As the hospitality industry continues its rebound from the pandemic, ongoing challenges — including staffing shortages, spotty business travel demand and rising supply costs — have businesses on the hunt for any advantage. Evaluating their strategy for funding their medical benefits program may be a good place to start.

With more hospitality employers offering benefits to employees as a recruitment and retention incentive, organizations are taking a hard look at the options available. Captive insurance can be an ideal solution for medical benefits, offering hotels, resorts and restaurant chains the opportunity to control medical and pharmaceutical costs and design a more customized health plan.

Compared to traditional, fully insured plans, hospitality operators retain more control and transparency through participation in a medical captive. Clients may also save as much as 30% to 50% in total prescription costs through an actively managed pharmacy program. Overall healthcare expenses may also trend lower over time, creating a cost advantage over competitors and a benefit to the bottom line. However, participating in a benefits captive involves more work and oversight in exchange for plan flexibility and the chance to create healthcare savings.

How benefits captives work

Captives offer an alternative insurance structure, where members wholly own and control the captive, typically retaining responsibility for their own smaller, routine claims and contributing to a pool that covers bigger claims. In an employee benefits captive, the captive would cover catastrophic medical and pharmaceutical claims through separate stop-loss insurance coverage with negotiated caps, with the members ultimately sharing in the profits or losses after payouts.    

Benefits captive members have more control over their contracts for healthcare services and the structure of their benefits programs. Through direct contact with their third-party administrators (TPAs), pharmacy benefits managers (PBMs) and other resources, they can assist members in finding high-quality surgical providers, low-cost testing facilities and economical prescription medications. Captive members also gain easier access to reinsurance markets due to the size and scale of the captive vs. a single employer.

How to make a captive work for your organization

Before ditching a traditional benefits insurance program, hospitality companies need to look at their long-term benefits needs and whether a captive is the right approach. Those who choose to pursue a captive for employee benefits should:

Find the right captive for the organization. Successful captives bring together like-minded employers faced with similar challenges. Make sure management at other organizations are also focused on implementing proactive measures to reduce claims and open to exchanging ideas and strategies to benefit their employees and the captive members. 

Be prepared to do more work on the front end. A benefits captive can be more work than a traditional plan, in part because members will have more transparency, control and claims data to review. However, hospitality companies willing to take a deep dive into their benefits claims data can identify areas where costs could be better managed and put in place programs to reduce those claims. Organizations that choose to offer benefits through a captive need a strong human resources team and engaged leadership to fully benefit.

Make sure the captive has scale. A successful captive must have enough members to share the risk. If a captive only has a few members, it’s not much different than self-insuring, and a single large claim could be a substantial burden to all. 

Look to experts for advice and conduct due diligence. Partner with experts who can help the organization get the most from their benefits captive experience. Be sure to evaluate the captive’s chosen healthcare providers, TPAs and PBMs. Make sure the captive’s partners have good track records and can provide the member organizations and their employees with consistently strong service and support.

Contact HUB International’s hospitality insurance experts to learn more about benefits captives.