Transcript Managing Health Insurance Costs

Taking Control of our Nonprofit Employee
Health Insurance Costs & Benefits
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Phil Collyer
John Cassell
President
National Assembly
Business Services, Inc.
Senior Partner
Spring Consulting Group LLC
Today's Agenda
 Introductions and past progress
 Health reform – Its affect on
Nonprofits
 Controlling healthcare costs – Why
and how
 Presentation summary and next steps
 Questions and answers
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Introductions
National Human Services Assembly
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
Formed in 1922

American Red Cross, Boys & Girls Clubs, YMCA

Human services / community development sectors

Youth-serving agencies, family strengthening,
workforce development

75 national members, 150,000 affiliates
Introductions
4
Introductions
Spring Consulting Group LLC
5

Leading US actuaries and consultants in employee benefits
funding

Spring associates established one of the earliest employer
group employee benefit funding programs using a captive
insurance structure in 1996

Works with a wide range of associations and employer
groups including National Assembly since 2006 and ASAE
since 2009

Designs employee benefit funding programs for many
Fortune 500 organizations including UTC, Dow Corning, and
Subaru

Independent and 100% employee owned.
Recent progress
 In 2006 16 nonprofit agencies embarked on a mission to
investigate health care options
 11 agencies funded a detailed feasibility analyses to cover
4,000 employees
 Aggregate savings average 5.7% in year one
 $18M saved over 5 years
 Insufficient employee reserves to date for successful launch
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Recent progress
 Premiums continued to rise dramatically
 Economic downturn affected (and will affect) all nonprofits
 Staff reductions and reduced mission resulted
 Government focus on reform unlikely to help nonprofit
employers in current climate
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Recent progress
 Members asked National Assembly to try again
 American Society of Association Executives
(ASAE) Joined with National Assembly
 IS NOW THE TIME?
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Healthcare Costs: Still Out of Control
Percentage Increase in Health Insurance Premiums
Compared to Inflation
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1
15th Annual National Business Group on Health/Towers Watson Employer Survey on
Purchasing Value in Health Care 2010.
Healthcare Costs: Not Just Health Insurance
Chronic Disease Prevalence Among American
Workers, 2007 1
Average Annual Days Lost by Workers with
Chronic Conditions 2
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None
23%
One
22%
10.5
10
8
Five or more
19%
6.8
6
4.8
Ages 20-39
3.9
4
Ages 40-64
2.3 2.3
Four
8%
Two
16%
Three
12%
2
0
No Chronic
Condition
One Chronic
Condition
More Than One
Chronic
Condition
55% of the American
workforce 1
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1
Newsweek Web Exclusive.
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U.S. Chamber of Commerce and Partnership for Prevention.
The prevalence of chronic disease and
overall declining health of the population has
a significant impact of lost days, and
therefore productivity
Impact of the Recession
 Organizations with real financial problems are :
– Selling off assets
– Cutting headcount
– Decreasing or freezing benefits
– Reducing work hours and eliminating pay during those times
 Employer downsizing drives up health and disability
utilization as employees anticipate losing their benefits
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Impact of the Recession
 In the small business sector, failure to pay medical bills is a
dominant cause of bankruptcy
 The current economy threatens health and life insurer
profitability, driving up rates
 All organizations are looking for ways to cut their benefits
spend and reduce the rate of future cost escalation
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Employee Worries Related to Health Care
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Source: Kaiser Family Foundation Health Tracking Poll (conducted July 7-14,
2009) Note: various items asked of half sample.
*Asked only of those employed.
**Asked only of those insured.
Health Reform: What is Likely to Happen
 What will happen now? – Some of the relevant changes within the
first year under the Reconciliation Bill include:
– Tax credits for businesses - businesses with fewer than 25 employees
and average wages of less than $50,000 could qualify for a tax credit of
up to 35% of the cost of their premiums (25% credit on payroll tax for
non profits)
– Coverage of children under parents’ plan until age 26
– Elimination of:
 lifetime caps on benefits ( annual limits 2014)
 Ability to rescind plans
 Pre-existing conditions
 Extended waiting periods
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Increased government oversight and penalties levied against health insurers
pharma and medical device companies
Health Reform: What is Likely to Happen
 What will happen in the future?- A complex series of reforms that
may be resisted at the individual state level
– Health insurance "exchanges“ for employers up to 100 employees
– Employer penalties for not providing appropriate cover
– New employer reporting requirements
– New charges for self insured plans
– Rules requiring insurers to accept all applicants
– Excise tax on “Cadillac” insurance plans
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Health Reform: What is Likely to Happen
 Other Key Proposed Developments
– Establishment of the CO-OP program (designed to foster the creation of
non-profit, member-run health insurance companies); $6B will go toward
financing the program to establish CO-OPs by July 1, 2013
– Premium subsidies for take up of prevention and wellness programs in
2014
– States can form healthcare choice Compacts allowing cross selling of
state health plans from Jan 2016
For employers the health insurance environment
will become even more complex
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Developing Our Own Health Insurance
Program – why it is essential
 Cost escalation in healthcare is unlikely to be fully addressed
for decades
 Political resistance is likely to dilute and delay health reform
 Expanded coverage costs will be shifted to employers by the
government and insurance companies
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Developing Our Own Health Insurance
Program – why it is essential
 It will take time to create real insurer competition and efficiency
at the state level
 Health insurance costs are damaging the effectiveness of
nonprofit organizations now
As healthcare costs continue to grow
the imperative is to take control
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Taking Control: Our Own Health Insurance
Program
 National Assembly and ASAE invite you to join in forming a
new captive health insurance program that will be owned
and run by its members - You
 The program will be established in Washington, DC :
– It will offer a wide range of health plans tailored to its
members needs
– Members as owners will be able to respond quickly to any
benefits of health reform
– The program becomes increasingly cost effective over time
as the group grows
So what is a captive?
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What is a Captive?
 An insurance or reinsurance company
 Specifically established to insure or reinsure the risks of its
parent or associated third parties
 Part of an organization’s risk financing repertoire
 The main reasons for most organizations to use a captive
are:
– To gain cost savings and to increase cash flow
– The ability to tailor-make benefit designs
– Tax advantages
– Transparency
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What Makes this Health Insurance
Program a Priority Now
 50,000 insured employees will cost $1.5B in health insurance
over the next three years
 The health insurance program could save 5-10% of healthcare
costs ongoing, improving productivity, reducing HR overhead
and making millions more dollars available for members’
programs
 The program can be expanded to nonprofit affiliates and
association members to provide them with the same benefits
The program is designed to be
a long term solution to a long term cost issue
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Major Advantages of this Health
Insurance Program
 Strength in numbers
 Spread of risk
 Access to more sophisticated healthcare plans
 Members of the program are owners of the Captive
Insurance program
 Advanced wellness and disease management
programs can be custom designed for the group
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Eventual Long Term Benefits
In the long run, the captive should allow the members to:
 Develop targeted health management mechanisms to save
additional costs
 Add additional liabilities through the captive structure to achieve the
same benefits as the initial program, such as life, disability, vision,
dental, accidental death and property and casualty risks
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Eventual Long Term Benefits
In the long run, the captive should allow the members to:
 Benefit from investment returns from accumulated reserves,
reduced risk charges and leveraging scale.
 Pay dividends from reserves as the program becomes larger and
the risks more predictable
Using the results from the National Assembly study,
Captive members with a combined 50,000 employees would save
$230M in healthcare costs over five years
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The Health Insurance Program – Structural
Background
 The program will be available to National Assembly and ASAE
members, their employees and associates, today representing
several million workers
 A program has been designed for an initial employer group providing
health insurance with a wide choice of nine plan options. A number
of organizations are being evaluated as potential providers of
administration and reinsurance services
 Working with legal advice from McDermott, Will & Emery, we are
proposing a group captive, domiciled and licensed in Washington,
DC
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The Health Insurance Program – Structural
Background
 The captive would be owned and directed by its members
 Recruitment of additional members will create significant risk-bearing
capacity over time that will minimize stop loss costs and enable the
captive to purchase health services for its members very cost
effectively
 Stable design with all participants committing to the program for a
minimum of three years
The original study covering approximately 4,000 employees indicated
that in the first year of operation of the captive, conservative average
health cost savings of 5.7% could be achieved
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Timetable: Phases
 Pre-decision Financial & Benefit Analysis
– New Feasibility Report (new participants)
– Undated Feasibility Report (earlier participants)
 Decision
– Commitment to launch (need threshold number of EEs)
 Implementation
– Captive setup, legal documentation, domicile plan submission,
board development, approval, employee communication
 Launch
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Timetable: Costs
 Pre-decision Financial & Benefit Analysis1
– $3600 : up to 100 EEs + $6/EE additional (new participants)
– $2400: up to 100 EEs + $4/EE additional (earlier participants)
 Decision
– Commitment to fund going forward
 Implementation
– Formation cost: ~$15/EE2
– Capitalization: ~$500,000 (entire Captive)3
– Claims pre-funding: ~3 months’ premiums4
 Launch
– Premium payments monthly
1 Payments
made in advance to Nat’l Assembly/ASAE or Captive once formed; cost as incurred
Implementation costs will depend on numbers of final participants. Initial feasibility, captive design and product
development have already been funded
3 Capitalization is $500,000 and remains in the captive as an investment owned by its members
4 Typically 3 months of estimated working rates are deposited into the Captive in advance
2
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Timetable: Completion Dates
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 Recruit members for the program
May 2010
 Update financial analysis
July
 Approve implementation of the captive
August
 Establish management entity and Board
August
 Finalize participants and numbers
August – September
 Approve legal documentation
September
 Confirm 2011 rates and contract with administrator
September
 Draft captive submission
September
 Obtain approval
September – October
 Employee communication
September – December
 Launch program
Jan 1st 2011
Timetable: Completion Dates (with Phases)
 Recruit members for the program
 Update financial analysis
PRE-DECISION
May 2010
July
 Approve implementation of the captive DECISION August
 Establish management entity and Board
August
 Finalize participants and numbers
August – September
 Approve legal documentation
September
 Confirm 2011 rates and contract with administrator
September
IMPLEMENTATION
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 Draft captive submission
September
 Obtain approval
September – October
 Employee communication
September – December
 Launch program
Jan 1st 2011
Summary
Why Now and Next Steps
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Participation in the Health Insurance Program
 A major opportunity for our Sector
 Most of the preparation work has already been undertaken
 Feasibility studies and example rates are available
 A solid partnership of leading nonprofits and associations is
needed to launch the program
 Acting together our benefits overhead can be reduced
substantially
 Looking beyond our own organizations we need to build
something for our common benefit that will work for large and
small nonprofits
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Will it be Cheaper (and Better) for Participants?
 Goal of the program is to decrease costs – not benefits
– You can still offer your employees a comprehensive benefit
package
 As part of a larger group, your organization has the
opportunity to improve on its current benefit offering at a
lower rate
– Over time, access to more sophisticated health and wellness
programs will reduce claims and save costs
– The aim is not simply to improve wellness but to reduce
absenteeism and increase productivity
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 Overhead resources can be freed up
– A central administration point will be created for all program
participants
How Can I Evaluate this Health Insurance
Program for My Organization?
 To find out the specific benefits for you and your employees
before you commit to the program:
– Send us data on your health insurance
 Census, plan design(s) and current rates
 Claims history if available and current carrier
– Invest in the analysis costs based on your organization’s size
(this will be reimbursed from the Captive once the program is up
and running)
 Participants will receive a custom risk/benefits report and
conference call with:
– Full details of program structure/ownership
– Recommended plan design(s) reflecting your current coverage
– Actuarial high level cost analysis and savings projections for your
organization
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Timetable: Completion Dates (with Phases)
 Recruit members for the program
 Update financial analysis

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PRE-DECISION
May 2010
July
YES, We want to take the next step
Taking it Forward: Next Steps
 Phil and John are available to:
– Answer questions
– Talk to your team/set up a discussion with your stakeholder
group
Philip L. Collyer
President & CEO
National Assembly Business Services, Inc.
[email protected]
202-347-2080 x17
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John D. P. Cassell
Senior Partner
Spring Consulting Group
[email protected]
617-589-0930 x103