Some rambling thoughts…

1. Insurers require there to be common ownership between the employers. This requirement may differ from carrier to carrier, but you should find the Internal Revenue Code definition of a “controlled group of corporations” to be safe ground.

2. Does the VC want to take on the fiduciary liability associated with becoming a plan sponsor?

3. Understand that some employers will end up subsidizing the premiums of the others. For example, Employer A has a sick employee population and B has a healthy one. Put these two companies under one welfare benefit plan and you will find that B is subsidizing the premiums of A. Eventually B will realize that it can get better rates outside the aggregated plan.

4. Geography may play a role in the ability to form a plan that best fits the needs of each employer. One of our clients is a VC with employers in Georgia, California, Pennsylvania and Tennessee. While there are insurers/plans that would easily serve all of these locations, a local plan may be a better fit for one or more of these groups.

5. Entries and Exits. Insurers want a predictable risk. They will typically reserve the right to re-rate the group if a new affiliated employer is added. And, renewal rates will reflect the change in population if an employer exits the aggregated group.

In my mind the viability of the idea is dependent on the size of the VC’s portfolio and its willingness to take on the responsibility of managing the benefits of a varied group of employers.

For VCs with smaller portfolios a better route my be found in pulling together a list of preferred vendors and making available some experienced and trusted advisors.

Any thoughts from the VC community?