“Medical stop-loss in a captive is a smart, cost-conscious response to these market conditions.”
Prabal Lakhanpal, Spring Consulting

As the dust begins to settle on the COVID-19 pandemic, forward-thinking organisations are focused on programmes that provide competitive benefits as they look to lure new workers and retain existing employees. They recognise that employee benefits give them flexibility to deal with the changing employee landscape, from a demographic and geographic perspective, as well as improving employee wellness, maximising their savings and increasing employee engagement in the modern era.

A holistic approach

Historically, employers were largely focused on ensuring they had adequate insurance coverage on a line-by-line basis, and these coverages often operated in silos. Today, more organisations are breaking down those silos and developing a view that is holistic, looking across the board to create an employee benefits programme that emphasises employee wellbeing and population health management.

Employee wellness is primarily the idea of not just providing employees with appropriate health, life and disability benefits, but also ensuring that employees have assistance regarding their overall wellbeing, including physical, financial, behavioural, social and intellectual health. Organisations increasingly understand how the individual components of their benefits programmes are inter-related, and that evaluating and managing these relationships adds value to their employees.

A captive is an effective mechanism for achieving an integrated programme. In an integrated captive programme it is easy to bring together all the lines and ensure that the appropriate resources are being used to plug any gaps in the benefits portfolio. Most of our clients using this approach have been able to leverage the savings from the captive programmes to provide the additional coverages at almost no or nominal cost.

In addition, the transparency and clear line of sight into claims activity and utilisation rates help employers plan for programme changes, make decisions and adjust to changing employee needs sooner than they would be able to without a captive. Organisations that already had benefits in their captive when COVID-19 hit fared much better than those without one, as they were able to adapt quickly to make changes to their benefits that accounted for the unusual circumstances.

For example, we helped a large global employer leverage its captive to provide extended benefits for employees it was forced to furlough when the pandemic struck. Its carrier would allow for continued benefits for only three to six months, but by using the captive to take on the risk, the organisation was able to keep benefits for furloughed employees for 12 months at no additional cost. This move went a long way to improve employee retention and morale.

Medical stop-loss

If we think about the range of employee benefits in the US, medical stop-loss is perhaps the one that has changed the most and attracted the most interest in the last few years. It is typically not an Employee Retirement Income Security Act (ERISA) benefit so Department of Labor (DOL) processes don’t apply.

There are two driving forces behind this interest. First, healthcare costs continue to skyrocket, causing employers to look at alternative ways to bend the healthcare cost. Medical stop-loss in a captive is a smart, cost-conscious response to these market conditions.

The second factor is that for a long-time medical stop-loss has largely been considered a first-party risk. Over time, law firms and accounting firms have gradually started to categorise it as a potential third-party risk.

This transition to medical stop-loss being a third-party risk is gaining substantial traction and impacting the way programmes may be structured to achieve insurance tax treatment. This concept needs to be individually assessed at the employer level, considering the circumstances of the organisation. We highly recommend working with a captive attorney or tax advisor to ensure compliance.

Life and disability

Life and disability are other lines that have changed significantly in recent years. Typically, any coverage subject to ERISA needs to go through a DOL exemption process in order to be placed in a captive. Life and disability are usually subject to ERISA. Historically, the DOL had an expedited process, which allowed employers to submit an application for approval to add benefits to a captive.

In late 2018, the DOL paused this process in order to rethink and better understand how employers are using these benefit lines in a captive. They have since conducted an analysis and created a more streamlined exemption process for which we are already seeing applications flow through the DOL.

As we look to the future, I believe this will encourage more employers to think about life and disability as potential coverages for captives. These coverages not only help employers achieve best-in-class benefits provision, they also support captive insurance structure from a diversification point of view.

Another growing area of interest is the self-insuring of employer-paid disability coverages. This is an extremely useful solution for organisations and is quick to implement, but the feasibility of this needs to be evaluated on an individual employer basis.

Voluntary benefits

While not new, voluntary benefits continue to pick up steam in the market. This trend correlates in part to my first point about a holistic approach, as voluntary benefits can offer a range of different protections that are not part of a traditional benefits package. In this way, employers and employees can address a larger spectrum of health and wellbeing concerns such as vision, financial wellness, or accident insurance, thus creating a more comprehensive programme.

Voluntary benefits are an important tool to have as employers fight against rising healthcare costs, as they are a low-to-no-cost mechanism to support employees in managing those increasing costs.

Last, as most voluntary benefits are underwritten at extremely low loss ratios, insurance carriers make a substantial profit from a voluntary benefit that is fully-insured. By utilising a captive (self-insured structure) for voluntary benefits, the employer can further reduce benefits costs for its employees. It’s a classic win-win.


The “new normal”, whether it feels normal or not, is not on the horizon, but at your doorstep. Cutting-edge businesses are taking a modern approach to address the challenging market conditions while still providing competitive benefits, retaining and attracting talent, and being risk-smart and mindful of their bottom lines.

Thinking holistically and reframing your strategy around medical stop-loss, life and disability, and voluntary benefits are just a few of the ways you can use your captive to stay ahead.

Prabal Lakhanpal is a vice president at Spring Consulting. He can be contacted at: prabal.lakhanpal@springgroup.com


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