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Crisis In Healthcare By Robert Cohen Presentation Transcript

  • 1. Crisis in the Healthcare Market - How to Survive and Thrive Robert Cohen • June 29, 2009 SHRM 61st Annual Conference & Exposition ©SHRM 2009
  • 2. Objective for Today Make you look like a hero to your CEO and CFO! How: Get you to renegotiate all of your benefit contracts. Pg 2 ©SHRM 2009
  • 3. Agenda • Who has the fiduciary responsibility of getting quotes for employee benefits • Secrets of Insurance providers • Cost structure of benefit plans • The steps to the negotiation • How to create competition among insurance companies so you get reduced rates • Review a real case and the process Pg 3 ©SHRM 2009
  • 4. Fiduciary Responsibility • Who has the fiduciary responsibility for your health care, group life, group LTD and group STD plans? The HR Department ? The Broker/Consultant ? Officers of the Corporation? Pg 4 ©SHRM 2009
  • 5. What the Law Says: “When an employer takes steps to implement decisions, that person is acting on behalf of the plan and, in carrying out these actions, may be a fiduciary. Source:(DOL Website www.dol.gov) Understanding Your Fiduciary Responsibilities Under A Group Health Plan Pg 5 ©SHRM 2009
  • 6. What the Law Says: In hiring any plan service provider, a fiduciary may want to survey a number of potential providers, asking for the same information and providing the same requirements. By doing so, a fiduciary can document the process and make a meaningful comparison and selection.” Source:(DOL Website www.dol.gov) understanding Your Fiduciary Responsibilities Under A Group Health Plan Pg 6 ©SHRM 2009
  • 7. Who’s Liable? • Could the HR Director have a personal liability if they don’t perform a thorough due diligence every year? Pg 7 ©SHRM 2009
  • 8. “Due Diligence” – Why Do It? If you, the HR Director, are not going to do your “due diligence” every year - Is there any incentive for your current carrier to provide you the best possible rates? Pg 8 ©SHRM 2009
  • 9. Four Secrets of Insurance Providers 1. The insurance companies know your threshold for “pain” and how much of a rate increase you will tolerate each year. Pg 9 ©SHRM 2009
  • 10. Four Secrets of Insurance Providers 2. Your current carrier is going to keep raising rates every year because: (They know you don’t want to re-enroll the entire group!) Pg 10 ©SHRM 2009
  • 11. Four Secrets of Insurance Providers 3. Your current broker doesn’t want to go through re-enrolling the entire group. Plus – he/she doesn’t want to take a pay cut by getting you a rate reduction. Pg 11 ©SHRM 2009
  • 12. So Who has Fiduciary Responsibility? • The HR Department ? • The Broker/Consultant ? • Officers of the Corporation ? Pg 12 ©SHRM 2009
  • 13. ERISA says: • It is YOUR responsibility! These are very difficult times. Employees can be unpredictable and attorneys look for the deepest pockets. Why look for trouble? Pg 13 ©SHRM 2009
  • 14. Quick Survey of SHRM Attendees Would everyone here please stand for just a minute. Pg 14 ©SHRM 2009
  • 15. Please SIT DOWN If You, The HR Director: • Did NOT take any bids on your health insurance in the last 12 months. • Got a rate reduction on your health insurance in the last 12 months - without making any changes to your plan. • Took bids from three (3) different brokers/ consultants with a total of 15 different quotes on your health insurance plan. Pg 15 ©SHRM 2009
  • 16. Survey of SHRM Attendees (cont.) • Took bids from three different brokers/consultants on your group life, LTD, and STD plans in the last 12 months. • Got a rate reduction on your group life, LTD, and STD plans in the last 12 months - without making any changes to your plan. Pg 16 ©SHRM 2009
  • 17. Survey of SHRM Attendees (cont.) • How many of you are left standing? • This is one of the reasons why we have a health care crisis in America. Pg 17 ©SHRM 2009
  • 18. Why Go To Multiple Brokers? • Situation: • A group with 455 employees in California is fully insured with Blue Shield. • The broker submits three self funded quotes • to justify to the HR Director why the group should be fully insured. Pg 18 ©SHRM 2009
  • 19. Current Blue Shield Fully Insured Rates vs. Blue Shield Self Funded Rates Cost Blue Shield Blue Shield Increase Fully Insured Self Funded Claim Costs: $3,025,591 $3,771,614 $746,023 Admin./Network: $792,301 $215,124 ($577,177) Stop Loss Fee: $365,765 $683,597 $317,832 Total: $4,183,657 $4,670,335 $486,678 Pg 19 ©SHRM 2009
  • 20. Why did the Claims Cost up? In both examples, the Fully Insured and the Self Funded, the claims cost should have gone down. Why? For the period January 1, 2008 to December 31, 2008 the actual paid claims were: $2,039,778 Pg 20 ©SHRM 2009
  • 21. Did the HR Director have access to this information? Yes, it was in the renewal package. Pg 21 ©SHRM 2009
  • 22. Current Blue Shield Fully Insured Rates vs. Blue Shield Self Funded Rates Cost Blue Shield Blue Shield Increase Fully Insured Self Funded Claim Costs: $3,025,591 $3,771,614 $746,023 Admin./Network: $792,301 $215,124 ($577,177) Stop Loss Fee: $365,765 $683,597 $317,832 Total: $4,183,657 $4,670,335 $486,678 Pg 22 ©SHRM 2009
  • 23. Why did the Administration and the network access fee go down? In a Fully Insured Plan Blue Shield has to charge an extra administration fee to pay the broker commissions. In a Self Funded Plan the broker doesn’t get any of the administration fee. The broker only gets a commission on the Stop Loss premiums. Pg 23 ©SHRM 2009
  • 24. Why did the Stop Loss Premium go up so much? The standard commission on Stop Loss is (5%) of the Stop Loss Premium. The Stop Loss Premium in this example is $365,765. In this example the Fully Insured commission of $209,183 plus the annual bonus is added into the Stop Loss premium and not the Administration Cost. The standard commission should have been $37,000. Pg 24 ©SHRM 2009
  • 25. How Do You Know What the Commissions are? • Just look at: IRS Form 5500. Schedule A All commissions must be disclosed here. Pg 25 ©SHRM 2009
  • 26. What Should the Self Funded Cost be? Proposed Revised Decrease Blue Shield Blue Shield Self Insured Self Funded Claim Costs: $3,771,614 $3,025,591 $746,023 Admin./Network: $215,124 $215,124 Stop Loss Fee: $683,597 $365,765 $317,832 Total: $4,670,335 $3,606,480 $1,063,855 Pg 26 ©SHRM 2009
  • 27. What should the Self Funded Cost be? The proposed renewal cost was $4,670,335. It should be $3,606,480. a savings of $1,063,855 and we haven’t even talked about the potential savings if claims come in at $2,039,778 again this year. Pg 27 ©SHRM 2009
  • 28. So why don’t most HR Directors go out to bid for the various benefits? Pg 28 ©SHRM 2009
  • 29. Two Words: Time and Aggravation! • I believe it is the lack of time and the aggravation of putting the data together that stops most HR Directors from not going out to bid for the various benefits. Pg 29 ©SHRM 2009
  • 30. Fourth Secret of Insurance Providers: 4. Most insurance representatives and brokers/consultants know if they ask the HR Director for a 20% rate increase – You’ll accept a 10% rate increase. . . whether you deserved it or not! Pg 30 ©SHRM 2009
  • 31. Protect Yourself with Questions: • How many of you ask for and review the claim reports from the insurance carrier to justify the rate increases? • Could you have been due a rate reduction on your medical cost? Pg 31 ©SHRM 2009
  • 32. • You are the first line of defense from insurance industry rate increases. It appears they are winning the battle by default. Pg 32 ©SHRM 2009
  • 33. Why Does ERISA Say To Get Multiple Quotes From Different Providers? • To insure you’re getting the best rate! But, can three different brokers / consultants get three different rates from the same carriers? Pg 33 ©SHRM 2009
  • 34. YES! • Some carriers base their rates on the individual broker’s: > claim losses > block of business > and the client retention. Pg 34 ©SHRM 2009
  • 35. Is there a chance you’ll get a rate reduction without demanding it? Not a snowball’s chance! Pg 35 ©SHRM 2009
  • 36. “But I don’t want to change brokers/consultants.” • YOU could be negatively impacting the bottom line of the company. > But There is a Solution… 1. Ask the broker/consultant with the best numbers/rates to work jointly (50%/50%) with your existing broker. 2. Have your existing broker be your point of contact for all issues. Pg 36 ©SHRM 2009
  • 37. So How Can You Become A Better Negotiator? 1. Understand how brokers are compensated. 2. Understand the components of a health insurance rate. Pg 37 ©SHRM 2009
  • 38. Your Broker Gets Paid Commissions • If you get a rate reduction he/she gets a commission reduction. • How many here think your current broker is going to voluntarily take a commission reduction? Pg 38 ©SHRM 2009
  • 39. Health Insurance Cost Structure Administration Network Access Fee • Medical Insurance Costs administration • Specific insurance • Dental costs administration • Aggregate Premium • Utilization Review • COBRA Claims Cost Funding Administration • Employee • HIPAA • Dependent Administration Pg 39 ©SHRM 2009
  • 40. Health Insurance Cost Structure (cont) • It doesn’t matter if the group is fully insured or self funded. The components that make up the cost are still the same. Pg 40 ©SHRM 2009
  • 41. Two Overall Types of Plans 1. Bundled 2. Un-Bundled Plans Pg 41 ©SHRM 2009
  • 42. Examples Of A Bundled Concept • CIGNA • United Healthcare • AETNA Pg 42 ©SHRM 2009
  • 43. What Are Bundled Benefits? Component costs are non-negotiable and bundled into a total cost. Administration Bundled Network Access • Enrollment & Termination Benefits • The only network provided is the System System insurance carrier’s network. • Monthly Billing System • COBRA Administration • There are no outside networks. • HIPAA Certification • Pre-Certification Insurance Wellness Programs • Specific Insurance covers any individual • The only wellness program is large claims the one provided by the • Aggregate Insurance covers the cost of carrier. any claims that exceed the monthly or annual plan maximums. • There are no outside wellness programs. • There are no outside re-insurance carriers. ©SHRM 2009
  • 44. Bundled Concepts (cont.) • Who does CIGNA use for re-insurance? > CIGNA • Who does CIGNA use for administration? > CIGNA • Who does CIGNA use for network access? > CIGNA * The same goes for Aetna & United Healthcare Pg 44 ©SHRM 2009
  • 45. We Need to Create Competition • A bundled concept has no competition. • So we create it by un-bundling: > the administration cost > the network cost > and the re-insurance cost • Then we can negotiate each piece … • and re-package it ! Pg 45 ©SHRM 2009
  • 46. The Cost for Un-Bundled Plans are Negotiable and Competitive Administration Network Access Cost is negotiable through Cost is negotiable through competition with other plan competition with other administrators. Un - Bundled networks. Benefits System You pick the network that best fits your location. Insurance Wellness Programs Cost is negotiable through competition Cost is negotiable by using other with other reinsurance carriers. wellness programs. ©SHRM 2009
  • 47. Take a Long Term Approach and $AVE Un-bundling is a long term approach to controlling your future insurance costs. Pg 47 ©SHRM 2009
  • 48. So How Do You Go Out To Bid And … Minimize the work YOU have to do! Pg 48 ©SHRM 2009
  • 49. Step 1 • Start the project at least 120 to 150 days ahead of your renewal. > The existing carrier is going to procrastinate as long as possible before they give you everything you need to put the group out to bid. Pg 49 ©SHRM 2009
  • 50. Step 2 • Tell your existing carrier that you need them to prepare a bid package. > They will send you everything you need to get bids. Pg 50 ©SHRM 2009
  • 51. Step 3 • Make a list of the major insurance carriers you are going to take bids from. * If you don’t know who to go to, contact me for a list of e-mail addresses and contacts. Pg 51 ©SHRM 2009
  • 52. Step 4 • Call the major group carriers to meet with you and give them the bid package. > Mailing a CD to an insurance carrier is impersonal and your request will go the bottom of the stack. The rates you will get will reflect their lack of interest. Pg 52 ©SHRM 2009
  • 53. Step 5 • Compare all the new proposed rates. Pg 53 ©SHRM 2009
  • 54. Step 6 • Share all the rates with the proposed carriers, and see who will revise their rates even further. > Do not share the proposed data with your existing broker thinking he/she can get these numbers. (Remember – different brokers get different rates from the insurance companies.) Pg 54 ©SHRM 2009
  • 55. Step 7 Share all the final rates with your EXISTING insurance carrier. This is known as the “Last Look”. Pg 55 ©SHRM 2009
  • 56. Why Share The Rates? • • To create a competitive environment. > The ultimate goal is to get you lower rates than those originally offered by the current insurance company. • Plus it gives your current provider the opportunity to keep your business, while giving you the best rate possible for that portion of the plan. Pg 56 ©SHRM 2009
  • 57. Step 8 • Lastly: Get a “Letter of Guarantee”. > After all of the negotiations are done! An officer of the insurance company must sign a letter guaranteeing that no benefits were CHANGED to obtain the numbers quoted. Pg 57 ©SHRM 2009
  • 58. If You Really Don’t Have The Time: 1. Ask your existing broker and at least two other brokers/consultants to give you a minimum of 15 quotes from all of the carriers. 2. Ask for copies of all the quotes. *Don’t take their word. Pg 58 ©SHRM 2009
  • 59. If You Really Don’t Have The Time: 3. Make your broker explain them to you so that you understand the quotes. • Make them earn the commissions you pay them. Remember the ERISA rules: YOU are liable - not your broker! Pg 59 ©SHRM 2009
  • 60. Real Case Example • 500 Employees • Corporate Headquarters: Auburn Hills, Michigan Pg 60 ©SHRM 2009
  • 61. Health Insurance Negotiation Results Incumbent Actual Net Carrier Rate Reduction Savings Current Cost: $3,542,096 Proposed Renewal: $4,207,777 Proposed Increase: $ 665,681 -7% 26% 19% No Benefits were changed!! Pg 61 ©SHRM 2009
  • 62. How many jobs could this have saved? Pg 62 ©SHRM 2009
  • 63. How Did We Do This? 1. We obtained 30 different HEALTH INSURANCE quotes from: • insurance companies • re-insurance companies • and medical group underwriters (MGU) Pg 63 ©SHRM 2009
  • 64. What is an MGU? A Managing General Underwriter (MGU), sometimes called an MGA -- Managing General Agent, is an independent facility authorized by a carrier to rate and issue policies. They are not an insurance company. MGU's are legally bound to represent the best interests of their sponsoring carrier. They typically share in contingency fees and overrides on profitable business. http://www.providerrisk.com/glossary/glossary.htm Pg 64 ©SHRM 2009
  • 65. How Did We Do This? (cont.) 2. Obtained 8 different ADMINISTRATION quotes from: • insurance companies • plan administrators Pg 65 ©SHRM 2009
  • 66. Sample of Health Insurance Carriers Approached: Great West Principal HCCB United Healthcare Highmark Life Mutual of Omaha Boston Mutual Sun Life of Canada Safeco/Symetra AIG Humana ING American United Life AETNA Sun Life CIGNA Pg 66 ©SHRM 2009
  • 67. Sample Spreadsheet* Current Original Renewal Revised Renewal Proposed Carrier Bardon (MGU)/American NatioBardon (MGU)/American NatioBardon (MGU)/American NationHCCB Specific Deductible $75,000 $75,000 $75,000 $75,000 Enrollment as of 9/1/08 Single 144 144 144 144 Family 283 283 283 283 Total 427 427 427 427 Fixed Reinsurance Costs Specific Premium Rates Single $ 31.49 $ 39.95 $ 34.14 $ 29.85 Family $ 70.78 $ 87.53 $ 74.79 $ 80.23 Monthly Total Annual Total Aggregate Premium Rate Composite $ 1.17 $ 1.66 $ 1.54 $ 2.32 Monthly Total $ - $ - $ - $ - Annual Total $ - $ - $ - $ - Claims Reinsurance Costs Aggregate Claims Costs Single $ 295.62 $ 295.24 $ 273.31 $ 273.31 Family $ 804.03 $ 801.77 $ 741.72 $ 741.72 Monthly Total Annual Total Reinsurance Cost Breakdown Maximum Cost - Single $ 328.28 $ 336.85 $ 308.99 $ 299.10 Maximum Cost - Family $ 875.98 $ 890.96 $ 818.05 $ 759.43 Cost Summary Specific Premium $ 300,779 $ 374,791 $ 320,872 $ 335,930 Claims Cost $ 3,241,317 $ 3,232,986 $ 2,991,161 $ 2,991,161 Total Annual Maximum Costs (Max Claim s $ 3,542,096 $ 4,207,777 $ 3,312,033 $ 3,327,090 *Abbreviated version to fit on screen. Pg 67 ©SHRM 2009
  • 68. Next: Group Life, LTD and STD Bids: Net Rate Incumbent Cost Actual Results Reduction $ 361,185 $ 296,892 -18% No Benefits were changed!! The client retained the current carrier. Pg 68 ©SHRM 2009
  • 69. Real Case Results (cont) • At least one, possibly two jobs were saved by the cost reduction to just the Group Life, LTD and STD! Pg 69 ©SHRM 2009
  • 70. Sample of LTD Carriers Used Prudential United Healthcare Boston Mutual Mutual of Omaha American United Life Sun Life of Canada Lincoln Financial AIG Group Hartford UNUM AETNA Liberty Mutual CIGNA Standard Principal Reliance Pg 70 ©SHRM 2009
  • 71. Summary of Process 1. Start the process 120-150 days prior to renewal. 2. Have the current carrier provide all of the information that was needed to obtain the quotes. 3. Schedule appointments with the major insurance companies and send, by e-mail, the data to the other insurance companies. • Put it on the calendar to follow up with the carriers two weeks later. If you don’t follow up with the insurance carriers, you may never get the rates from the insurance companies. Pg 71 ©SHRM 2009
  • 72. Summary of Process (cont) 4. Create a spreadsheet with all of the rates from the NEW carriers. • If you would like a copy of the Excel spreadsheet, please send me an e-mail. 5. Share the Excel spreadsheet with all of the prospective (not existing) carriers and receive revised quotes. 6. Now share the Excel spreadsheet with your current carrier - “Last Look”. 7. Obtain the “Letter of Guarantee” to insure no benefits were changed. Pg 72 ©SHRM 2009
  • 73. Why is this necessary? • We are on pace for the worst recession in post World War II era. • Federal budget deficit to soar • Deepest global recession in over 30 years. Pg 73 ©SHRM 2009
  • 74. In Conclusion •I hope you learned: > It is worth the effort to re-negotiate your benefit contracts. > You can create competition among carriers. > How you can look like a hero with your CEO and CFO! * For any additional information please see me afterward or do not hesitate to call or e-mail. Pg 74 ©SHRM 2009
  • 75. Wellness Programs Finally, I am a strong proponent of wellness programs because none of this works on a long term basis unless you have a wellness program in place. Pg 75 ©SHRM 2009
  • 76. Thank you For Attending Robert Cohen Vice President of Sales and Marketing ©SHRM 2009