Reinsurance

Reinsurance is insurance for insurance companies and self-funded plans — it transfers risk above a threshold from the primary payer to a secondary carrier. For self-funded employer health plans, stop-loss insurance is the most common form of reinsurance: the employer retains claims risk up to a specific attachment point and the stop-loss carrier covers claims above that threshold. For fully-insured carriers, reinsurance is the arrangement they make with larger reinsurers (like Munich Re or Swiss Re) to lay off catastrophic risk from their own book of business.

The mechanics differ from stop-loss in that stop-loss is purchased directly by the employer for their self-funded plan, while reinsurance is an arrangement between two insurance entities. In the ACA context, a temporary reinsurance program (2014-2016) was used to stabilize the individual market by reimbursing carriers for high-cost claims. Captive reinsurance structures are increasingly used by mid-size employers who want more control and transparency over their risk arrangement than a standard stop-loss policy provides — in a captive, a group of employers (or a single large employer) forms their own reinsurance entity and pools or retains risk at the captive level, with an excess-of-loss layer purchased from a traditional carrier above the captive's retention. Captives can provide access to stop-loss economics at lower group sizes, create premium stabilization over time, and generate underwriting profit back to the employer when claims are favorable. The trade-off is setup cost, regulatory complexity (captives are typically domiciled in Vermont, Cayman, or other jurisdictions with captive-friendly regulation), and the need for actuarial and captive management expertise.

The takeaway: for employers above 200 lives who are self-funded and consistently paying more in stop-loss premium than they're receiving in claims reimbursements, a captive feasibility analysis is worth commissioning. Captive structures can convert stop-loss profit that currently flows to the carrier into a return to the employer — but only if the employer has stable, predictable claims history to support the captive's underwriting model.