1 Taking Control of our Nonprofit Employee Health Insurance Costs & Benefits Phil Collyer John Cassell President Senior Partner National Assembly Spring Consulting Group LLC Business Services, Inc.
Mar 28, 2015
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Taking Control of our Nonprofit Employee
Health Insurance Costs & Benefits
Phil Collyer John CassellPresident Senior PartnerNational Assembly Spring Consulting Group LLCBusiness Services, Inc.
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
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National Human Services Assembly
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
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Introductions
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Spring Consulting Group LLC
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
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Percentage Increase in Health Insurance PremiumsCompared to Inflation
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
The prevalence of chronic disease and overall declining health of the population has
a significant impact of lost days, and therefore productivity
10 1 Newsweek Web Exclusive.
Average Annual Days Lost by Workers with Chronic Conditions 2
2 U.S. Chamber of Commerce and Partnership for Prevention.
55% of the American workforce 1
None23%
One22%
Two16%
Three12%
Four8%
Five or more19%
Chronic Disease Prevalence Among American Workers, 2007 1
0
4
8
12
2.33.9
6.8
2.34.8
10.5
Ages 20-39
Ages 40-64
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
Increased government oversight and penalties levied against health insurers pharma and medical device companies
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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
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For employers the health insurance environment will become even more complex
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
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As healthcare costs continue to growthe imperative is to take control
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
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So what is a captive?
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
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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
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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
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
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1 Payments made in advance to Nat’l Assembly/ASAE or Captive once formed; cost as incurred2 Implementation costs will depend on numbers of final participants. Initial feasibility, captive design and product
development have already been funded3 Capitalization is $500,000 and remains in the captive as an investment owned by its members4 Typically 3 months of estimated working rates are deposited into the Captive in advance
Timetable: Completion Dates
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 201129
Timetable: Completion Dates (with Phases)
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 201130
PRE-DECISION
DECISION
IMPLEMENTATION
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Why Now and Next Steps
Summary
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
Overhead resources can be freed up– A central administration point will be created for all program
participants33
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 ratesClaims 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 May 2010
Update financial analysis July
YES, We want to take the next step
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PRE-DECISION
Phil and John are available to:– Answer questions– Talk to your team/set up a discussion with your stakeholder
group
Taking it Forward: Next Steps
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Philip L. CollyerPresident & CEONational Assembly Business Services, [email protected] x17
John D. P. CassellSenior PartnerSpring Consulting [email protected] x103