Resources & Insights

How Captives Can Help You Control Your Company’s Healthcare Costs

February 13, 2020

Andrew Gibbs,
Employee Benefits Advisor

Are hospitals in Colorado robbing us blind?

A state report argues that, despite their denials, they are indeed. Here are its top five takeaways:

1. On average, Colorado hospitals charge some of the highest prices in the country, with operating expenses 14% higher than the national average.

2. Hospital profits have increased by more than 280% between 2009 and 2018, from $538 to $1,518 per adjusted discharge.

3. Colorado hospitals’ prices rose far more sharply than the growth in patient volume. Colorado hospitals’ prices grew 71.3% between 2009 and 2018 (7.8% per year) while discharges grew 16.6% (1.8% per year).

4. Thanks in part to the expansion of Medicaid under the Affordable Care Act, the amount of money hospitals lose annually due to bad debt and charity care has fallen by hundreds of millions of dollars annually since 2010.

5. Rather than passing along those savings to Coloradoans enrolled in their company health plans, hospitals have continued to engage in what’s known as “cost shifting,” charging people with private insurance more to cover shortfalls from public payers – even while those shortfalls have fallen.

In its conclusion, the report, produced by the state’s Department of Health Care Policy and Financing, wrapped up with this:

“In a 2009 press release from the Colorado Hospital Association, the association pledged that ‘by increasing hospital reimbursement rates … and covering the uninsured, we will reduce the rate of rising health care costs.’ Colorado hospital under-compensation has decreased, but the savings were not passed on to commercial consumers, employers and union trusts.”

Hospitals, for the record, blame Colorado’s high cost of living and competitive job market for higher healthcare costs. They also say the state’s numbers do not take into account many expenses such as taxes, hospital-owned physician practices and the expense of training the next generation of providers.

Regardless of who’s right, it’s eternally frustrating for employers and employees who must contend with insurance premiums that only keep rising.

Is there a better way? In fact, there is, an approach that’s been available for some time but, until recently, used almost exclusively by just the largest corporations.

These large firms hold down health care costs by “self-insuring,” or funding their employees’ health expenses directly, and joining a “captive.”

What’s a captive? Nothing more complicated or mysterious than an alternative to traditional insurance.

A captive allows groups of like-minded employers to band together to fund all of their health care costs. In other words, it’s self-insurance without the stand-alone risk.

Employees received the same benefits, coinsurance, copays, deductibles, etc.

What about “self-insurance”? Being self-insured means that rather than paying an insurance company to pay medical, dental and vision claims, the company pays the claims itself, using a third-party administrator to process the claims. In other words, rather than sending money to an insurance company, the money stays in your budget and is controlled by you. The insurance coverage itself does not change. Only the method used to pay for claims changes.

Those in a captive get the benefits of self-funding, but with additional protection against catastrophic costs, because the captive covers many more people than any single small employer does.

Sounds good, right? Here’s one more important feature to understand:

In a captive, each employer pays into the group captive “pool” to cover medium-sized claims. If the dollar amount of these “in-the-pool” claim payouts exceeds the amount that has been put into the pool, the group shares the loss (up to certain thresholds). But if “in-the-pool” payouts are less than the balance in the pool, the group shares the profit.

There’s more about captives you’ll want to understand. But whether the state or the hospitals are right about why costs are rising is hardly the point any longer. With no relief in sight, there’s no reason an employer today shouldn’t explore all of their options to rein in costs.

Andrew Gibbs is an Employee Benefits Advisor at CCIG. Reach him at or 720-212-2025.

CCIG is a Denver-area insurance, employee benefits and surety brokerage with clients nationwide. We do more than make sure you have the right policy. We help you manage your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.

Also read: Benchmarking Your Company’s Employee Benefits Plan


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