Can Captives Control Healthcare Costs?

Fully insured plans no longer cut it for employers.

According to a December 2025 analysis by KFF, enrollment in fully insured plans in the small and large group markets declined from a combined 63 million lives to 48 million lives between 2013 and 2023, a 24% decrease.

“Employers are really frustrated with costs. And employers are not happy with the options that they’ve been offered by their brokers and that are available from traditional health insurers—the cost of healthcare just keeps going up and up,” says John Rutledge, vice president for health captives and alternative funding in Marsh’s national employee health and benefits business. “For many of these employers who are fully insured, they just feel like they have no control. They’re at the mercy of a closed system, very few health insurers, and they’re tired of it.”

At the same time, the KFF analysis showed that enrollment in employer-sponsored insurance remained steady, suggesting employers are turning to alternative means to finance health risk—including a form of self-insurance known as group captives.

In a 2026 Council of Insurance Agents & Brokers survey of 166 employee benefits brokers, executives, and other stakeholders, respondents listed captive arrangements as the No. 3 alternative benefit design used with clients, behind only a self-funded plan administered by an independent, non-carrier-owned third-party administrator (TPA) and level-funded plans.

Fifty-two percent of respondents to The Council survey said their clients had reduced medical costs by 3% to 10% in the first year of using a captive arrangement, the highest number of respondents reporting those savings among any of the alternative benefit design options. An additional 13% of respondents reported a more than 10% reduction in medical costs for their clients in the same period.

“Mapped out on a chart, you’ll probably see exponential growth in the past few years in interest in medical stop-loss captives,” says Karen Wurz, director of stop-loss underwriting for carrier Sun Life and leader of its captive program. “We’ve seen it in the growth of our captive book as a whole and within each of the captive programs that we’re the fronting carrier for.” Sun Life’s captive book of business encompasses over $675 million in premiums for more than 900 policyholders.

Leader’s Edge spoke to experts and participants across the spectrum of the medical stop-loss captive business to explore why this format has proved so attractive for employers that want to bring down their healthcare spend.

The Basics

Medical stop-loss group captives have a fundamentally simple structure. The employer member self-insures up to a specific level—Rutledge cites between $50,000 and $200,000 as an example. Once a claim exceeds that limit, the captive layer, primarily funded through pooled premiums paid by the employer members, kicks in. That captive layer typically provides $200,000 to $500,000 in additional claim coverage, Rutledge explains.

A group captive will maintain a separate stop-loss policy that activates after the captive layer is breached, with limits that can exceed $1 million.

Once formed, group captives are often not managed directly by their owners but by third parties that handle the day-to-day operations, including claims servicing, service provider oversight, and program management such as onboarding new members and data reporting.

Medical stop-loss captive structures can vary. The most common model in the marketplace, according to Captive Resources Managing Director of Health Solutions Kevin Hallen, is pooling, where participating employers share claims results across the entire membership and receive dividends based on overall captive performance. This model appeals to employers that prioritize stability and appreciate the broad sharing of risk.

Another prevalent model is the “risk-reward” model. The captive maintains an overall group backstop and stop-loss layer, but member results hinge more on their individual performance than on the group performance. That model benefits employers that want to maximize potential dividends and are willing to engage proactively with cost-containment solutions such as pharmacy claim analytics or clinical reviews.

Whichever model an employer chooses, group captives can generate strong financial value. Captive Resources estimates that, on average over the past five years, 15% of paid premiums have been returned to its members as dividends.

Employers and brokers, though, should consider other matters beyond just the captive model, Wurz says.

“One of the first things we look at is how [the manager] is envisioning running the captive. I think what makes captives successful is adopting and engaging with cost-containment point solutions that have a real positive impact on not just the captive as a whole but at the individual member level,” she says. Wurz believes that impact should extend beyond controlling cost and spend to meaningfully affecting the lifestyle of the employee undergoing treatment, such as through access to wellness solutions.

When assessing whether to work with a captive, Sun Life also considers the program’s past growth, whether the program has shown strong, consistent results, and if the captive has a good pipeline of new member company prospects that demonstrate the potential for future growth.

Beyond Medical

Over the past decade, group captives in healthcare have evolved to include supplemental benefits as well, including accident insurance, critical illness coverage, and hospital indemnity. Nearly eight years ago, BeneRe was arguably the first company to deploy a group captive supplemental benefits solution. Employer interest in this captive approach has been clear, says BeneRe founder and CEO Lamont Thurston. The company began with three employers and roughly 35,000 employees using group captive supplemental benefits solutions; today it has around 200 employers. That is expected to grow further to 250 large employers and about 2.7 million employees when 2027 begins.

Many BeneRe clients are large employers, Thurston notes, some of which already use single-parent captives for other risks. However, reinsuring employee-paid supplemental benefits through an employer-owned captive can create prohibited-transaction concerns under ERISA because employee payroll deductions are considered plan assets and the employer is a party in interest. In a single-parent captive structure, any premiums not used to pay for claims are returned to the employer owner as profit, which may incentivize finding ways to deny claims, triggering a clear conflict of interest.

BeneRe addresses that legal obstacle through its model, which provides employees a fully insured supplemental benefits policy from a separate insurance carrier, then reinsures that policy with pooled premium and risk from the employers in the group captive. Then, at the end of the year, any leftover claims funds are returned as dividends that must be used to benefit plan participants in accordance with ERISA, eliminating the profit motivation and encouraging more efficient underwriting.

The Best Employer Fit

Small and midsize employers tend to be the best fit for a medical stop-loss group captive solution, experts told Leader’s Edge. These organizations are often too small for full self-insurance but large enough to make the captive approach financially feasible. “I would say the sweet spot for a group captive is maybe as small as 50, even 25 employees, up to 500 to 1,000 employees,” Rutledge says, a range echoed by Hallen from Captive Resources.

Larger employers, many with their own single-parent captives, already find it simple to also self-insure medical benefits in their existing captive.

Size is not the only determinant for whether an employer is a good candidate for this solution, Rutledge adds. Also important is that the employer is thinking about health spend and is ready to take charge of managing that risk effectively. “[These are] employers that look at health insurance and say, ‘Look, this is our No. 2, our No. 3 spend. It’s growing faster than our top line is. We have to manage that cost and that risk more aggressively. How do we do that?’”

These employers have a “strong fiduciary hat” and are “keenly interested in access to their data and what’s going on,” as Thurston puts it.

This employer attitude fits best because a group captive unlocks much of the data an employer may have more difficulty accessing in a fully insured program, Rutledge and Thurston affirm. As medical stop-loss and supplemental benefits group captives are essentially forms of self-insurance, in contrast to fully insured programs, employers automatically have full access to their claims data—letting them see what is driving their claims and respond with appropriate risk management, Wurz says.

In addition, members choose their plan design, network, TPA, and pharmacy benefit manager (PBM), and can bring in additional cost-control partners, according to Hallen. As owners, members also collectively control all aspects of running the captive insurance company, including how the captive is structured, investing funds, distributing profits, and pricing renewals to ensure the captive is funded appropriately for the risk.

Like medical stop-loss captives, supplemental benefits group captives also offer employers transparency. “From an expense and a claims standpoint, there is nowhere to hide,” says Thurston. “In the captive model, we tell every member where every dollar goes, and at the end of the year, the leftover underwriting funds go back as a dividend.”

Risk Management

The scale of a medical stop-loss group captive allows small and midsize members to use point solutions they may not be able to access on their own due to cost or lack of staff necessary to implement a solution, Hallen and Wurz emphasize. Captives can afford to offer services such as pharmacy analytics, clinical review, contract oversight, trend monitoring, and evaluation of specialty drugs to all members, including small and midsize ones, Hallen explains.

As an example of the pharmacy claims analytics a captive can provide, Hallen cites Captive Resources’ partnership with an independent pharmacy benefit consultant, Navion, which among other services provides PBM contract comparison and evaluation of discounts and rebate guarantees to calculate the true net cost of a pharmacy benefit manager.

Hallen says the scale of a group captive also enables members to negotiate for critical PBM contract terms that are generally unavailable to groups with less than 500 employees enrolled on their plan, like client-level rebate guarantees and annual contract negotiations against market benchmarks. Another Captive Resources analysis, conducted during 2025 through July 2026, found projected average annual pharmacy savings of approximately 18% among members evaluated for these PBM solutions.

Hallen and Rutledge emphasize that medical stop-loss captives are a long-term strategy that requires buy-in on cost containment from both employers and employees. But, as Hallen points out, group captives enable members to consult with each other not just on vendor or cost-containment strategies but also on proven ways to boost employee use of those solutions.

The stop-loss carrier can also step in to provide healthcare solutions, sometimes at no extra cost. Sun Life, for example, includes several standard embedded solutions with its stop-loss coverage that group captive members can leverage. One solution is a dedicated claim review team of clinical nurses who search for savings opportunities, which could involve changing where the treatment is delivered or drugs are obtained, or locating discrepancies like duplicate charges and billing or coding errors.

Another solution offers a review of cancer diagnoses or treatments by an oncology specialist; the second opinion can help determine the validity of a treatment and justify the plan paying for it. According to Sun Life’s plan members’ experience, a second opinion leads to a change in treatment plan or diagnosis 41% of the time, making it a valuable tool for saving the plan money and for improving the employee’s overall health.

Hard Market Resilience?

The question is whether group captives can truly insulate employers from ever-growing healthcare costs, especially given the hard market for medical stop-loss and health insurance generally. For example, reviews of the medical stop-loss market by HR consulting firm Segal showed an average stop-loss renewal premium increase of 12.7% among 225 health plans in 2026, up from 9.7% the previous year. That follows steady annual increases of 8% accelerating to 14% between 2019 and 2024, according to Oliver Wyman and Guy Carpenter’s joint fall 2025 medical stop-loss market update. In a separate analysis of medical stop-loss placements, employee benefits advisor Mercer found that 2026 renewal increases at parent company Marsh averaged 15% for well-performing groups and 23% for all groups, the latter rising from 18% the year before.

On top of that, Hallen anecdotally has heard estimates of 27% to 30% premium increases for January 2027 medical stop-loss renewals.

Rising medical stop-loss premiums can be traced in part to the frequency and severity of catastrophic claims: Sun Life’s 2026 analysis of high-cost stop-loss claims attributes growth in catastrophic claims to “new oncology drugs, immunotherapies, clinical trials, and advanced treatments” for cancer, the amplifying effect of cardiovascular disease as a comorbidity on claims costs, and the high volume and long tail of orthopedic and musculoskeletal-related claims. For hard numbers, the analysis showed an 8.2% increase in $1 million claims per year among members from 2022 to 2023, a 29.2% increase between 2023 and 2024, and another 4.52% increase from 2024 to 2025. Additionally, Tokio Marine’s 2026 Annual Market Report found that medical stop-loss claims exceeding $2 million have risen by 213% since 2020.

“But the good news is that we are seeing group captives continue to outperform the traditional stop-loss market,” Hallen adds. Of course, group captives aren’t immune from the broader market, and they are seeing “higher than usual” premium increases at renewal, he acknowledges. But, by comparison, Captive Resources members’ premiums rose by 9.8% on average this year. “I think it’s a direct result of captive members being proactive with plan design, engaging in pharmacy solutions, and utilizing cost-containment programs,” Hallen says.

Likewise, Rutledge explains that most well-run captives tend to be better risk pools than the traditional fully insured market because those captive pools are formed from like-minded employers that want to take a more proactive role in managing risk, so they already have more cost-control measures in place. All of this transforms the “mountain range” of claims volatility a single employer can experience to “gentle rolling hills” in aggregate when that organization is brought into a captive alongside dozens or even hundreds of similar employers, as Rutledge describes.

Additionally, captives will often encourage—or even require— employers to undertake other risk mitigation measures. That could mean using a pass-through transparent PBM for their pharmacy needs or purchasing a separate policy for human organ transplant or gene therapy claims that could carry a small per-employee fee but will prevent large claims from threatening the captive’s stability.

“Many captives will tell me they’re not seeing the big spike in multimillion-dollar claims that we’re seeing in the traditional stop-loss market,” Rutledge concludes. “They attribute that to the fact that their members, their employers, are really focused on managing the risk more aggressively.”

Sun Life’s Wurz cautions that captives and their members should nevertheless stay alert for trends that may threaten market stability. As one example, she notes that high-cost injectable drugs can easily risk not just the captive layer but also the stop-loss layer. Sun Life’s 2026 high-cost claims and injectable drug analysis reported that the average cost per injection for the top 20 injectable drugs can swing from about $27,800 (Neulasta, a drug used to reduce the chance of infection after chemotherapy) to $3.2 million (Elevidys, an experimental treatment for Duchenne muscular dystrophy). The overall average cost per dose for the top 20, excluding two particularly costly outliers, comes in at over $218,000; just a handful of doses of any of those 18 drugs—or a single injection of either of the two outliers—could comfortably breach the self-insured layer and hit the other layers.

As such, Wurz recommends that captive members find ways to mitigate those costs, such as much cheaper biosimilars, steerage changes and formulary developments, and site-of-care changes.

Wurz believes that members should also recognize the long-term expense of drugs that have a high frequency of use but relatively low cost—GLP-1s are a standout example of this kind of medication. The low cost means each individual pharmaceutical claim rarely or never breaches into the captive layer, leaving the member fully on the hook via the self-insured layer, while the high frequency means the member is left with large claim costs in the aggregate. To address this, Wurz says, members could consider adjustments to plan language like requiring preauthorization for the treatments.