A captive insurance program works by allowing a business to create its own insurance company to cover specific risks. The business pays premiums to the captive, which is owned and controlled by the parent company. This captive can develop customized policies tailored to the company's unique needs, handle claims directly, and retain any profits or unused premiums. By doing so, the business gains greater control over its insurance costs and risk management strategies.

Captive health insurance can be particularly beneficial for companies that have implemented effective risk management strategies by assisting employees to live a healthier lifestyle. By pooling resources and sharing risks, businesses can achieve more stable and predictable healthcare costs compared to traditional group health insurance.

While captive insurance offers numerous benefits, it also comes with certain disadvantages. These include the need for significant capital investment, complex regulatory compliance, and administrative responsibilities. Additionally, there is a risk that the captive may not perform as expected, potentially leading to financial losses.