Captive insurance definition and glossary of key terms

Aggregate accommodation 

An option in self-funded plans that allows for monthly claim reimbursements if claims exceed a certain level before the end of the policy period. This smooths cash flow and prevents employers from having to wait until the end of the year for reimbursements. The stop-loss carrier charges a small fee for this feature.

 

Attachment point 

The employer pays for medical claims directly, up to the attachment point. An attachment point (also known as aggregated deductible or agg cap) is the maximum an employer pays for claims in a year before their aggregate stop-loss insurance carrier starts reimbursing them. The attachment point set a clear limit on an employer’s maximum liability. Unless the employer purchases Aggregate Accommodation, the reimbursement occurs at the end of the plan year. 

 

Aggregate deductible 

See attachment point.

 

Aggregating specific deductible

Aggregating specific deductible (also known as agg spec) is an option in stop-loss policies where an employer takes on additional risk for a set dollar amount beyond its standard specific deductible to lower the stop-loss premium. A large claim or multiple smaller claims that exceed the specific deductible goes towards this agg spec. Once the agg spec limit is reached, the stop-loss carrier starts reimbursing the employer for further eligible claims. 
 

Aggregate stop-loss 

A policy that caps an employer’s maximum liability. Sometimes called “sleep insurance” because the cap “helps employers sleep better at night” while costing only 5 to 10% of the premium. The attachment point or agg cap both describe the specific monetary threshold that must be reached for the aggregate stop-loss policy to start reimbursing the employer.

 

Captive insurance 

A group self-insurance arrangement owned by Members. Members pool resources to self-insure collectively. Pooling risk means that one Member’s high claims are offset by others’ with lower claims, reducing year-to-year cost volatility for all Members. Because the captive is Member owned, profits (if any) from the risk pool are reinvested or returned to Members, creating added value beyond typical insurance, and losses are also shared by the Members. 

 

Conversion year 

The first year of transitioning to a self-funded plan, during which claims incurred under a fully insured plan are paid out and the new self-funded plan begins to manage claims. 

 

Coverage period 

12/12 contract: Covers claims incurred and paid within the same 12-month policy period. Watch out for cheaper 12/12 contracts that can leave employers on the hook for delayed claims after the policy year ends. (also see Run-out.) 

12/18 contract: Extends coverage, covering claims incurred within a 12-month period and paid within 18 months, protecting against any delayed claim payments after the policy year ends. For more comprehensive protection, this is the minimum contract ParetoHealth recommends. 

 

Fully insured 

The employer pays a fixed premium to a carrier, which assumes all claims risk. Premiums often increase each year with little transparency into why, due to carrier profit and risk adjustments.

 

Gapless renewal 

Ensures continuous stop-loss coverage during the transition between policy years—so claims incurred late in the year are still covered, even if they are processed after renewal. It prevents gaps, eliminates run-in exclusions, and keeps specific and aggregate deductibles intact—protecting employers from surprise costs and simplifying the renewal process. 

 

Lasers 

A higher deductible for a specific individual in a stop-loss policy. For example, an employer could have a specific deductible at $50K and one enrollee lasered at $200K. The employer is responsible for up to $50K for every enrollee except the lasered individual, for whom the employer is responsible for up to $200K. (Also see no new laser policy.) 

 

Network

The network is the group of doctors, hospitals, and providers contracted to provide care at negotiated rates through your health plan. Fully insured plans often restrict employers to the carrier’s network, while Pareto gives employers flexibility to keep their existing network or choose a different one.

 

No new laser policy 

A unique benefit with ParetoHealth’s stop-loss policies is that we guarantee we will never impose a new laser for the lifetime of their ParetoHealth membership. A laser is a higher deductibles for specific high-risk individuals. This policy protects employers from unexpected costs due to new, high-cost claims. Some other captives or insurance companies may claim to offer “no new lasers” but it’s often limited to just 1 year. (Also see Lasers.) 

 

Pharmacy Benefit Manager (PBM) 

The PBM manages prescription drug programs on behalf of insurance plans. They determine which drugs are covered, negotiate rebates with drug manufacturers, and work to control costs for both employers and employees. 

 

Plan document 

A formal document that details the specific benefits, covered services, and terms of the employer’s health plan. It serves as the guiding document for claim payment, eligibility, and other administrative details. 

 

ParetoHealth Rx Consortium (PRxC) 

Pareto Rx Consortium (PRxC) is a pharmacy wraparound service for PRxC PBMs, powered by an in-house team, including pharmacists, to deliver: transparent, 100% pass-through contracts with the best rates, clinical oversight of prior authorizations and formulary management, audited large pharmacy claim review and performance guarantees 

 

Risk pool 

A shared reserve that captures contributions from all captive Members. It is used to pay claims that exceed individual employer limits, creating stability and spreading risk across the group. 

 

Run-out 

A formal document that details the specific benefits, covered services, and terms of the employer’s health plan. It serves as the guiding document for claim payment, eligibility, and other administrative details. 

 

ParetoHealth Savings Engine 

The ParetoHealth Savings Engine is a turnkey ecosystem of medical and pharmacy solutions designed to address the root causes of high-cost claims. Powered by data, analytics, and in-house clinical experts, the Savings Engine delivers a long-term strategy for lower spend and better outcomes.
 

Self-insurance 

Instead of paying a fixed premium to an insurance company, employers set aside money to pay their employees’ medical claims directly as they occur. This can save money (you only pay for what employees actually use), but traditional self-insurance can be risky – one employee’s cancer diagnosis or premature baby could devastate an employer’s healthcare budget. The benefits of self-insurance include transparency, benefit design control, and the potential for cost savings from lower administrative costs and if claims are lower than expected. 

ParetoHealth’s captive combines self-insurance with Member-community strength. ParetoHealth Members pay only for the healthcare their employees use, while the captive Members share the risk of large claims and benefit from better negotiated rates. All advantages a single midsize employer couldn’t achieve through traditional self-insurance alone. 

 

Specific deductible 

A specific deductible (also known as spec deductible) is the maximum amount an employer will pay for a single claimant’s expenses. After this threshold is met, stop-loss insurance reimburses the employer. For example, if the spec deductible is $75,000, the employer covers claims costs up to that amount per individual per year. 

 

Stop-loss insurance 

A policy that protects employers from large or unexpected medical claims when they self-fund their employee health plans. 

 

Specific stop-loss insurance 

Protects from unexpected large claims from a single individual. 

 

Third-party administrator (TPA) 

A TPA runs the day-to-day administration of a self-funded health plan, including claims processing and members support. The TPA does not insure the plan. In a self-funded plan, the employer funds the claims and stop-loss insurance protects against large, unexpected claims.

 

Underwriting 

The process of evaluating the risk of an employer’s health plan and determining the appropriate stop-loss premiums, specific and aggregate deductibles, and any initial increases in laser deductibles.