Employer Associations: Leveraging Buying Power to Create Cost-Effective Employee Benefit Programs

Transcription

1 Employer Associations: Leveraging Buying Power to Create Cost-Effective Employee Benefit Programs A Educational Guide

2 TABLE OF CONTENTS ABOUT SPRING... 2 CONTACT INFORMATION... 2 INTRODUCTION... 3 THE CHANGING WORLD OF EMPLOYEE BENEFITS... 3 GROUP PURCHASING THROUGH EMPLOYER ASSOCIATIONS... 3 WHY THE EMPLOYEE BENEFITS PROBLEM WILL NOT GO AWAY... 4 THE ENVIRONMENT FOR ASSOCIATION MEMBERS... 5 THE EFFICIENCY OF AN ASSOCIATION CONSOLIDATED EMPLOYEE BENEFITS PROGRAM... 6 ASSOCIATION EMPLOYEE BENEFIT PROGRAM DEVELOPMENT... 7 USING A GROUP CAPTIVE TO MANAGE ASSOCIATION HEALTHCARE COSTS... 8 CASE STUDIES... 9 GROUP CAPTIVE GROUP OF UTILITIES... 9 GROUP CAPTIVE GROUP OF EMPLOYERS... 9 IS AN ASSOCIATION EMPLOYEE BENEFITS PLAN GOOD FOR YOU? Copyright Spring 2013

3 ABOUT SPRING Spring is an insurance and financial services firm with expertise in a wide range of insurance and risk management disciplines. Captive insurance strategies for employee benefits and property & casualty risks comprise our core competencies, enhanced by best- in- class employee benefits brokerage and wealth management expertise. We partner with clients across the globe to identify and resolve unique challenges that they encounter on a daily basis. Spring s employee benefits and captive insurance experience and expertise are exemplified by the fact that we have consulted with roughly 50% of the Prohibited Transaction Exemptions (PTE) granted by the U.S. Department of Labor (DOL) to allow organizations to reinsure their employee benefits in their captives. In 2000, Spring s partners were instrumental in gaining DOL approval for the first pure captive transaction for funding employee benefits. As a result, Columbia Energy (now NiSource) was granted approval to place their group disability insurance program into their captive. Since then, Spring has received DOL approval for a number of other firms including, but not limited to, AGL Resources, Banner Health, Memorial Sloan- Kettering Cancer Center, Subaru and United Technologies Corporation for funding various health and welfare employee benefit programs in a captive. CONTACT INFORMATION Spring Consulting Group LLC, 84 State Street, Suite 500, Boston, MA Phone: (617) ; Fax: (617) insight@springgroup.com LinkedIn: spring- consulting- group- llc Google+: Spring Consulting Group SlideShare: SpringConsultingGroup 2 Copyright Spring 2013

4 INTRODUCTION THE CHANGING WORLD OF EMPLOYEE BENEFITS For employers, providing employee benefits has always been accepted as an essential way of attracting and retaining employees. At the same time, funding employee benefits has proved to be a high- risk complex task, fraught with unpredictable cost inflation, frequent changes in legislation and now the emerging confusion of healthcare reform. Individual organizations have to maintain full knowledge of the rapidly evolving employee benefits market and unless they have thousands of employees, they cannot leverage the economies of scale to manage costs and keep their benefits under control. GROUP PURCHASING THROUGH EMPLOYER ASSOCIATIONS Associations are able to provide a variety of valuable services to their members from representation to sharing of best practices and innovation. Many associations also look to ways in which they can use the purchasing power of their group to provide relevant goods and services at lower cost. This joint purchasing is often one of the most valuable benefits the association provides. At a time when costs are under increasing scrutiny, savings made via these arrangements are seen as a useful way to offset association fees. Surveys we have undertaken with association clients indicate that employee benefits are one of the areas of most concern for members and where they are most interested in cost effective solutions. Many associations shy away from developing employee benefits programs for their members for a number of reasons: Employee benefits are considered complex and difficult to manage There is a view that advising members to select one set of employee benefits over another can expose the association to legal risk Association employee benefits groups are seen to be unstable with the better risks leaving the group and poor risks being retained Members are often very tied to their own plans, insurers and advisors and are reluctant to make a change 3 Copyright Spring 2013

5 WHY THE EMPLOYEE BENEFITS PROBLEM WILL NOT GO AWAY According to a U.S. Bureau of Labor Statistics Study, employee benefit costs represent 20% - 33% of payroll. Specifically, the chart below shows that medical premiums are the largest portion of employee benefit costs at 35%. 4.6% 1.1% 0.9% 12.6% 35% 10.4% 20.2% 10.9% 2% 0.1% 1.8% 1.1% Medical premiums Dental premiums Vision care Life insurance Prescription drug coverage 401(K) or defined contribution plan Defined benefit pension plan Paid holidays Paid vacation days Paid sick days Short-term disability Long-term disability Source: U.S. Bureau of Labor Statistics, 2008Health Reform: The Cost of Failure. The Robert Wood Johnson Foundation, May HR & Benefits Essentials Additionally, healthcare premiums continue to escalate. Average annual healthcare premiums have increased by $2,740 for single coverage and by $8,012 for family coverage over the last ten years. 1 Thus, although many benefits professionals in organizations are persistent to change, there are a number of factors that are altering this position: Despite all the efforts to reform the system, employee benefits costs continue to rise The uncertainty of cost escalation makes employee benefits a much greater concern for CFOs The aging workforce is draining up individual benefits costs and will continue to do so Keeping track of changing legislation is becoming extremely difficult for individual HR departments Traditional employee benefits advisors have not been able to keep up with the new benefits environment sufficiently to advise their client 1 Kaiser/HRET Survey of Employer- Sponsored Health Benefits 4 Copyright Spring 2013

6 THE ENVIRONMENT FOR ASSOCIATION MEMBERS Each employer has to be a sophisticated employee benefits purchaser in a complex and changing environment. Behavioral Health Life Insurance Company X Human Resources, Legal Compliance, etc Employee Assistance Program Health Plan Health Plan Health Reform Legislation Company Z Human Resources, Legal &Compliance, etc Behavioral Health Short Term Care Long Term Care Behavioral Health Employee Assistance Program * Dental Company Y Human Resources, Disability Reform Legislation Legal Compliance, etc Pharmacy Benefit Manager ERISA Legislation There is no ability to leverage buying power and each company has to be its own legislation expert. 5 Copyright Spring 2013

7 THE EFFICIENCY OF AN ASSOCIATION CONSOLIDATED EMPLOYEE BENEFITS PROGRAM By creating a centralized employee benefits program, employers can access a wider range of better healthcare services at reduced rates. They can also keep track of legislative change and new developments through an expert centralized resource. Company Y Company X Company Z Wellness LTD Association Consolidated Employee Benefits Program Pharmacy Benefit Manager STD Health Plan (s) Employee Assistant Program Life Insurance Key Benefits Developing a captive program for association members can be cost effective for them and financially beneficial for the association. It creates a long- term solution for core membership and is structured to grow membership over time to increase buying power and risk distribution. There are also many other advantages to association group captives that can benefit both the association and its members. These include: Improved health of the employee population over time, reduced cost inflation trend and increased productivity l Use of health facilities and preferred provider relationships l Targeted health management programs l Reduces claims; promotes health and wellness initiatives Health and Wellness performance metrics can be measured across members helping to identify best practices that the whole group can adopt Consolidated and leveraged buying power leading to lower costs l Administration, network and other external supplier charges Increased predictability and lowered cost of risk through the spread of risk over a wider group of participants 6 Copyright Spring 2013

8 Managed risk l Pools experience and self insures through a centralized funding mechanism Increased choice by being able to offer a very wide range of health plans l Association members can select employee contribution levels and the level of risk retained by members. They can also control health program design, risk distribution, investment strategy and health plan governance l Different health and other benefit solutions can be offered to members depending on their size and sophistication Raised efficiency across the participant group through benchmarking of best in class practices and better management information Increased profitability by accessing improved and better value health insurance Better attraction and retention of quality employees l New member attraction and additional income by offering sophisticated health plans ASSOCIATION EMPLOYEE BENEFIT PROGRAM DEVELOPMENT The programs can evolve to fully address benefit efficiency's and employee productivity. Improved Benefits Value and Cost Management Funding Founder Association Group Health Insurance Funding Health Management Initiatives Improved Risk Mgmt Bulk Purchasing Wider Health and Wellness Initiatives Other Risks Life Disability Primary Care Retiree Health Pensions Life Health and Disability Performance Measurement Health & Productivity Management Healthier, More ProductiveEmployees Additional Participants ROI Measurement Continuous Improvement Tighter Controls and Risk Management Here participants can start to focus on overall improvement in the productivity of their workforce through a variety of interventions. 7 Copyright Spring 2013

9 USING A GROUP CAPTIVE TO MANAGE ASSOCIATION HEALTHCARE COSTS One of the most efficient methods of funding employee benefits is using a group captive. Captives have been established since the thirties and they are an essential financial tool for many organizations. Association members can use the captive mechanism to manage risk, save money and become owners of their own insurance vehicle. As the participation group expands, the program becomes more and more efficient and can handle the high risk claims that would be an issue for individual companies. 8 Copyright Spring 2013

10 CASE STUDIES GROUP CAPTIVE GROUP OF UTILITIES A group of utility companies completed a captive feasibility study of funding various employee benefit liabilities in a captive. A captive stop- loss structure was recommended to meet the appropriate risks of these utility companies. The captive was designed and implemented in 1996 and Spring continues to play a key role in this program, providing ongoing services such as: Annual policy pricing Claims processing Reserve calculations Quarterly conference calls Annual meetings with board of directors Policy application and insurance support The savings in funding costs over the first ten years for just one of the members was recently calculated to be over $12 million. GROUP CAPTIVE GROUP OF EMPLOYERS A group of 25 Massachusetts employers with approximately 9,000 total employees was spending $110 million per annum on health insurance. Spring conducted research to determine the best way to save the group money on their health insurance. Spring s research determined that funding their employee benefits in a captive would yield significant savings. Spring is currently working with the group to decide whether or not to fund their health insurance through a captive. By funding their health insurance through a captive, the group would save over $6 million in 2011 and their 5- year net present value savings would be over $30 million. Additional potential savings include better health management, reduced reinsurance costs, and further savings on administration. 9 Copyright Spring 2013

11 IS AN ASSOCIATION EMPLOYEE BENEFITS PLAN GOOD FOR YOU? Looking at the available options is very simple. Spring works with a number of associations to help them look at options for its members. Contact John Cassell at John.Cassell@springgroup.com for an initial discussion. 10 Copyright Spring 2013