Health care cost escalation remains one of the most serious challenges to the ongoing viability of the United States economy, yet to any casual observer, achieving health reform seemed an impossible task until March 23, 2010, when President Barack Obama signed a landmark bill into law.
While it will be a few years before reforms are fully implemented, and lawsuits challenging its constitutionality have yet to be resolved, the new law has already significantly influenced insurers, health plans and employers alike in their strategic thinking and planning. 
During this time of transition, most employers are racing to determine the impact to their organization and their workers.
While it is tempting to only think tactically about each area of the legislation and subsequent regulation, a few select organizations are strategically considering how they might improve their short-term options while implementing a solution that is likely to withstand long-term changes in the form of captive insurance.
Cooperatives are well positioned to capitalize on this opportunity, given that their membership–small- to medium-size businesses–face challenges related to providing employee benefits.
In addition, Section 1322 of H.R. 3590 attempts to foster the creation of these qualified, nonprofit health insurance issuers, specifically for the individual and small-group marketplace. Many examples of cooperatives in the health market exist, including one serving more than 500,000 residents of Washington State and Idaho. It was founded in 1947 as group health cooperative.
CAPTIVE COOPERATIVES?
Employees of small- and medium-sized businesses are one of the largest groups of uninsured in the United States. Health insurance for small businesses is very expensive, and the government is therefore looking at cooperatives as a way small businesses can band together to buy health insurance at a lower cost.
One legislative option proposed to set aside $6 billion in federal funds to facilitate establishing health insurance cooperatives.
Cooperatives would be required to be licensed in each state in which they operate. They would be subject to state solvency requirements and other state-mandated regulations. With more than 25 states with some form of captive regulation, it is possible that the state may be a captive domicile.
There is a very clear role for captives in the cooperative concept, and this has already been widely demonstrated.
Numerous captives and risk retention groups began life as purchasing groups that are owned by cooperative groups of employers coming together to fund a variety of risks. These include workers' compensation, medical malpractice and other property and casualty coverages.
This well-established principle has been adapted for employee benefits. There are examples of captives and RRGs covering health insurance, life and disability, and retiree medical liabilities, among others.
Similar to solutions proposed by the Obama administration, captive funding allows for long-term cost savings through better cost stability and predictability, increased buying power, and reduced profit margins to other organizations.
In addition, by taking a more active role in health plan management, metrics can assist in guiding an effective program for the membership.
Other advantages include the ability to better control cash flow and set plan designs and processes that work for organizations.
In addition to representing a good solution overall, cooperative plans with captive insurance arrangements fit within the government's plan, in that cooperative participants will have access to better quality health care at lower cost using this alternative risk financing vehicle.
Since these programs are fully owned by their participants, the health plans and health management programs can be devised to meet the very specific needs of particular groups.
Over time, as numbers of participants increase, their need to purchase reinsurance decreases and most risks can be absorbed within the captive. Cost savings are retained within the program and are returned to participants through reduced health insurance charges or dividends, minimizing the profit motivations that plague the current health insurance system.
These captive programs differ from the government's plans in that they can be established without the need for government funding or government involvement. By operating on a national level and being structured under federal legislation, adhering to complex state requirements may not be necessary.
MOVING BEYOND CO-OPS
Given the governmental push to expand coverage among small- to medium-size employer groups, cooperatives should take this opportunity to determine the feasibility of beginning a program in 2010 or 2011.
Similar to cooperatives, large employers can also experience gains by leveraging a captive insurance company as a risk management solution. The short- and long-term benefits are similar among employers, and in many cases the implementation is more efficient.
So, where do you go from here?
There are many opportunities emerging for the captive industry to be part of improving the quality and availability of health care for Americans.
The federal government should be supportive of the captive and RRG solution. During this period of implementation, we can take many of the principles that have been established for other risks and ensure that they can be applied to health care and other benefits under the reform without enacting new legislation.
By tracking and influencing implementation at the state and federal level, new avenues can be opened for alternative funding structures that will provide more efficient options when compared with traditional insurance models.
Teri Weber is a partner and consultant with Spring Consulting Group LLC in Boston, focusing on alternative funding vehicles with a specialty in process and plan integration. John Cassell is senior partner at Spring, responsible for strategic focus and corporate development.
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