Alternative Funding 101. Top methods being used to bring self funding to the middle market

Transcription

1 Alternative Funding 101 Top methods being used to bring self funding to the middle market Sam Fleet President & CEO AmWINS Group Benefits

2 Healthcare landscape Funding strategies Design considerations High performing plans

3 Industry has changed forever NO MATTER WHAT HAPPENS WITH OBAMA CARE Brokers Employers Providers Carriers

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5 PPACA Today Courts Elections States Uncertainty Deficit

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7 The Bottom Line Healthcare Cost Deficit Pressure In the long-term Healthcare will be controlled by global economic condition, not the courts, federal officials or the states themselves

8 A Broken System Fee for service Controlled by the financing system Excludes consumer and provider of care Adversarial relationships in all sectors Reactive cost control

9 There will be a Titanic Shift Where Risk is Assumed Fee for service Risk based payments 1. Led by employers 2. Followed by Medicaid 3. Last is Medicare

10 Risk Funding Strategies

11 Consequences of the Healthcare Landscape Less flexibility Higher costs Less control Fewer plan options Quality of care Selffunding

12 Self-funding Basics ERISA The Market ERISA (1974) 57% of employer lives 70 million lives Permitted employers to be licensed as insurers ERISA pre-empts state laws and some PPACA Most 250+ employees 95%+ purchase medical stop loss insurance $4-5 Billion stop-loss premium inforce

13 Why Self-fund Control Improved cash flow Innovative plan designs Elimination of carrier profits and most taxes Percentage of Covered Workers in Partially or Completely Self-Funded Plans by Firm Size ( ) * Workers 13% 15% 17% 13% 10% 10% 13% 13% 12% 12% 15% 16% 13% Workers (3) 50 1,000 4,999 Workers ,000 or More Workers All Firms 44% 49% 49% 49% 52% 54% 54% 55% 55% 55% 57% 59% 60% * The Kaiser Family Foundation Health Research and Educational Trust; Employee Health Benefits 2011 Annual Survey.

14 The Players

15 Funding Options Fully Insured Self-Funded with Stop Loss Self Funded without Stop Loss Group Size Any size group No Employer Risk Risk Limited with Stop Loss coverages Employer at risk Predictable Premiums Cash flow- claims not funded until paid Cash flow- claims not funded until paid Positives Negatives Limited Plan Designs- Carrier Offerings Medium term most expensive Must include State Mandates Premium Tax No cash flow advantage No benefit for lower than expected claims Advantage to group when claims are lower than expected Advantage to group when claims are lower than expected First year Claims Lag savings of 15-20% First year Claims Lag savings of 15-20% Benefits Flexibility- No State Mandates Detailed Claim Reports No Premium Tax on Claims Long term lower cost Annual Risk 10-25% of Expected Claims Benefits Flexibility- No State Mandates Detailed Claim Reports No Premium Tax on Claims Long term lower cost No ceiling in claim costs or cash flow fluctuations Cash flow fluctuations High Risk for <1,000 Reserves needed to switch to fully-insured Reserves needed to switch to fully-insured Limited Reporting Available Requires longer term commitment Requires longer term commitment 15

16 More Funding Options True self funding Largest firms No stop loss purchased Partial Self-funding (high limit) Partial Self-funding (best fit solution) Partial self funding (low limit) Fully Funded Specific stop loss coverage only Levels set for the worst possible cases Coverage purchased has a value of reimbursement equal to that coverage Solved for mathematically or Identified by quoting specific and aggregate at multiple deductible levels Tool to protect the client while reserves are being developed Good first and second year solution Specific and aggregate purchased. Premium equivalent developed that funds aggregate to the maximum First years cash flow smoothed through aggregate accommodation and specific advance Spaggregate Uses fully funded and reinsured approach. Carrier takes severity risk, issues an aggregate only plan (premium equivalent plan). Forces financial discipline but cedes some underwriting gains to the carrier Aggregate only Similar to spaggregate but no internal specific coverage actually exists Very close to fully insured Least frictional cost savings

17 Fully Insured Plan Insurance Company Profit Premium Tax Administration Fixed Cost Pooling Mandated Benefits Self-Funded with a Carrier (ASO) Potential Savings Insurance Company Profit Administration & Bundled Services Stop Loss/ Excess Loss Premium Self-Funded Unbundled Plan With a TPA Potential Savings TPA Company Profit Third Party Administration Utilization Review Domestic Network Employee Assistance Program Disease Management Prescription Stop Loss/ Excess Loss Premium Claims Claims Claims Less More Control, Pricing, Creativity, Information, Flexibility, Analysis

18 Severity Risk Understanding the Risk Specific Premium Cost Cost under your control Frequency Risk

19 Mid-Size Employers Choose not to Self-insure Volatility Lack critical mass to be predictable Large swings in costs due to large claims or an unexpected frequency How will the carrier react if you have a bad year? Commitment Self Insurance is a multi-year commitment Leap of Faith Hard to completely understand your risk profile Brokers Tough to sell Less compensation

20 Small Employer Self-funding Join with others Rely on a cooperative to spread risk Find the right administrative partner Three part strategy HEALH *2011 Rand Study

21 Other Funding Solutions Cooperative Purchasing Group Captive Single employer Captive MEWA Healthcare delivery systems

22 Cooperative Purchasing Buyers Health Care Action Group The Center for Health Transformation Colorado Business Group on Health Dallas-Fort Worth Business Group on Health Employers Coalition for Healthcare Options Employer Health Care Alliance Cooperative Employers' Health Coalition Florida Health Care Coalition Greater Philadelphia Business Coalition The Health Action Council HealthCare21 Business Coalition Health Policy Corporation of Iowa Indiana Employers Quality Health Alliance Iowa Buyers Health Alliance Lehigh Valley Business Coalition on Health Las Vegas Health Services Coalition Maine Health Management Coalition Memphis Business Group on Health Massachusetts Healthcare Purchaser Group Mid-Atlantic Business Group on Health Midwest Business Group on Health National Conference on Public Employee Nevada Health Care Coalition New Hampshire Purchasers Group on Health New Jersey Health Care Quality Institute Northeast Business Group on Health Niagara Health Quality Coalition Pacific Business Group on Health Savannah Business Group on Health Silicon Valley Employers Forum South Carolina Business Coalition on Health St. Louis Area Business Health Coalition Tri-State Business Group on Health Virginia Business Coalition on Health Western North Carolina Health Coalition Wyoming Business Coalition on Health

23 Per Individual $5,000,000 Group Captive Insurance Co. $250,000 Group Retention (Captive) $25,000 Member Retention Frequency of claims Member Aggregate Group Aggregate

24 Plan Design Considerations

25 What was promised Benefit Strategy What was heard What they can afford The nature of the competition for labor The nature of the social obligation

26 Benefit Strategy What was promised (little) What was heard Self Funding What they can afford (little) The nature of the competition for labor (little) The nature of the social obligation (little)

27 Control Write a check and be done with it Wants control Motivated by high cost and uncertainty Strong Employer promise Wait and see High competition for labor Successful but cash conscious Take Control Now Strong social promise 27 27

28 Creating A Plan Design Determine your benefits philosophy Rich benefits or no frills First dollar expenses or shared costs Workforce demographics Lots of families Young or older population Purpose behind the offering The Core Questions What risk factors do we have? How well are my people? How are absenteeism/productive losses calculated? Corporate obligation regardless of gain/loss? How do we modify behavior? A tool to attract and retain employees Reduce absenteeism Improve workforce health

29 High Performing Plans

30 High Performance 1. True and accurate bills 2. Hold the line on discounts 3. Reactive cost control 4. Proactive cost control 5. Community based care models

31 Health Care Costs Focus Claims Admin Fees Premium Should be here

32 The High Performing Plan Transforming your health plan to that of high performing companies: Spend 16%, or $2000 less per EE* View employee health as critical Create cultures to succeed Use measurements to improve outcomes Engaging employees and vendors Incentives for providers and employees High Performing Plan Source: Towers Watson 2010 Health Care Cost Survey

33 High-Performing Companies Stand Out High-Performing Low-Performing Companies Difference Cost PEPY $9,240 $11,244 $2,004 Increase in overall cost 6% 8% 2% Increase in employer cost 5% 7% 2% Increase in employee cost 9% 10% 1% EEE annual contribution $2,028 $2,496 $468 Cost per employee with HRA Cost per employee with HSA $8,820 $10,932 $2,112 $7,812 $9,264 $1,452 Source: Towers Watson 2010 Health Care Cost Survey

34 Disease Registry Analytics

35 Disease Fingerprint Analytics

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37 High Dollar Exposures Administration Dialysis claims Specialty RX Organ Transplants Shock claims

38 Building Blocks of Success Engaged employer Successful company Long term vision Focus on trend 360 degree feedback Willing to engage employees Willing to invest in success

39 Become Part of the Solution Control Quality Transparency Why Self-Fund? Tailored health care delivery Data Predictability

40 In Summary The Market Is in turmoil and will be for some time PPACA will not solve these issues You can become part of the solution The Options Remain captive to decreasing options Operate without data Take control and get on the road to high performance The Risk? Controllable Really no different than fully insured Lack of commitment

41 Story

42 THERE S A BETTER WAY Sam Fleet, President/CEO AmWINS Group Benefits Division 16 International Way Warwick, RI Direct: sam.fleet@amwins.com Follow me on