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