Captive insurance companies. What are they? Captive insurance is a new
concept in the healthcare industry that empowers business owners by protecting
themselves from the risks that accompany ownership of a practice or healthcare
company. Captive insurance companies are a form of self-insurance. How
does it work? Business owners form privately owned captive insurance companies,
paying premiums to the captive rather than paying for policies to third-party
insurers. Previously defined risks are underwritten with the help of third-party
actuarial teams. All reserves remaining from unpaid claims will not be
lost, but remain within the captive’s control. These assets are
protected from creditors and are available to be invested or distributed.
Captive Insurance Companies Emerge in the ASC & Healthcare Industry
While captive insurance companies have been popular in other industries
for some time, the healthcare industry has long overlooked the benefits
of captive formation. In order for more healthcare businesses to take
advantage of this option, the beneficial aspects must be properly explained.
Consider the top seven benefits that ASCs and healthcare business can be
capitalizing on below.
1. Increased Ownership & Control
Unlike other insurance options, a captive insurance company is fully controlled
by the owners. That means all investments, bank accounts, and stocks are
under the supervision and discretion of the owners. Further, captive owners
have the power to continually assess and adjust risk, deciding whether
or not to transfer risks to reinsurance markets or maintain them in the
captive. Owners also have improved control over losses, giving them the
ability to measure and manage costs while remaining on top of financial
2. Improved Asset Protection
Unfortunately, business owners often face the serious risk. A captive insurance
company provides protection from creditors, attorneys, and other legal
and financial complications. The only people allowed to file an insurance
claim are the captive owners, giving them necessary power and protection.
3. Flexible Insurance Coverage
The coverage available for operating risks in a captive may not always
be available from traditional insurance policies, making captives more
flexible. Owners have the power to tailor their policies to the risks
they are willing to accept and to work with reinsurance markets that have
the power to cover such risks. The flexibility in coverage also leads
to improved stability, pricing, and availability.
4. Lower Insurance Costs
Instead of reduced costs and profits going into the pockets of third-party
insurers, savings are realized by the captive. Captive insurance companies
are not subjected to insurance market fluctuations and can adapt quickly
based upon their changes in cash flow, business performance, and various
other factors to ensure maximum savings.
5. Better Tax Treatment
831(b) of the IRS code permits captive insurance companies to receive a certain
amount of annual insurance premiums completely income tax free. Tax savings
start immediately and allow for flexible participation. Annual insurance
premiums paid to the captive are fully deductible by the payer as "ordinary
and reasonable business expenses," pursuant to Internal Revenue Code section
162(a). Business owners decide when, how much and for how long the existing businesses
will pay premiums to the captive.
6. Improved Cash Flow
The profits and insurance premium dollars obtained through the captive
insurance company will remain an asset of the business. That means the
amount of income available for investment from unpaid loss reserves can
be used to boost cash flow and profits.
7. Accumulation & Preservation of Wealth
With that increased cash flow comes an accumulation of wealth that can
be preserved and protected in the captive insurance company. Profits from
the premiums paid will be retained by the captive and used for either
investment or disbursement to captive owners.
Are you looking for an alternative insurance solution for your healthcare
Turn to Surgical Captive for turnkey captive insurance programs. Call (888)
246-7506 to learn more.