A Simple Guide to Vision and Dental Insurance

Vision and dental insurance are an important part of keeping you—and your budget—healthy.

The health of our eyes and mouths is no less important than that of the rest of our bodies. But vision and dental insurance are often excluded from traditional health insurance. While a health insurance plan can aid in the cost of a broken arm or a skin infection, a chipped tooth or fading eyesight is left up to dental and vision insurance.

Vision and dental insurance can come from different sources:

  1. There are health insurance plans that include vision and/or dental benefits. These can be offered by an employer or purchased on your own.
  2. There are separate, standalone plans for vision or dental benefits that can be used on top of a health insurance plan as a form of supplemental insurance. There are even dental and vision insurance “packages” that offer benefits for both.
  3. Medicaid provides vision and dental benefits for children in all states. In some states, Medicaid also provides coverage for adults.
  4. Many Medicare Advantage plans include vision and dental benefits for seniors.

No matter how it’s acquired, vision and dental insurance can be instrumental in helping to keep your health up and your medical costs down. But before you go shopping for plans, there’s plenty you should know about them.

Vision and Dental Insurance in the Workplace

Under the Affordable Care Act, companies with at least 50 employees are required to provide group health insurance for their employees or face a penalty. However, vision and dental insurance are not required as part of this mandate. 

As a result, vision and dental insurance benefits granted by an employer-sponsored plan are the exception, not the rule. In fact, only 53 percent of companies that offered health insurance in 2014 provided any sort of dental benefits, and only 35 percent of such companies offered vision insurance.

Meanwhile, according to a benefits trend study conducted by MetLife, the two most popular voluntary benefit programs for employees are vision and dental insurance.

Vision and Dental Insurance for Children 

While vision and dental insurance for adults is not a requirement of the Affordable Care Act, vision and dental benefits for children is a required benefit offer under all plans that qualify as “minimum essential coverage.”

This means that all children under the age of 19 enrolled in individual, family, and small group health insurance plans must be offered basic and preventive care for vision and dental.

Vision and Dental Insurance Through Medicaid

Dental insurance. Just like the Affordable Care Act, federal Medicaid guidelines only require dental benefits be made available to children. Some states have their own dental requirements for adults under Medicaid, while others do not offer dental insurance to adults at all.

Vision insurance. Medicaid offers coverage of eye exams, frames, and lenses to children under 21, but it’s up to each individual state to determine how much—and how often—the coverage is offered. 

Many state Medicaid programs offer similar coverage for adults and some states even provide coverage of glaucoma testing and treatment and even cataract surgery.

Original Medicare (Part A and Part B) typically does not provide vision or dental benefits but many Medicare Advantage plans do. 

If this all seems complicated, a licensed insurance agent can help you understand the options that are best for you and your family.

This article was written by Phoenix Captive Solutions C.F.O. Blake Coats, any views or opinions do not necessarily reflect the opinions of either Phoenix Captive Solutions LLC, or any associated entities.  

Feel free to write to Blake at blake.coats@phoenixcaptive.com  

What Any Employer needs to know about: Fully-Insured, Self-Insured, Level-Funded Benefits

In today’s market, companies are constantly looking for concepts to control rising costs of medical and ancillary benefit lines of coverage for employees. These days, employers with as few as ten full-time employees are finding other arrangements which can allow them more control or at least more understanding of their annual premium increases. This helps them to invest more money in their business or attract and retain new employees. In any of different insurance models below a company must reach their own balance between costs and risk.

Fully Insured – “Traditional Plans”

Fully Insured is what most people are familiar with when it comes to insurance. The individual or employer pays a premium and to insurance carrier; in return, the insurance carrier is responsible for paying future medical claims that are covered. In return, the business and the employees are guaranteed at maximum the premium costs and the “out-of-pocket” maximum cost to receive care in a dire situation.

How the Fully Insured model or Traditional model is dying

Now, because an insurance carrier must obey the law of large number in order to pay for incurred medical claims across their entire book of business or “pool”. This typically leads to increased premium rates year after year as medical service prices increase as well as claims on their book of business. The business can look to shop for new premium rates or plans each year to offset these costs.

The idea of “pooling” has always been a part of any insurance model. In simple terms, if a hundred people are insured at let us say $100,000, the insurance carrier’s hedging a bet that those 100 people won’t have claims that exceed $100,000. Anything less than $100,000 the carrier pockets as profit, anything above that $100,000 amount, results in an increase in premium rates the next year on the people or companies that caused the pool to go over $100,000 to make up for the loss. Sounds simple enough right? You charge the people that are using the benefit more money, and those that are not utilizing it the same rates or decrease their rate to incentive them to stay healthy.

This was the case until the enactment of the ACA commonly known as the Affordable Care Act. Before this was enacted, carriers could increase the price on the insurance offered to individuals and employers that were deemed higher risks and whom they knew had higher claims based on the history of that person or employer, just like in our 100-person $100,000 example.

The ACA has now mandated what is called “community rating” to offset increase on certain “high-risk or high claimants” within a certain geographic region. Carrier can still increase premiums on certain factors such as age. So, group coverage may be cheaper for a 20-year-old versus a 60 year, however, a carrier can not charge someone who is the same age different rates for the same plan regardless of known health risks.

The benefit of community rating is companies with a high number of high conditions can find insurance coverage which is not priced completely out of their range. However, employers with few health risks and conditions are finding that their insurance rates have increased beyond the point where they can justify the cost based on what they use. The reason for this is that there is no incentive for high risk or health people to be prudent in controlling costs as their own claims are dropped into a larger bucket of which renewal increases are calculated, and insurance carriers are handcuffed to same pricing models for all individuals regardless of risk.

Because of this, companies with healthy populations looking into other methods of funding, thus, Self-Funded and Level Funded options in ways to incentive a healthy population and control rising costs.

Self-Insured or Self-Funded Plans – The almost Anti-Traditional model

Self-funded is almost the opposite of fully-insured model as the employer assumes the risk and responsibility of medical claims, rather than contracting with an insurance carrier to pay claims. So, as the name suggests it is exactly what it says: a company provides all funds to pay for expected claims. The employer essential forms its own “pool” with the participants being the employees. This is typically only utilized by larger employers, think 500+, the reason for this is that the company needs a large enough pool in order to more accurately predict claims that will be incurred. Also, most self-funded plans need a way to administer claims and smaller companies typically would not have the funds to handle it or enough funds to pay a third-party administrator (TPA) to administer claims filed.

Since the employer is on the hook for claims, typically most groups utilized what is called Reinsurance or Stop Loss.

Like how an insurance carrier would want to hedge their bet, the employer would want to hedge theirs. Reinsurance or stop loss prevents the employers from the liability of a large claim, employers pay a premium for protection in case their actual claims exceed what was expected of the “pool”. Think of it in concept working as an umbrella policy would on your house.

It is very much in the interest of self-funded groups to incentive employees to stay healthy as a one or a handful of claims can reach the number of estimated claims. As all costs come out of the company’s bottom lines and conversely, all savings benefit the company’s bottom line. Thus, virtually all self-insured companies have wellness programs, biometric screenings, exercise programs, exercise, and weight loss programs, smoking cessations that are backed by a well-motivated management team to encourage employees to participate.

Level-Funding – the best of both worlds (for the right employer)

At its simplest level, level-funding is the smaller version of self-funding for groups in the small employer range (10-500 FTEs) in regard to they do not have to be community rated. These plans are typically carried out and administered by a subsidiary of a fully-insured carrier.

Typically, with level-funded the employer pays premiums like a fully-insured plan each month and the carrier administers claims like a fully-insured plan. What the carrier then does on the back end is allocate that amount to administrative fees, maximum expected claims, and reinsurance just like self-funded groups on behalf of the employer.

Sometimes, because of this they are referred to as partially self-funded because the carrier and the employer split the saved amount claims. 

Both the self-funded and level-funded plans for small employers, avoid the community rating, which can save employers and employees money, but only if the costs of its claims stay as low as the cost-per-employee.

So which is right for my company?

An employer should always try to find a qualified licensed insurance professional to help them access their insurance needs. Typically, that would be in the form a licensed insurance broker or brokerage office, they should have access to some form of all models and carriers for which you to make the best judgment for your company as they are not tied down directly to one specific carrier.

You can make the following generalities about each model.

Fully-insured plan removes most risk from the employer and employees, but the guaranteed cost of the plan will be higher.

A self-insured plan leaves almost all risk on employer, but has the greatest chance of savings.

Level-funding attempts to combine the best of both worlds, but is really only viable for small employers or specific risks.

In conclusion, there is never a right answer, the thing to do is to ask the right questions.

How many employees do I have, and are they healthy?

What are our current benefits? What could be improved?

How much is my potential budget versus what is my maximum budget for benefits? 

If we saved money, how else could we allocate those funds to grow the business?

With any quality licensed insurance broker/agent, emphasis on quality, you should be able to sit down and answer the questions to find out which kind of insurance funding best meets your needs.

This article was written by Phoenix Captive Solutions C.F.O. Blake Coats, any views or opinions do not necessarily reflect the opinions of either Phoenix Captive Solutions LLC, or any associated entities.  

Feel free to write to Blake at blake.coats@phoenixcaptive.com  

Benefits of a Captive

For many years, large corporations in this country have enjoyed many benefits from operating their own captive insurance companies. Most were established to provide coverage where insurance was unavailable or unreasonably priced. These insurance subsidiaries or affiliates were often domiciled offshore, especially in Bermuda or the Cayman Islands. The risk management benefits of these captives were primary, but their tax advantages were also important.

In recent years, smaller, closely held businesses have also learned that the captive insurance entities can provide them significant benefits. These include the attractive risk management elements long appreciated by the larger companies, as well as some attractive tax planning opportunities. A properly structured and managed captive insurance company could provide the following tax and nontax benefits:

  • Tax deduction for the parent company for the insurance premium paid to the captive;
  • Greater transparency in annual premium development that reflect insured’s experience and not an array of external, market-driven factors out of the insured’s control;
  • Opportunity to accumulate business wealth in a tax-favored vehicle;
  • Asset protection from the claims of business;
  • Reduction in the amount of insurance premiums presently paid by the operating company;
  • Use profits generated by good loss experience to offset new premium requirements in future policy years, allowing a multi-year strategy that can simplify budgeting


Since captives became accepted in the United States, a number of types have evolved. These include “pure captives,” where the insurance company insures the risks of one group of related entities; “association captives,” where the captive insurance company covers the risks of the members of a particular association; and “agency captives,” where the captive is owned and operated by one or more insurance agents to insure the risks of their clients.


INSURANCE REQUIREMENTS

For the premium payment to the captive to be deductible as an insurance expense, the captive must be able to prove that it is a valid insurance company (payments for self-insurance generally are not deductible. Besides obtaining an insurance license from a state or a foreign jurisdiction, the captive must provide insurance to the operating company or its affiliates. Insurance was defined for tax purposes is defined that it must include elements of risk shifting and risk distribution.

To meet the risk-shifting requirement, the operating company must show that it has transferred specific risks to the insurance company in exchange for a reasonable premium. Risk-distribution is generally defined as follows:

Risk distribution occurs when particular risks are combined in a pool with other, independently insured risks. By increasing the total number of independent, randomly occurring risks that a corporation faces (i.e., by placing risks in a larger pool), the corporation benefits from the law of large numbers in that the ratio of actual to expected losses tends to even out.

Thus, the captive must be accepting risks from multiple separate entities to satisfy this requirement.

FORMATION OF A CAPTIVE

Using a Captive Manager is one of the quickest ways and less time consuming ways for a captive to be formed. Often times Captive Managers have a process in place already and may already have a shared pool that a company can enter and shortens the headaches for companies coming into the Captive market for the first time.

The need for a qualified insurance manager on the planning team is very important, particularly in the formative stages. The formation of a captive insurance company can be a lengthy process including feasibility studies, financial projections, determining domicile, and, finally, preparing and submitting the application for an insurance license. If you are working through one these captive managers, the times it takes to form them is typically much shorter and less tedious.

The requirement for adequate initial capitalization of the captive is dependent in part on the level of risk projected to be assumed by the captive and the requirements of the particular domicile.

One critical function to be performed during the formative stages is the identification of the risks to be insured by the captive. The operating company is presently paying premiums to one or more commercial insurance companies to protect it from specific risks, some of which could be catastrophic if they were to occur without such insurance. The goal of smaller captives would be to maintain the transfer of the catastrophic risks to the commercial carriers, but to assume the underwriting associated with more “manageable” risks.

The policies that are written need to be for “real” insurance risks but with low probability of occurrence. Should the captive see a need to protect itself in the case of a higher-risk policy, it may be able to buy reinsurance at premiums that are less than the premiums that it has charged the parent company. On an annual basis, the premiums paid to the captive in excess of its claims and operating expenses can be transferred to a surplus account and be available for investment activities.

One of the risk management benefits that the captive may provide is the flexibility to opt for higher deductible levels on the existing property and casualty insurance policies. In keeping with the above desire to minimize, but not eliminate, claims experience, the selection of the risks that the captive is willing to assume should be prudent.

OPERATION OF THE CAPTIVE

The attractive tax benefits associated with the smaller captives can sometimes cause business owners to forget that the captive must operate as a true insurance company. The use of an experienced and capable captive management company is an essential element of the normal operations of such an entity.

The need for annual actuarial reviews, annual financial statement audits, continuing tax compliance oversight, claims management, and other regulatory compliance needs puts the day-to-day management of a captive insurance company beyond the skills of most general business people. Likewise, the involvement of a captive management company in the investment activities of the captive is essential from a planning perspective to assure that the captive’s liquidity needs are met.

TAX ASPECTS

In 1986, Congress inserted a provision into Sec. 831 that opened up a significant planning opportunity for small insurance companies. Under Sec. 831(b), if a property and casualty insurance company with gross premium income below a certain threshold amount, it has the potential to avoid tax on its premium income and owes tax only on its investment income. Once that premium income threshold is met, the captive may not be eligible for the tax benefit.

Speak with a Captive Manager about what the threshold may be for your company as care should be taken to ensure that a captive does not exceed that gross premium income threshold.

The state taxation of the captive depends on the state in which the captive is domiciled, which need not be the state in which the operating company is located. At inception, part of the entity formation process is determining the captive’s proper domicile. Selecting a domicile depends on a number of factors, including taxation.

Always consult with a certified accountant that is familiar with captives before making a final decision.

SERIES LLC OR CELL COMPANIES

Recent legislation in a number of states has created a new form of entity that is viewed as an attractive structure for captive insurance operations. The use of “series LLCs” or “cell companies” allows for the formation of a “master LLC” or “master cell,” which would procure the insurance license for the entire operation.

A number of “series” or “cells” would then be created that would function as autonomous units within the entity’s contractual structure. Each cell would have one or more owners, and each cell’s assets and liabilities would be insulated from the assets and liabilities of the other cells or master LLC. Proposed regulations would treat each cell as a separate entity for federal tax purposes if it is established under a state statute that would recognize the cell as a separate legal entity in that jurisdiction.

The attractiveness of this arrangement for captive insurance purposes is the ability to operate a captive insurance entity at lower costs and using much smaller levels of risk and premiums, making it available to a broader spectrum of companies.

CONCLUSION

The planning, formation and management of a captive can be complex undertakings, and compliance with the formalities of running a true insurance company is mandatory. The use of a Captive Manager that is more familiar with the matters at hand is crucial to establishing a captive insurance company is feasible. Where captives are appropriate, it can provide substantial tax and nontax benefits to successful shareholders with the right kinds of insurance risks.

Interested in finding out more about captives and how they can potentially help your business?

Write to Blake at blake.coats@phoenixcaptive.com  

This article was written by Phoenix Captive Solutions C.F.O. Blake Coats, any views or opinions do not necessarily reflect the opinions of either Phoenix Captive Solutions LLC, or any associated entities.  

What is a Captive?

A “captive insurer” is generally defined as an insurance company that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer’s underwriting profits. It may also be defined as another version of self-insurance for companies as a company can directly own and operate their own insurance companies/risks to their own needs.

For many years, large corporations have enjoyed many benefits from operating their own captive insurance companies. Most were established to provide coverage where insurance was unavailable or unreasonably priced. These insurance subsidiaries or affiliates were often domiciled offshore, especially in Bermuda or the Cayman Islands. The risk management benefits of these captives were primary, but their tax advantages were also important.

In recent years, a handful of US states have allowed more domestic captives to operate, this has opened the door for smaller closely held businesses that have learned that the captive insurance entities can provide them significant benefits. These include the attractive risk management elements long appreciated by the larger companies, as well as some attractive tax planning opportunities.

A properly structured and managed captive insurance company could potentially provide the following tax and nontax benefits:

  • Tax deduction for the parent company for the insurance premium paid to the captive;
  • Greater transparency in annual premium dollars that reflect the insured’s experience and not an array of external, market-driven factors out of the insured’s control;
  • Opportunity to accumulate business wealth in a tax-advantageous vehicle;
  • Asset protection from the claims of business;
  • Reduction in the amount of insurance premiums presently paid by the operating company;
  • Use profits generated by good loss experience to offset new premium requirements in future policy years, allowing a multi-year strategy that can simplify budgeting
  • Letter of Credit replacement strategy for the collateral requirements of the deductible, potentially eliminating the impact on a client’s working capital

IDEAL CANDIDATES FOR CAPTIVES (Worker Compensation)

The use of a captive should be considered for entities that meet the following criteria:

  • Profitable business entities seeking substantial annual adjustable tax deductions.
  • Businesses with multiple entities or those that can create multiple operating subsidiaries or affiliates.
  • Businesses with $500,000 or more in sustainable operating profits.
  • Business with $375,000 or more in insurance premiums costs per year
  • Businesses with requisite risk currently uninsured or underinsured.
  • Businesses where owners and or shareholders are looking for asset protection.

To Achieve Risk Financing Objectives

When the products offered by insurers do not meet an insured’s risk financing needs, the best option might be to form a captive insurer. The main reasons why organizations wish to better control their risk management programs are excessive pricing, limited capacity, coverage that is unavailable in the “traditional” insurance market, or the desire for a more cost-efficient risk financing mechanism. Other reasons for utilizing captive insurance include

  • Broader coverage,
  • Stability in pricing and availability,
  • Improved cash flow, and
  • Increased control over the program.

Broader Coverage

Many captives are established because insurance in the commercial market is prohibitively expensive, poorly matched to the insured’s needs, or not available at all. A captive insurer can successfully provide coverage for difficult risks that is tailored to fit the exact needs of the insured(s)—as long as the captive operates within sound underwriting, actuarial, and regulatory guidelines.

Stability in Pricing and Availability

Pricing stability is achieved over time as a captive matures and expands its own risk retention capability. The more capital that is accumulated, the greater the captive insurer’s ability to retain risk and insulate itself from changes in the commercial insurance market. A captive insurer can also provide stability in the availability of coverage.

Improved Cash Flow

Cash flow improvements are achieved in a number of ways. Losses retained through a captive reduce or eliminate underwriting profits; reduced losses increase them. Because captive insurance inherently offers financial rewards for effectively controlling losses, safety and loss control get a higher level of attention.

The underwriting profits and gains from the invested premiums that would otherwise be held by a conventional insurer are retained by the captive. Even with conservative investment portfolios, the dollar amounts are substantial due to the high levels of capital and surplus typically held.

Finally, cash flow is improved by reducing the expense factors associated with commercial insurance. Generally, insurers allot 60 percent or more of premiums taken into loss payments, while the other 40 percent or so covers expenses and profits. Captives have far fewer expense components than do commercial insurers. Estimates for the expense components of captives typically fall in the 15 percent to 30 percent range. This means that for every $10 million in net written premium, a successful operating captive can save insureds $1 million to $2.5 million in expenses alone.

Increased Control over the Program

Ownership and control by its insureds distinguish a captive insurer from a commercial insurer. This is not the type of ownership or control evidenced by a nominal percentage share in the company’s surplus. It means ownership in the company’s strategic business purpose.

Captive insurers offer increased control in a number of other ways as well. For one, captive owners have more control over insurance-related services such as safety and loss control, and claims administration. Safety and loss control services established by a captive can be tailored to each participant’s individual needs, resulting in safer workplaces and more favorable loss experience. Claims handling services are unbundled and separately arranged. Strict guidelines can be drafted and enforced by the captive. This is preferable to allowing a commercial insurer, whose interests might be more self-serving than an insured desires, to dictate how claims are handled.

Summary

In some ways, a captive insurance company resembles a form of self-insurance. However, the owner(s) of a captive place their own capital at risk, and they directly control their insurer (the captive). Captive insurance company owners are willing to risk their own capital in anticipation of the financial rewards associated with better control over their insurance program. These include broader coverage, stabilized pricing and availability of insurance, and improved cash flow. The planning, formation, and management of a captive can be complex undertakings, and compliance with the formalities of running a true insurance company is mandatory. The use of a Captive Manager, such as Phoenix Captive Solutions, that is more familiar with the ins and outs of the captive world is crucial to establishing a captive insurance company that is feasible. Where captives are appropriate, they can provide substantial tax and nontax benefits to successful shareholders with the right kinds of insurance risks.

This article was written by Phoenix Captive Solutions C.F.O Blake Coats.

To learn more, write to Blake at blake.coats@phoenixcaptive.com

Phoenix Captive Solutions: Changing the look of Workers Compensation Insurance

In the continuing fast changing business environment, companies are always looking at a way to maximize profit while limiting costs. That’s business 101, right? Often times a company looks at their costs of doing business (overhead, inventory, salaries, marketing, insurance, etc) as loss leaders that take away from the bottom line. How can those expenses be minimized? Is there a way to eliminate some of that loss?

We believe there is a way to utilize a network of Workers Compensation risks while empowering our partner clients to change their premium payments into a profit center. Yes, let me say it again, changing premium into profit. This unique model brings a collection of companies together for the purpose of spreading out the risk, similar to an association plan. However, each of our partners can still function independently on their own as a private insurer. The secret sauce is in the ability to give each partner company the freedom to allocate their capital where they see fit and make financial investments where they can see growth instead of a loss.

The concept of a business participating in their own Captive plan is not new. At Phoenix Captive Solutions, we have a new twist on how to bring companies together who are willing to look at a great opportunity to increase their bottom line. Our team looks forward to being a disruptor in this space, and are ready to service those ambitious clients who jump on board at the ground floor. Will you be part of this change in the industry, or watch as other groups learn how to turn the premium payment loss into maximized financial profits?

Want to learn more about this? Reach out to the writer of this article. You can find his contact information below.

David Ainsworth

C.O.O.

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