A captive is an insurance company owned by the insureds, or by a group of them, that writes coverage for those owners. In employee benefits, a captive is sometimes used to finance part of the risk of a self-funded or level-funded medical plan — most often the stop-loss layer, and in some designs other employee-benefit risk.
A captive is not a medical plan, and it is not a do-it-yourself alternative to a group policy. It is a financing and risk-bearing structure that sits behind a plan. It is also a regulated insurance company, subject to the licensing law of its domicile, to ERISA when it is used in an employee-benefit program, and, if more than one employer participates, to the federal and state rules that apply to multiple employer welfare arrangements.
This page describes when the topic comes up and how we treat it. Tax, corporate, and insurance-regulatory work belongs with counsel and the company's tax advisors. We will not describe a captive as a tax strategy.
What it is
In a single-parent captive, one company owns the insurer and uses it to finance specified risks of that company. In a group captive, several employers join as owners and the captive writes coverage — often stop-loss — for their programs. Either structure can appear in a benefits discussion as a group grows, or when an employer is invited to join a group captive.
The medical plan itself is still a self-funded or level-funded plan, with a third-party administrator, a network or a claims-payment method, and plan documents. The captive's role, when it has one, is to bear or share a defined slice of that risk under an insurance contract.
If more than one employer participates, the arrangement may also have to file Form M-1 with the Department of Labor and may be subject to state insurance regulation as a MEWA. DOL's MEWA guide describes that concurrent federal and state oversight. We will treat those filings and licenses as part of the review, not as optional paperwork.
Who it fits
A captive conversation is often a fit for mid-size and large employers that already have, or are seriously considering, a self-funded plan and want to examine how stop-loss is financed. Some small employers are invited into a group captive; that invitation still has to be reviewed as an insurance and ERISA matter, not accepted as a benefits slogan.
A fully insured small-group plan, SHOP, or a defined contribution HRA does not use a captive. Those remain the usual starting points for many companies with 2 to 50 employees.
How it works for employers
If a captive is on the table, we will start with the plan design — self-funded or level-funded, stop-loss terms, network or reference-based pricing, and administration — and then read the captive's offering documents with you and with counsel: who owns it, what it writes, how it is licensed, whether it is a MEWA or sits in front of one, and how an employer exits. Employee-facing coverage still has to be a plan that can be explained, enrolled, and administered.
We will not recommend a captive as a way to reduce taxable income, and we will not use this page to promote any particular domicile or tax election.
A fully insured small-group quote does not need a captive in order to be complete. If a captive is not a good fit, or if the documents are not ready for a serious review, we will say so and keep the proposal on the medical plan, the stop-loss, and the administration — which is where employee coverage actually lives.
How it compares
A captive is a way some employers finance risk inside a self-funded structure. Commercial stop-loss is another way to finance that same layer. A fully insured group policy moves the claims risk to a carrier in exchange for a premium. Each is a legitimate fit for some companies at the right size and with the right advice. We will not describe a captive as cheaper than commercial stop-loss or as a shortcut around plan rules.
To discuss whether a captive belongs in a self-funded or level-funded proposal, request a proposal or call (813) 540-1299. Our agents are licensed in all 50 states. See also the group plan options and employee benefits consulting pages.Frequently asked questions
Is a captive a health insurance plan for employees?
No. Employees are covered by the employer's medical plan. A captive, when used, is typically behind that plan, often as a stop-loss insurer.
Can a small business join a captive?
Sometimes a group captive will consider smaller employers. Whether that is appropriate depends on the captive, the plan, and the regulatory analysis, including MEWA issues if more than one employer is involved. It is not the default small-group structure.
Is this a tax-planning product?
Not as we will present it. A captive is an insurance company. Tax treatment is a matter for counsel and the company's tax advisors, and it is outside the benefits quote.
Do we need a self-funded plan in order to talk about a captive?
In employee benefits, the conversation usually starts from a self-funded or level-funded design and the stop-loss layer. A fully insured small-group policy does not use a captive.
Who should be in the room for this discussion?
The employer, benefits counsel or other counsel as needed, the tax advisor, the stop-loss and plan-administration team, and Ares. We will not treat a captive as a form you sign from a brochure.
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