215 | Employee Benefit Health Plan Opportunities for SMART Businesses: A Health Insurance Discussion

[TEASER] From Rea & Associates Studio, this is unsuitable, a management and financial services podcast for entrepreneurs, tenured business leaders, and others who are ready to look beyond the suit and tie culture, for meaningful, measurable results. I'm Doug Houser. Employee healthcare in America continues to be an explosive topic, so it's no surprise that it can be difficult for employers to understand the best way to execute an effective employee benefit health plan strategy among their workforce. Today, Dean Stitz, a consultant with McGohan Brabender, the largest independent employee

benefits brokerage firm in Ohio, understands the challenges businesses are facing in this area firsthand and works with companies to reveal employee benefits health plan opportunities they may not even be aware of. Welcome, Dean. Welcome, thanks. Glad to be here. Awesome. Glad you could make it. So, employee health plans, that is just a scary topic for both employers and employees. I just feel like, I don't even know what I'm looking at when I get the open enrollment time. We're in that time of year, right? Talk to me a little bit about some strategies for employee health plans for, say, a smaller company? You know, below 50 employees. What makes sense there, what do you see in the market? Sure. Well, I want to maybe make a comment on the very first thing you said about, it's largely misunderstood, at the moment. You're really only thinking about healthcare come that open enrollment period. What's going to be relevant, what do I need to be thinking about? Largely, healthcare is episodic. It only matters when it matters, whether you're going to the doctor at that time.

Great point. You hear from an employer perspective, but also maybe more so employee. You're thinking about healthcare at that moment, but you might not go see a doctor, or go to the hospital, or refill a prescription in three months, four months, nine months into the year. Right. Largely, you've just got to be cognizant of that, when you have those initial communications. Then, making sure, as an employer, you're continuing to drive some of those strategies that you speak to, maybe it's the month before your renewal period, throughout the year. So, do you help folks communicate that to their employees internally, as well? Yeah, absolutely. The strategy here is to do it when you've got to do it, which is when you're making on, what do you want to enroll in. Then, also have an emphasis on reaching out to your employees throughout the year. Your broker should be driving that process. Okay. Whether that's monthly, or quarterly, whether that's a bulletin, bulletin board material, however, your workforce is positioned.

Yeah. To the question about under 50, maybe what would be helpful is to almost take a step back and say, I think the reoccurring themes that you may hear about are the Affordable Care Act, ACA. Right. Also known as Obamacare. Right. It's really said in three different ways. That law passed in 2010, and then it was enforced in 2014. The intent behind that was to find a solution for many people, both employers, and individuals. In the small segment space, under 50 employees, largely speak to small ... on the assumption that they're under 50. Sure, yeah. It's within that space that the ACA was meant to be another option for you. Okay. You can be medically underwritten, which is, your employees are judged or valued, reviewed for them. Sure. Their health demographics, and whatnot.

The Affordable Care Act gave it another option. You could be rated based on age. Okay. The intent there was to have that pool be a very large group of people, both people that worked for an employee, but then also people on their own, whether they be 1099, or even just a different field that wasn't even offering health insurance. Bigger sample size, so to speak. Right, yeah. Doug: So you spread the risk, basically? The idea behind insurance is the law of large numbers, right? You had people that needed healthcare, that was enrolling in this. You also had people that maybe didn't need it, but there was a penalty associated with it. So, they were doing it, too. Well, there was a penalty that was a number that wasn't necessarily high enough for many people, so if you were a healthy person, believed you were invincible, whatever it may be, you didn't need healthcare at the time, you largely looked at that as saying, shoot, I'd rather just pay the penalty. Yeah. Then, not pay the significantly higher monthly premiums. Then, you had all these healthy people removed out of this pool of people. Sure. Now, the only people that are in that pool, are people that really need it.

Right. Now, there's ... We talk about it as an option, but ... This will be a loose percent, but maybe 95% of the time, an employer in the small space looks at that as not a viable option. Yeah. They'd rather be reviewed for them. Yeah. Just because of the pool, and what it currently looks like today. It's not the best options for many people. The process is either stay as is, what you looked like before 2014, with minor tweaks. Maybe change a deductible, but you can only do that so many times before your employees really, really feel it. Right. You can only pass on that cost so many times. Sure. The idea behind, well, what about a third option? Yeah. So, to quickly go into that, it's called a MEWA, which stands for Multiple Employer Welfare Arrangement. Okay. Essentially, what that is, said simplistically, is a lot of small employers joined forces to operate in large numbers. Okay. So, a carrier would rather rate that large group, say, 40,000 employees. Okay. Versus the 40. Again, it's the larger sample size, so you're spreading that risk. It's more cost-effective for everybody. Correct, yeah. That's the ... When you're a small employer, you feel very handcuffed.

That's a very bonafide solution, here, over the course of the last four years. Okay. You've seen those grow in popularity? Exponentially. Okay. Yeah. How do you get involved in one of these? Is that ... Obviously, you guys do this stuff. Right. How do you- We actually ... We created the very first MEWA in the state of Ohio. Yeah, we were behind that plan, and that was the SOCA plan, which is Southern Ohio Chamber Alliance. Okay. Essentially, you can be a member of approved chambers, trade associations. Okay. You and I are both involved in the Builder's Exchange. Yeah, yeah. Within that Builder's Exchange grants you access into a pool like that. Okay. The carriers, most of the carriers, major carriers, have an option within that realm of "MEWA." Okay. Now, are those ... Is the coverage under a plan like that, is it typically comparable to what you'd see as an employer-owned, small business? Their own plan type of thing? Yeah, absolutely. Okay.

Quite frankly, if you're willing to go through the effort of filling out the medical questions, which requires all of your employees to do it- It's the number one thing we would suggest looking at. Okay, wow. You can get all the typical different options that you might have, different levels of deductibles? Right. Co-pays, and things like that? It's not like you're joining a group, and the only way that it's going to work if is you just pick between these two ideas or two plans. There's plenty to pick between, to almost, maybe outside of a few tweaks, and I'm talking minor plan design changes, you'll find one very, very comparable to what you're currently offering. Okay. That's a great, great option. Good to know. Now, what about, as we move up the food chain a little bit? If you get into more mid-sized businesses, and that type of thing? What other options are there for those folks? Yeah. Each segment space ... I'll say, two to 50, 51 to 99, and 100 plus, all have different rules and regulations. Okay. A lot of small employers fret the 50 mark. Yeah. It does change.

Said differently, I think it really opens up opportunities. Okay. Options are king. Absolutely. In the small space, you only have two or three, three or four. You feel very limited, very handcuffed to your reality. In the medium-sized space, it really opens up. So, think of it on an X, Y-axis. Okay. Risk and reward, respectively. Fully insured is, you're paying a monthly bill. At the end of the year, you have a renewal, and you rinse and repeat. Right. Outside of, hey broker, go beat this up for me. Right. We all can do that. You hear that every year, right? I do, yeah. It's like, well, how about we talk about the value add that we actually do, on top of all of that? Right. That's a sales guy's wishful dream. When you think of it like that, I said there are two or three options in the small space, I'm going to loosely say, maybe, there's eight or nine in the medium-sized space. Okay. So, think of it from a linear progression. Fully insured being low risk, but low reward, paying, probably significant, every renewal period. Quite frankly, all the way up to, what largely was previously only discussed in the 100 and

above space, fully self-funded, reference-based pricing. Those are animals in their own right. The more risk appetite you have, the more cash flow, the more those make sense. Okay. In that medium-sized space, we can review those with employers, and that's ... 10 years ago, we weren't doing that. Okay. There're more options for them, in other words, if they're fairly profitable, and have a lot of cash flow. The expense to them might be very different from year to year, is that why you say that the risk could be different? To not get into the weeds, to be self-funded, you're paying for your own claims. Right. Although you still put insurance on top of that, a bad month looks a whole lot different than a good month. Yeah. That's where my cash flow comments are driven from. They can put, obviously, a cap on the high end? They can, yeah. That cap, still, is pretty extreme. Not extreme, that's not the appropriate word but fluctuate. It can fluctuate. Okay, okay. Smaller employers might not have that risk appetite, or tolerance, in order to do something like that. So, in the mid-sized space, what are you seeing, what trends are you seeing in there?

In that 51 to 99 type size company, what's happening there? Previously, maybe we would just label that, pretty simplistically, fully insured. Okay. A lot of employers are just paying your monthly bills. At the end of the year, you get a renewal. Like I said, you beat it up, and you say yes, and you move on. More employers are making changes. Okay. Consumer-driven healthcare, high deductible health plans, are all putting more emphasis on an employee to think twice about what they're doing. Okay. You're seeing a lot of ... I would say, maybe that was the strategy over the course of the last five years. We've seen a lot of employers move into that direction. Quite frankly, we'll look at TVs until we'll blue in the face when it comes to which one I want to go buy, but when it comes to going to see a doctor, it's like, well now I've got to go. I don't have a primary care physician set up, so I'll just go to the emergency room. Wow, yeah. The idea behind the high deductible plan is now, you might have ... Hopefully, you're getting that person to think twice before they go do it.

So then, maybe to urgent care. Right. Or, quite frankly, it's truthfully trying to set them up with a primary care doc. Yeah. That way, they're going there first. If we're really getting techy and new-age, it's even Teledoc type deal. Okay. The very first conversation you're having is with a guy, within 10 minutes, on your phone. He's telling you to go, "Ahhh," and you're literally looking at him through your telephone. Wow, yeah. In fact, this past summer, I had an eye infection. It was pretty gnarly. I'm going to be a really good consumer of my healthcare, right? Sure. It's what I preach. You're in the business, right? I've got to go do it. I called Teledoc. It's $0 to call him. It's significantly cheaper for the employer, so there's an incentive to want to lead me there. Yeah. I call, and I'm thinking, oh, I probably need to go to urgent care, at least. You know what? I'm going to call Teledoc. Yeah, see how this goes, right? Yeah. He's reading my quick little bio of what's going on. He goes, "It sounds like you have an eye infection." He goes to look up, and he goes, "Oh my God!" He just stops me, mid-sentence, and says, "Yeah, we're going to end this call.

You're going to go to the emergency room." Wow, right there. That was the first round of consult. If I had the sniffles, he would have told me, "Here's a script." Yeah. Right? He would have told me to go, "Ahhh," and he would have diagnosed me, and maybe written me something. Or, maybe just said, "Go back to bed." Right. Are you seeing receptiveness, though, to these types of things? I see what you're saying, though, about if they're buying a TV, they'll go research the hell out of it. For that, it's like, I'm not doing that, right? Yeah. When you talk about ... Show me another industry that's increasing to the magnitude that healthcare is. Yeah. You won't find it. Yeah. Largely, a lot of employers have had to redirect their paternal focus saying, "I'll incur all the expenses myself, and pass a little bit of it onto the employee." As far as utilization goes, to your question, I do see a trend moving to that employee engagement. That, largely, goes back on communication.

It's not just in the month of December when you renew in January saying, "Hey, call Teledoc." It's throughout the year. Okay. It's on your bulletin. I work, largely ... quite frankly, all industries, but in the construction space. It's just engaging those guys. Maybe it's in their monthly safety meeting. Right. Bringing us out, bringing the guy wearing the suit out saying, "Hey, this is what you need to be doing in this moment. You might not think you need to do it right now, but a week from now, when I'm not around, you'll remember the conversation that we just had." Yeah. That's excellent. They've got more options in that mid-sized space. Are you seeing trends, in terms of what percentage, say, the employers are paying of the coverage, versus passing along to the employees? Has that shifted over time, or remained flat? Where do you see that? Yeah, it's definitely shifted. You hear less and less about an employer paying 100% of the healthcare. I'd say, a decade ago, before I was in the industry, you had a higher clip of employers that were doing that. Yeah.

There's definitely been a trend away from employer coverage. Yeah. It's, without a doubt, still labeled employer coverage. I'm loosely using a number. Right. The four grand an employee might be paying by the year's end, because they have a $4000 deductible, and they had a bad year, and they had to go see the doctor. They had, maybe, two or three major episodes. The employer is on the other end of that, paying $16,000. Yeah, yeah. Certainly seeing trend only goes one way. Yeah. Not to get on the McGohan Brabender horse or anything, but we really push our clients to think, how do you want to pay for this? Right. How far are you willing to go? Right. Are you serious enough to address this? Yeah. Then, I'll even ... I'm a bit of a gambler, and I like to play Blackjack. I'll even use a Blackjack parable. My strategy is, and it's not much, but when I'm up, I'm playing with house money, right? Right, yeah. I play a little more freely. Sure. I don't have to think, maybe, quite as hard as what I want to do. Yeah. Maybe I don't play by the card quite as much.

Yeah. That might have been, historically, this was a line item that we could afford. Right. Over the course of the last decade, seeing trend exponentially increase, employers now are looking at this thing differently, or they need to be. Yeah. Maybe a couple of years, they weren't. But now, here they are, their stack is half as high. Right. They're looking at this thing with just laser focus, right? Right. Maybe their existing broker relationship, for decades, has been a solution for them, but now it's like, we've got to look at this two times, three times different ways. We need to know, what else could we be doing? Well, to me, it goes back to, you need to be a specialist. We preach that, all the time. We have ... There are other firms out there that try to do everything for everybody, and I always say that's a mistake. You can expand what you do, certainly, to some degree, but you've got to remain an expert and highly valued at what you do. For you guys, this is all you do, right?

Right. You only do the employee health plan arrangement. I think that's unique because you don't see that a lot. You see ... When I talk to companies out there, closely-held businesses, they're like, "Oh yeah, we have our firm that does this. They provide our insurance, too, and property and casualty. They've got something you've recommended for us." You're thinking, what are they not seeing, right? There are so many different things that I can imagine they just have no knowledge of. That's important, I think. We know what we're good at. Yeah. And we stick to it. Yeah, absolutely. Talk to me a little bit about large employers. We touched on this, just briefly, but if you're looking at options there, if you're over 100 employees, I've heard self-funding become more prevalent. What are some options that a larger company might have? Yeah, to go back to the story that I told about risk appetite evolving as you get larger in size, more cash flow to help make those decisions, as you navigate up that X, Y spectrum,

to self-fund your claims means options. Like I'd said, options are king. Now, you're operating on the next level, almost like outer space level options. So, you're waking up to make widgets, whatever it is that you do as you run your business. You're leaning on the uses, right? Right. I just made up a word. You're leaning in us, to be that guy that comes to the table saying, "Hey this is what's going on out in the market, this is an avenue, this is an option." It's yours to define. When you're self-funded, you have the most chips in your corner. Case in point, orthopedic surgery is ... Let me even take a further step back. 18% of the GDP of the United States is healthcare. Wow, yeah. Orthopedic surgery is 4.7%. Wow. To put that into perspective, our food is five. Wow. So, orthopedic surgery is almost comparable to food.

In the GDP, that's crazy. What if I were to say 70% of that, $900 billion ... key word a billion. Yeah. So, 4.7% equating to $900 billion. What if I were to say 70% of that was avoidable? Wow. So, in the fully insured space, or in these in-between type spaces, this option doesn't exist. You can, the word I'll use is carve out, what your benefits program allows. Yeah. Within this space, there's ortho biologics that are out there, that essentially replace the invasive surgery. Okay. With a non-invasive procedure. You're not even knocked out. The recovery time is substantially shorter. Wow. The cost is a fifth, a fraction. Yeah. So, it's a win-win. Yeah. Your employee doesn't miss time. We always try to quantify what time missed even means. Difficult to do. Right. But, it's a number, right? Yeah. A number plus 70% of $900 billion. Yeah. Put that in your pipe and smoke it. That you go.

That's a big deal. That's just one of many options. Yeah. We see employers having those conversations for the first time. In our world, we're staring at a lack of transparency, right? Yeah. You're starting to see it on 60 Minutes, you're starting to see it out there in the market. Whether it's a drug ... I'm a Type One diabetic, so I'll use insulin, for example. Sure. 10 years ago ... I'll go ahead and say, 13 years ago when I was diagnosed, a vial of insulin was $40. Yeah. It's over $600 now. Yeah, which is insane. All we've gotten ... All that's happened over those 12 years is we've gotten better at making that stuff. Right. But, we've been acquiring, right? Yeah. The drug manufacturer that initially created that vial of insulin, three came out, and they helped push that price down. Yeah. Then, one of those four bought the other three. Sure. Then, jacked the price. Consolidated it, yeah. There's such little regulation in that space. Yeah, that's insane. When we ask ourselves, where are these cost increases coming from, you don't have to look

very far. The difficulty is just, really, being able to call a spade a spade, because it's just largely not easily visible for us to review. As you said, it's not transparent at all. If folks don't know about it, and there's no incentive because the companies that control that market, obviously, want to keep that market in place, it's very profitable for them. I think the lesson here is, you've got to get back to getting an expert like yourself at the table to go over all these different options because so much of this stuff ... We could probably go on for hours, and hours. You're not even aware of? Whether I'm a small employer, medium-size employer, or large employer, I want to have all my options laid out for me, and understand the risks, and understand the costs and benefits, and then make an informed decision. That's what it's all about. Absolutely. When you give me a soapbox, I can largely leave people a little depressed. Like, holy smokes, this is only going one way, what are we going to do here?

Yeah. Options exist, let me just start off by saying that. Options exist. It just goes back to one of the questions that I ... Rhetorical question, how far are you willing to go? Right, right. Of course, who knows what kind of changes are coming. I know the ACA is under attack in the Courts, and we don't even want to get into the political environment, and what's going to happen. Who the heck knows, right? I'm purple. I'm not red, I'm not blue. But, you can only plan for what we know today, and as you said, there's a lot of options. I would encourage business owners to reach out to Dean, to have a better understanding. That's great information. Thank you very much, Dean. If you want more business tips and insight, or to hear previous episodes of unsuitable, visit our podcast page at www.ReaCPA.com/Podcast. Thanks for listening to this week's show. You can subscribe to unsuitable on iTunes, or whatever you like to get your podcasts, including YouTube. And, while you're there, leave us a review. With the holiday season now roaring along at full speed, we will be taking a few weeks

off from producing unsuitable, to enjoy some quality time with our family and friends. I hope you have plans to do and do the same. From all of us here at Rea & Associates, we would like to wish you a very Merry Christmas, and a Happy New Year. I'm Doug Houser. Join us on January 7, when we return with a new unsuitable interview from an industry professional.