- INSIGHTS
Why “Public” Employer Captive & Consortium Programs are Blowing Up
Who’s to blame? In self-funded programs, results begin and end with the Program Manager.
The success of any health insurance program relies heavily on the decisions made by the program manager.
Before committing your clients to a program, it’s crucial to understand the business model, track record, and integrity of the program manager.
Many “Public” captive and consortium programs grow by using the same strategies as fully insured plans.
However, the recent claims market has exposed how volatile things can be, even with economies of scale.
Post-COVID aggregate claims have created significant challenges, with some major programs missing loss ratio projections by as much as 15-30%.
If you’re wondering why recent renewals have skyrocketed, consider the 4 common mistakes made by program managers outlined below.
common mistakes made by program managers
1. Growth model
2. Partner Standards
3. Poor Medical Review Misses Critical Risks and Future Claims
4. Size Requirements
1. Growth model
As an adviser, you know retaining a group is easier than writing a new one.
Like the fully insured carriers, a key strategy for program growth has been to “buy business” at a loss in the first year, pooling those claims with existing employers in the program.
The idea is to stabilize the groups’ premiums over a few years at the expense of the existing groups.
Recently, the pressure from private equity ownership has driven public programs to prioritize rapid growth, resulting in a significant amount of bad business being written.
This has led to serious consequences; some programs have been dropped by carrier partners on hundreds of millions in premiums and forced to add additional carriers to cover the losses.
These decisions are catching up as on 1/1/25 renewals, brokers are forced to deliver their employer clients major block increases, putting a strain on employers and brokers alike.
2. Partner Standards
Public programs allow employers in their pool to partner with the same big three PBMs and “carrier” administrators that are exposed in the news week after week for exploiting employer health plans.
Anthem sued for self-funded plan mismanagement.
If the goal is to control healthcare costs for employers, these entities should be excluded from managing medical spending within the pool.
Yet, to sidestep resistance from employers, public programs grow by allowing any partner to join, regardless of whether they align with employers’ best interests.
The result? Corruption and inflated claims. Misaligned TPA and PBM partners operate with profit motives tied to claims volume, especially in the pharmacy space, where hidden revenues and rebates abound.
Their business model profits from every claim dollar, fostering a system incentivizing high-dollar claims through administrative practices and contract terms.
Those “free admin credits” aren’t truly free, they’re subsidized by inflated claims across the pool, which, in turn, drive up stop-loss premiums. The real cost? Hidden in the details.
This leaves responsible employers, those choosing aligned TPA and PBM partners, to shoulder the financial burden of mismanagement.
It’s a broken system that rewards inefficiency at the expense of those trying to do things right.
3. Poor Medical Review Misses Critical Risks and Future Claims
The name of the game in today’s self-funded market is medical review.
Many programs have grown so large that they overlook critical details about existing populations, missing future surgeries, therapies, or transplants.
This leads to significant problems: not only are these future claims being grossly underpriced, but some are entirely overlooked.
And who ends up paying for those mistakes? The other groups in the pool.
Poor underwriting and lack of proper medical review create unnecessary financial risks.
In 2025, winning in self-funded underwriting means mastering the medical review process.
4. Size Requirements
Allowing small groups (under 50 employees) into the same program as mid-sized employers, with policy features like No New Lasers (NNL) and Rate Caps in the contract terms, exposes the program to significant volatility.
The volatility of the aggregate market as of late has massively increased the pressure on stop-loss premiums based on the aggregate rate caps. Many have been forced to switch to a claims financing model
It’s key to set a minimum for employer size and premium amounts.
For example, if a group with a $25k specific deductible and only $100k in net risk premium is given a 30-50% rate cap, a single cancer claimant projected at $350k would result in a 216% loss ratio at renewal.
With a 50% premium increase cap, the program is forced to absorb a massive loss from just one member, without factoring in other new claimants.
The only way to ensure stability is by reserving these features for larger premium groups in the pool, which have the scale to absorb and spread risk effectively.
Now that we’ve unpacked the risks in public pools, let’s focus on strategies for protecting employers from these challenges.
3 Proven Methods to Mitigate Risk
To protect your clients, focus on programs that put stability and transparency first. Here are three ways to help employers avoid unnecessary risks:
1. Choose Private Pools With Cost-Containment Requirements
Rather than focusing on whether to choose a captive or consortium program, ask how they ensure the program’s integrity. Look for private pools, that enforce cost-containment measures and exclude misaligned third-party administrators (TPAs) and pharmacy benefit managers (PBMs). This ensures that only aligned, forward-thinking employers join, minimizing abuse and stabilizing the pool.
2. Partner With Programs Built for Long-Term Stability
Evaluate the overarching philosophy of the program:
- Look for clear, long-term goals: Does the program prioritize stability over rapid growth?
- Review leadership and decision-making processes: Ensure the program is not pressured by losses or current ownership to grow at the expense of existing members.
Stable programs provide employers with predictable costs and fewer surprises during renewals.
3. Assess Risk Distribution Policies
Ensure your clients are part of pools that avoid mixing employer sizes, as smaller groups often lack the financial scale to absorb the required increases.
Additionally, verify that risk-sharing policies are equitable. Features like rate caps and no new lasers should be reserved for larger groups.
By evaluating how risks are distributed within a pool, you can protect employers from bearing disproportionate losses caused by mismanagement or poor program structure.
Why Virtue Health’s Employer Retention Rate Stands at 95%
When employers are tired of inflated claims and unstable renewals, they need a program that puts their interests first.
Unlike the public pool captive and consortium models that allow everyone and anyone in, Virtue Health is a private consortium with cost-containment requirements to join the program.
We don’t allow any carrier administrators, the big three PBMs, or anyone not aligned with our employers to participate in the program.
We maintain a 95% employer retention rate by eliminating plan abuse that could harm our pool.
Book a demo and see how we can help you stand out where it matters most, with employers.
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.
