- INSIGHTS
A bad pool decision today adds $557,240 to stop-loss premiums for employers over 5 years. You’ll learn why as you read further.
Claims over $3 million have doubled since 2018, with $2-3 million claims growing at the fastest rate, according to the Sun Life report.
That’s why group stop-loss purchasing models, such as employer captives and consortiums, have grown over the last five years.
The main goal of these programs is to provide stability and predictability for the future of employers’ healthcare plans.
So it’s crucial to use a group purchasing program when transitioning a mid-size employer to self-funding.
Whether the funding mechanism is an employer captive or a consortium, the critical decision for mid-size employers is choosing between public or private insurance pools.
Let’s explore these options to help you guide clients toward the best decision.
What is a Public Pool?
Picture a swimming pool down the street—anyone can dive in.
That’s essentially how a public insurance pool operates.
There are minimal entry requirements in a public pool, meaning any employer can join, regardless of cost containment practices or the administrators and PBMs in control of their spending.
This seems like a standard insurance practice, but it overlooks the long-term burden on employers.
Here are 3 hidden practices that lead to higher premiums for employers:
- No Cost Containment Requirements:Public pools encourage but don’t enforce cost-containment measures, leaving employers with little control over claims that exceed specific or aggregate deductibles. This lack of control drives the pool’s premiums and leads to less predictable renewals.
- Buying Business: Many public pools grow by subsidizing new, high-risk groups with the rest of the pool in the first year. This practice leads to underfunded premiums and significant block rate hikes during renewals, forcing programs to seek new insurers due to major losses.
- Misaligned Partners: Public pools have no restrictions on using carrier administrators and big 3 PBMs, whose business models prioritize profit over managing spend. As a result, employers who manage their claims well using independent TPAs, fiduciary PBMs, and pharmacy sourcing end up subsidizing those who don’t.
It’s a system where the interests of those doing the right thing—managing their risks and optimizing their healthcare strategies—get diluted by those who don’t.
Now, let’s explore the private pools.
What is a Private Pool?
Think of a private pool as an exclusive pool—the one in your backyard.
Only employers who meet minimum cost-containment criteria can join.
This model was developed based on experience in the public market, where uncontrolled block renewal increases became persistent and unmanageable due to poor program management.
Private pools are designed with the employer in mind, ensuring all participants are aligned in their commitment to controlling healthcare costs.
These pools implement proven and tested cost-containment solutions and strategies that manage claims.
- Mandatory Cost Containment: Potential members must align with the pool’s cost-containment strategies. This process ensures that only those committed to best practices are admitted, creating a stable and predictable risk pool. While this was more of an ask from employers 10 years ago it’s frictionless now.
- Growth & Performance Balance: Properly structured programs prioritize performance (loss ratio) and new membership growth. In a challenging first year, the private pool experiences reduced increases in pooled renewals and lower overall volatility. This stability leads to predictable premiums and fewer surprises during renewals.
- Partners are Virtuous: Properly structured programs include only vendors, brokers, and employers who uphold high ethical standards. Vendors contributing to the healthcare problem are not welcome. They thrive by prioritizing the best interests of employers and their employees.
Private pools offer stable, long-term solutions by proactively managing high-dollar claims, ensuring better control over renewals and a predictable financial environment for employers.
Why Are Mid-Size Employers Leaving Public Pools in 2024?
Mid-size employers (50-350 employees) are leaving public pools for two main reasons: the unpredictability and volatility of the renewals, and the lack of transparency over other employers’ claims in the pool.
In public pools, even if a company has a good claims history, they face unpredictable and substantial premium increases, most advise expecting 15-18% annually in good years, due to the collective risk.
Virtue Health’s founder, John W. Sbrocco, identified a significant issue with public pools over time: compounding premiums.
In five years, these premiums add up substantially. While public pools are often promoted for their benefits, brokers overlook the impact of compounding during the good years.
Without proactive management, premiums in public pools increase by 15% to 17% annually (In employer’s good years).
At Virtue Health, our goal is to create a strategy that ensures more reasonable renewals, even in good years.
In contrast, those using public pools end up paying $557,240 more in premiums over 5 years.
Employers are tired of these hikes and are shifting to private pools where risk management is prioritized.
This move isn’t about better rates, it’s about finding a way to manage healthcare costs in the long term.
Let’s look at this example comparing Virtue Health’s track record as a private pool compared to a public pool captive/consortium.
Imagine a 150-life employer paying a $500,000 stop-loss premium currently.
In the public pool, the average stop-loss renewal in “good years” is 17% in premiums. When the employer has a “bad year”, the renewal is capped at 30%. Over 5 years that employer will pay a total of $4,379,576 in premiums.
In a private pool, in a “good year” the average renewal is 6%. While in a “bad year”, the renewal is
In the private pool, the average stop-loss renewal in “good years” is 6% in premiums. When the employer has a “bad year”, the renewal is at 42% in this example. Over 5 years that employer will pay a total of $3,822,336 in premiums.
Now, when we compare the two, you can see the year-over-year compounding effect of the “good year” renewal increases for public pools. The effect has the employer paying $557,240 more in premium over 5 years than if they were in a private pool.
How is the Virtue Health Model Different?
At Virtue Health, we elevate the private pool concept with our unique consortium model.
Other captives and consortium group purchasing models, encourage cost containment measures to control stop loss premiums and reduce plan instability but don’t require them.
Here are 4 reasons why more than 100+ employers and employee benefits consultants choose us:
- Innovative Policy Features: We offer features like no new lasers, rate caps, and banded renewals.
- Flexibility: We provide the flexibility to enter or renew at any time of the year.
- Exclusivity in Action: We exclude carrier administrators and the big three PBMs to prevent plan abuse. This ensures our pool remains robust and sustainable.
- Proven and tested cost containment strategies: that have a track record of success in managing medical and Rx claims.
Choosing the Right Insurance Pool for Employers
Before advising your clients on whether to join a public or private pool, consider these critical factors:
- Cost Containment Requirements: Does the pool require mandatory cost containment practices? If not, your clients will be exposed to uncontrolled claim costs.
- Entry Criteria: Are there barriers to entry that ensure only the right employers are admitted? This is crucial for maintaining the stability of the pool.
- Claims Control: How are high-dollar claims managed? The success of a pool relies on this factor.
- Policy Features: Look for features like rate caps and no new lasers that protect employers from unpredictable costs.
- Loss Ratio Track Record: Does the pool have a proven history of delivering stable renewals and controlling costs? If the loss ratios aren’t controlled for the pool the employers receive a higher increase on renewals for the block.
Public pools are best for employers focused on short-term savings and those who prefer to stay with their current carrier or PBM, despite the lack of mandatory cost-containment measures.
On the other hand, private pools are ideal for clients who prioritize long-term stability, predictable premiums, and effective cost management, with a focus on maintaining program integrity and reducing volatility through controlled membership.
Your Next Step
We’ve helped brokers like you transition their clients from volatile public pools to the stability of our private pool.
One client, a mid-size employer struggling with unpredictable renewals, saw their premium increases drop from 17% in the public pool to just 6% after joining Virtue Health.
That’s the power of a well-structured private pool.
Book a 30-minute strategy session with us today to start providing your clients with the stable, cost-effective healthcare solutions they need.
John W. Sbrocco
@johnwsbrocco
IF YOU’RE A BROKER READY TO…
Elevate your clients’ healthcare strategy with a long-term, stable solution, it’s time to consider self-funding.
