Risk Retention Group
Hospitals, Specialty Practice Groups, Long Term Care, Assisted Living...
There is continuous pressure to grow healthcare organizations (HCO’s) by combining provider network resources through acquisition, merger, and contractual affiliation. Growth through affiliation and varying combinations of medical service groups and entities can result in inconsistent, inefficient and even redundant general liability, professional liability and other insurance coverage terms and conditions for both employed and non-employed healthcare professionals of the HCO.
With expanded affiliations comes expanded scope of risk management and attendant cost of resources BUT there is also an opportunity to find scale of efficiency savings at nearly every level of the Total Cost of Risk equation. Many large HCO’s are familiar with the long-term benefits and discipline of insuring risks in a pure captive structure.
- common coordinated defense network(s),
- centralized cost and reporting structure(s),
- centralized contract center for carrier and vendor relationships,
- consolidation and specialization of HCO intermediary services,
- disciplined actuarial \ funding strategies,
- and access to medical professional, general liability and property reinsurance capacity
HCO’s already familiar with insurance company ownership have a leg up when forming a new risk retention group (RRG) to cover the extended network\provider risks. An RRG is an excellent vehicle to bind the extended healthcare service network under a common risk management and finance structure. The bridge-building between the risk management of a parent sponsor HCO and its provider network can go well beyond the immediate insurance coverage and coordination issues.
An RRG affords its members a very efficient risk transfer vehicle available for managing liability risk. The RRG eliminates fronting costs, tends to accept lower net earnings than commercial carrier shareholders (to build capital), unbundles services for maximum flexibility, can operate regionally or nationally through fairly standardized registration procedures, and tailors policy coverage to the needs of the owner\members. Risk Retention Groups come in all sizes meeting the unique needs of hospitals, specialty physician practices, long term care operators, assisted living organizations, community clinics, et al whether the organizations are publicly owned, financed (state, county, or federal funding) or privately held.
While market pricing cycles through hard and soft time periods, owner(s) of captives can choose to participate at varying limits and lines to further gain the stability afforded the long term view of a properly managed captive structure.
For Nonprofit Owners a Reciprocal Risk Retention Group can achieve even more efficient outcomes. When structured and operated properly a reciprocal risk retention group is a powerful tool with a tremendous long term tax cost advantage over other vehicles. By moving annual earnings into a member’s subscriber account, the RRG shifts income tax liability from itself to the member while still retaining the ability to utilize the subscriber account balances for financial viability. This is because the earnings, while shifted into the member SSA are not necessarily distributed out of the RRG. Members that are non-profit organizations are not harmed by the constructive receipt of the RRG’s earnings when that income enters their subscriber accounts.
Moreover, we have found that clients commonly generate better than average results when they are in a member owned program versus one involving traditional commercial risk transfer.