overall costs by capping administrative fees and retaining profits within the captive structure. Rather than flowing directly to carriers or brokers, any excess dollars beyond claims and administrative expenses can be returned to the benefit plan or used in ways that provide value to employees. 

Captives also align with employers' fiduciary obligations under ERISA. By having more visibility into how funds are allocated and ensuring that compensation structures are reasonable, employers can meet their responsibilities while offering benefits that serve employees more effectively.


The Changing Landscape for Voluntary Benefits 

The voluntary benefits market has long been opaque, with little visibility for employers into the true costs and profit structures behind these plans. Carrier profits have traditionally been high, while brokers often push for heavily front-loaded commissions, which may not always align with the long-term interests of employers or employees. This lack of transparency has led to inefficiencies and raised concerns among employers who are focused on improving the value and sustainability of their benefit offerings. 

But the landscape is changing. With increasing pressure for fiduciary accountability, more employers are exploring alternatives that prioritize transparency and control—making captives an attractive option. 

In a captive arrangement, the employer can take a more active role in managing their voluntary benefits, ensuring that excess funds are used in ways that benefit employees rather than enriching carriers or brokers.


Why More Employers are Considering Captives 

While captives are traditionally associated with large, complex risks, they are gaining attention as a potential solution for the growing voluntary benefits market. By providing more transparency, cost control, and flexibility, captives allow employers to align the financial structure of voluntary benefits with the interests of the employees who are paying for them. 


As transparency and fiduciary responsibility become more important in the benefits space, captives offer a way for employers to regain control over supplemental health benefits while ensuring they meet the needs of their workforce. Although transitioning to a captive structure requires careful planning, the potential benefits in terms of cost savings, compliance, and improved outcomes make it an increasingly appealing option for voluntary benefits.


Elevate Your Employee Benefits with Control, Choice, Transparency, and Compliance

Unlock the potential of your Supplemental Health Plans (SHPs) with the Employees First Benefits-Captive-as-a-Service™ Model. From capped costs and experience-rated refunds to fully transparent insights and enhanced compliance, this model empowers you to make smarter decisions for your workforce and your bottom line.


Ready to learn how Employees First can transform your benefits strategy and support your employees’ financial well-being?


Contact us today to explore how we can help you take control of your benefits with tailored solutions that drive value and savings.

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