Is Choosing a Captive Right for Your Client?
Captives, the self-insurance tool, were introduced in the early 1900s but are still largely viewed as a tax evasion tool for companies and individuals because there are so many ways for fraud to occur. Indeed, for the past three years, captives have been included on the IRS’s annual list of Dirty Dozen Tax Scams. The chief concern of the IRS is that captives are being used solely for their tax benefits and not for risk management reasons. However, more than 90 percent of Fortune 1000 companies use captives as a risk management strategy, and a growing number of small to mid-size companies are adopting the use of captives (referred to as micro-captives) as well.
With the increase in captive use,
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Some examples include catastrophic coverage such as earthquake & flood insurance, deductible buydown or reimbursement programs for large or even routine fire deductibles, cyber risks, workers’ compensation retention buydown programs, excess D&O, terrorism, credit or bad-debt, and more.
● Risk management – Captives offer the parent company a more sophisticated toolset with which to manage their enterprise risk by utilizing the captive in conjunction with the commercial insurance marketplace. This provides an opportunity to insure against liabilities that may be generally uninsurable or excessively priced but also to strategically retain certain risks via the captive to improve attachment points and evaluate risk financing alternatives.
● Control – One of the major perks of operating a captive for your own company is the control you’re given. This gives the company an active role in the insurance aspect of their business, something that is generally out of their hands. Captives also give the parent company greater control of
The claimant is a female (DOB 12/21/1977) who works as a Technical Customer Service Support Tier II Advisor who is claiming disability from 10/15/2017 onwards. The physical requirements of her job include multitasking; listening and talking to the customer, while typing to research issues, and to review and update the customer account information; and continuously using keyboard and mouse.
A positive aspect of this mechanism is that it adds in a middle man, controlling and regulating insurance, minimizing risks of adverse selection for both the insurance company and the customer. When insurance is distributed by private companies, adverse selection occurs and companies refuse insurance to high risk groups and institute costly underwriting practices to others (Heath, 123). In addition to preventing adverse selection, this insurance mechanism provides all individuals with the basics of care. As of 2011, it was reported that 100% of the Canadian population was covered under the public health insurance (Nationmaster). Unfortunately, the public insurance mechanism has
The amount of money that is spent on healthcare is a quite a bit of money but about 10% of all the money is a result of some sort of medical fraud or abuse. This is about 120 billion dollars. With HIPAA (Health Insurance Portability and Accountability Act) medical fraud and abuse can be tracked easier. HIPAA was enacted in august of 1996; this was to help improve the portability and continuity of the health insurance.
One of the most egregious examples of insures finding loopholes is in Melissa Morelli’s story. According to the New York Times, a 13 year old girl named Melissa Morelli was “taken to the hospital, she was suicidal and cutting herself”, her mother says (Abelson). She was transferred to a psychiatric hospital and stayed there for more than a week. Her doctors told her mother that it was not safe for her to return home but the problem was is that her insurance company, Anthem Blue Cross, wouldn’t continue to pay for her to stay in the hospital. Her mother, Cathy Morelli, kept on trying to get them to agree to pay for her daughter’s treatment, but they wouldn’t agree. “It was revolving doors”, Ms. Morelli said (Ibid). She has been constantly going to her insurance company for over 5 months just to hear them reject to pay for the care...
Reductions in health insurance coverage costs occurs largely through the reduction in costs obtained by the adverse selection related to the individual purchase of health insurance. Hackman, Martin B., Jonathan T. Kolstad, and Amanda E. Kowalski. "Adverse Selection and an Individual Mandate: When Theory Meets Practice." American Economic Review 105, no. 3 (March 2015):
Insurance is a factor in the health of Americans. Most companies are required to offer insur...
Q1) Health insurance, whether provided publically or privately, suffers from the problems of moral hazard and adverse selection? How can health insurers get around these problems?
Later, another panel member argued that the purpose of health insurance is not to insure everyone. It should be provided to only cover catastrophic health conditions. Today, not only does health insurance cover catastrophic events, but also there are limits on the amount of out-of-pocket health care costs for essential health care (The White House, 2016). Also, most out-of-pocket costs have been eliminated for preventative care (The White House,
(c) a requirement that firms with over 50 employees offer coverage or pay a penalty, (d) a major expansion of Medicaid, and (d) regulating health insurers by requiring that they provide and maintain coverage to all applicants and not charge more for those with a history of illness, as well as requiring community rating, guaranteed issue, non-discrimination for pre-existing conditions, and conforming to a spec...
The insurance industry needed a vehicle to transfer billions of dollars of catastrophe risk to an entity capable enough to manage it. The only entity able to cope with these large risk...
The US healthcare system is focused on a mixed insurance system with both private and public insurance institution. The health insurance system also relies heavily on employment. It depends heavily on corporations and employees to be key sponsors for insurance. This has led to many companies going bust as they are unable to sustain the amount of funds required just to keep their employee’s insurance policies going. Insurance has become so profitable that there are more than a thousand private companies that want to share this very profitable business. These companies are also not regulated on a country level. The profit-targeting companies have also come up with many overlapping and unnecessary policies to fully utilize the loophole in the American healthcare system. These are all in addition to the public insurance policies such as Medicare: covers elders, disable and end stage renal diseases, and Medicaid: children, war veterans and self-employees. As of 2015, 15% of the population is without insurance; one of the major reason is due to the people not having sufficient knowledge on their eligibility.
If however the parent company wants to insure the assets of the subsidiary, the parent company must be able to present Insurable Interest (together with other factors beyond the scope of this report) to the insurer, that is, an insurance contract requires the presence of Insurable Interest. When an insurance contract is taken out, insurers tend to put little emphasis on the existence of Insurable interest in order to get customers on board. However, in many cases, the insurer has repudiated claims when it is discovered that the asset that was insured does not belong to the insured (which is very likely to be unfurled in the investigation when a loss occurs) claiming the absence of Insurable Interest.
Insurance companies may also enter into agreements with specific providers and the insured pay extra to use non preferred suppliers.
You have spent a lot of time and finance to prepare for the best trips to different countries around the globe with your beloved ones and expect to have the best moments with relaxing and enjoyable experience in those countries. However, there are unexpected incidents which may happen on your trip such as luggage missing, sickness, delayed flight, etc. Therefore, preventive preparation for any risks that may happen is very critical.
The IRS (Internal Revenue Service) is the government agency responsible for tax collection and tax law enforcement in the U.S. (IRS, 2014). It has been striving to fight against Identity theft. They have rec...