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About Captive Insurance Companies
By William Clay Tucker CAP CMFC CRPS
The Woodville Group, LLC wctucker@thewoodvillegroupllc.com
Most states don’t recognize small captive insurance companies (CIC’s) as beneficial holders for required medical malpractice coverage.
Couple this with the fact that most medical practitioners aren’t insurance experts, and the end result is that doctors have only a few (very similar, quite expensive) malpractice insurance options.
So, when it comes time to purchase or renew your medical malpractice insurance, you have three options:
- Retail Med-Mal: While this may seem like the simplest solution, it is also the most expensive. With zero returns on premiums paid, you are funneling your money into a “black hole”. Regardless of your claims history, you never see a return on reserves. In the event of a claim, you may have little – or no – say in your defense or the claims negotiation and settlement process.
- Normal Risk Retention Groups (RRGs): Although an RRG is a step in the right direction, your medical group will be sharing overall medical malpractice risks with other medical groups insured by the RRG. While you may get back some of what you put in (as a return on equity or a stock repurchase), the amount depends on the claims experience of the RRG’s insureds as a whole and the financial condition of the RRG at the time of your departure from the RRG. Under this approach, the medical group’s financial investment remains 100% in the RRG during the entire insurance coverage period.
- A Single Practice Risk Retention Group: A medical practice can now form its own small Risk retention Group (RRG). The RRG retains a small percentage of overall insurance risk (an average of ten percent) and therefore your group’s participation in shared risk with all of other insured medical groups remains small. The primary reinsurance structure is the reinsuring Captive Insurance Company (CIC) which is owned 100% by your medical group’s owners and only reinsures the physicians in your medical group practice. In the Single Practice RRG model, the majority of your medical group’s financial investment remains in its CIC, which will remain owned and controlled by the owners of your medical group.
Enter the Single Practice Risk Retention Group
Year after year, as rates go up, doctors are funding their med-mal insurance and never seeing a return on the premiums they pay. With this structure you can insure your medical group’s practice and see a significant return on paid premiums by practicing good medicine and good risk management.
Advantages
Here are just a few advantages that a Single Practice Risk Retention Group can offer:
- The insurance company is owned by the same medical groups it insures
- Regulated financial and insurance reporting methodologies, no questionable loopholes or practices
- Return of stock at book value when medical group is no longer an insured or medical practice changes its insured personnel.
- Recapture lost wealth through practicing good medicine and risk management!
- After five years, your medical group could get back more than 50% of what it has paid in total premiums
- After ten years, your medical group could get back more than 100% of what it has paid in total premiums
Assessment
Those with the highest insurance rates, such as surgeons or OB/GYN doctors have the most to gain from self-insurance structures. In order to get started in forming your own Captive Insurance Company (CIC), you must first understand that this is not meant for a short-term solution. Because of the fees due when getting started, a minimum of three years commitment is required. The longer you hold this insurance with fewer claims, the more assets will be available at its completion. Recapture lost wealth—you owe it to yourself to investigate.
Conclusion
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Filed under: Professional Liability, Risk Management | Tagged: Captive Insurance Companies, medical malpractice insurance, risk retention group, Single Practice Risk Retention Group |
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MO Supreme Court Overturns Malpractice Caps
Overturning decades of prior legal rulings, the Missouri Supreme Court ruled this week that the state Legislature’s $350,000 cap on non-economic medical malpractice damages is an illegal violation of residents’ constitutional right to a trial by jury.
A divided court overturned the court’s own 20-year-old decision to uphold caps on non-economic damages, ruling that “while this court always is hesitant to overturn precedent, it nonetheless has followed its obligation to do so where necessary to protect the constitutional rights of Missouri’s citizens.” writing for the majority on Tuesday, Chief Justice Richard Teitelman said Adams was wrong and overruled it, citing similar court decisions to overturn legislative malpractice damage caps in states such as Washington (1989), Oregon (1999), Alabama (1991) and Florida (1987).
Source: Joe Carlson, Modern Physician [8/1/12]
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Malpractice – Liability coverage at a crossroads
According to Julius A. Karash, greater hospital-physician collaboration and state reforms are impacting malpractice coverage in a multitude of ways.
http://www.hhnmag.com/hhnmag/jsp/articledisplay.jsp?dcrpath=HHNMAG/Article/data/02FEB2013/0213HHN_Feature_malpractice&domain=HHNMAG
But, what strategies should you pursue … consider health courts?
Dr. Quinn
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New OR Law Offers Med-Mal Alternative
In another display of bipartisan healthcare reform, Oregon Gov. John Kitzhaber signed a bill Monday that creates a process in which adverse healthcare incidents can be resolved without patients and providers going to court. The bill was approved by a 26-3 vote in the state Senate on March 5, and was then passed 55-1 by the state House of Representatives on March 12.
A summary on the Oregon Legislature website notes that prison inmates are exempt from the new law and, even if patients participate in the disclose-and-offer process, it “does not preclude a negligence claim in court.”
Source: Andis Robeznieks, Modern Healthcare [3/19/13]
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Medical-Liability Carriers See 2013 Premium Income Drop as Providers Consolidate
The nation’s largest medical-liability carriers are selling less insurance, and collecting less premium income, thanks to consolidation among healthcare providers, more self-insurance, a highly competitive market, and a decline in claims frequency, experts said. Modern Healthcare recently ranked the top 25 carriers based on direct premiums written for medical professional liability in 2013 and, collectively, those companies saw a 2.5% reduction in the amount of direct premiums written, from $9.97 billion in 2012 to $9.72 billion last year.
The decline was due to hospital mergers and system acquisition of physician practices, experts said. Provider mergers have led to buying less insurance. Acquisitions have led to a shift of risk from carriers to self-insured organizations, though the number of doctors covered and the scope of their coverage stayed the same.
Source: Andis Robeznieks and Michael Sandler, Modern Healthcare [9/19/14]
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PPMA Podiatrists Part of $200M Health Fund Settlement
Healthcare providers will be getting $200 million from the state of Pennsylvania in a settlement announced Thursday over litigation about a massive fund set up to help doctors pay malpractice insurance premiums. The Corbett administration said the state would pay $139 million in refunds, starting in a year and-a-half, and to cut what providers must pay into the Medical Care Availability and Reduction of Error fund by $61 million through a revised formula.
Groups that represent doctors and hospitals sued in 2009 after the state transferred $100 million from the Mcare Fund, as it is known, to the state’s general fund to help balance the budget under then-Gov. Ed Rendell. The other parties were the Pennsylvania Medical Society and the Pennsylvania Podiatric Medical Association.
Source: Associated Press [10/16/14]
[via Hope R. Hetico RN MHA]
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Health Shield Law
Health professionals who volunteer their services in Indiana are about to be protected from being sued. Governor Mike Pence was just at the Shepherd Community Center in Indianapolis where he signed the bill into law. The law protects physicians, physician assistants, advanced nurses, podiatrists, and optometrists who volunteer their time to give basic treatments to those who would otherwise not have access to healthcare.
The new law includes protection for volunteers who provide services such as sports physicals, routine medical, eye, and dental exams, and suturing of minor lacerations. The law takes effect on July 1st.
Source: WISH-TV [5/5/15]
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More on malpractice
The one thing 3 out of 4 physicians will face in their lifetime is a malpractice claim.
A 2011 New England Journal of Medicine study showed that by the age of 65 years, 75% of physicians in low-risk specialties and 99% of those in high-risk specialties were projected to face a claim, and 19% and 71%, respectively, will make their first indemnity payment. Given the study evaluated data from 1991 to 2003, the percentages could even be higher now.
On top of increasing litigation, changes in health care are placing more pressure on the individual physician. Therefore, physicians need to take steps to protect their assets more than ever before.
Some of the many causes of increased risk include:
• Changes in employment arrangements resulting in more limited tail coverage
• Increase in patient loads and likelihood of treating under-insured patients
• Potential of personal noncompliance sanctions through increasing governmental regulation
• Increased call coverage
Justin D. Nabity
Partner, Wealth Advisor
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