What Is a Captive in a Self-Funded Health Plan?
Roundstone frames this issue in a useful way. Roundstone explains what a captive is and why employers use it in health plans.
For employers, the value is not the definition. The value is what the definition changes before the company signs another renewal.
The simple definition matters: employers join together, share certain risk, and try to keep more control than a fully insured model allows.
Why This Matters To The Business
When a captive is explained badly, it sounds like a secret savings machine. When it is explained well, it sounds like structured responsibility.
That moment shows the real problem. The plan may be expensive, but the bigger issue is often that nobody can explain the machinery underneath it.
For the CEO, this connects to margin, hiring, retention, and risk. Ask whether leadership is ready to manage risk with others.
For the CFO, this connects to cash flow and control. Ask what capital is required, what risk is pooled, what risk stays with you, and how surplus is handled.
The Practical Review
Put the current plan, contract, or renewal proposal on the table. Then ask:
- What risk stays with your company?
- What risk moves into the group?
- What capital, collateral, or exit rules follow you later?
Do not accept a vague answer. Do not accept a slide that looks good but leaves the decision unclear. Ask for the document, the number, and the person who owns the next step.
What Good Looks Like
Captives can be powerful, but they are not magic. They are shared-risk structures with rules about collateral, underwriting, dividends, fees, assessments, and exits.
The CFO should model a good year and a bad year before joining. The CEO should ask whether the captive creates better discipline or just a better story.
What I would want in the file:
- Collateral and capital requirements
- Dividend and assessment rules
- Exit terms and bad-year modeling
That file does two jobs. It helps leadership make a better decision now. It also creates a record that shows the company acted with care later.
This is the gap I see most often. The employer may have a smart person in HR, a broker presentation, and a spreadsheet. But nobody has a clean decision file. When pressure hits, the company has memories instead of proof.
In a live plan review, I would not start with a recommendation. I would start with the current document set and the last renewal decision. Then I would compare what the company thought it bought against what the contract actually says. That gap is usually where the money hides.
What To Do Before Renewal
Draw three circles: your company risk, captive pool risk, and stop-loss risk. Put every dollar in one circle.
This is where proactive strategy beats reactive shopping. Renewal season should not be the first time leadership sees the risk. It should be the point where a prepared team confirms the path.
The Warning Sign
If the diagram is hard to draw, the deal may be hard to govern.
That warning sign is not small. It tells you whether the plan is governed or merely renewed.
Save this line: Put every dollar in the right risk circle.
The rules are changing. The exposure is real. The opportunity is massive for employers that move early.
Book 15 minutes at www.Paul.Health if you want this reviewed against your current plan.