Onex to buy insurance brokerage from Goldman fund for $2.3 billion

NEW YORK, Mon Nov 26, 2012 – Canadian private equity firm Onex Corp. will buy USI, one of the largest providers of insurance brokerage services in the United States, from Goldman Sachs Group Inc.’s GS Capital Partners private equity fund for $2.3 billion.

USI, founded in 1994 and taken private in 2007, says it is the ninth largest insurance broker in the United States. It offers property, casualty, employee benefit and retirement consulting services.

Onex Partners III, Onex’s $4.7 billion private equity fund, will make an equity investment of about $700 million. Onex is a 25 percent limited partner in Onex Partners III.

Onex, with about $14 billion of assets under management, is a co-investor in the transaction.

USI said its employees, who invested alongside GS Capital Partners to take it private, will remain investors in the company.

The deal is expected to close by the end of the year.

How a risk retention group can provide transparency and lower employee benefit costs

Steve Freeman, President, USI San Francisco

With increasing health care costs, smaller employers are exploring innovative approaches to fund their employee benefit plans to save money. Risk retention groups (RRGs) or “captives” can generate savings for some larger employers that self insure their plans. Captives are now catching on with smaller employer groups between 25 and 500 employees. Smaller employers are becoming more educated and starting to understand how risk management works with their health plans. By pooling their employees and risk with other employers within a captive, it can be a creative way to save.

Now, smaller employee groups are gaining access to those same cost reduction strategies that were only being provided from larger employers through these risk retention groups, or group captives, says Steve Freeman, president of USI in San Francisco.

“For employers that want to influence their claims and have a direct impact on their total cost, a captive may be a great alternative,” says Freeman. “However, if employers are risk averse and are fine with paying premiums with no underlining data or guarantee of the next renewal, this is not for them.”

Smart Business spoke with Freeman about how a risk retention group can give employers more control and create greater transparency in their health insurance plan.

How does a risk retention group work?

An RRG is a liability insurance company owned by its members, which are employer groups. These captives are now being developed for groups of smaller employers, which allow them to self-fund and to participate in the profits of their stop loss premiums. Variability in smaller groups is higher and predictability is lower, giving smaller employers the opportunity to pull themselves into a larger group to reduce their risks.

For example, a company with 10 employees has a 10 percent chance that claims in a given year will exceed the expected amount by at least 70 percent. With an employer of 100 people, that number falls to 5 percent, and, at 1,000 employees, that risk is less than 1 percent.  By banding together to create a larger pool, smaller companies can reduce their risk.

How can a company get started?

Employers have established these captives with other employers that are typically in the same industry, share similar risk characteristics, or that are located in the same area. If a company is part of an association, it can start there. Because captives are fairly new, the association may not be aware of one, but the employer can ask whether there are any other employer groups of the same size and industry that would be interested in self-funding, and thus starting a captive.

Obviously there are laws governing RRGs since you are creating an insurance company that you are a member of and that you own, so there are risk and reserve requirements. You have to work with someone who understands those laws, how the RRG should be administered and how profits are paid to participating members. It is critical to work with someone who’s done this before and who understands the laws regarding these programs.

How can an RRG help create transparency and lower costs?

The real premise behind the popularity of these programs is that they allow smaller employer groups the ability to pool themselves into a larger group, self insure and obtain data on their claims utilization,  allowing them to influence employee behavior, which drives down health care cost.

Smaller employer groups typically don’t get claims data and have no idea what their underlying claims experience is, so can’t act to influence it. Transparency allows employers to see the actual use of their health plan. For example, the volume of inpatient and outpatient claims, the number of office visits of primary care physicians versus specialists and types of ER visits. If the ER is being overused, you can provide motivation for employees to seek other methods of more efficient and cost-effective care. Employers also can see the types of drugs being used, and whether employees are using brand name drugs versus generics. If there is a high number of individuals with chronic conditions who are not enrolled in disease management programs, an employer can provide incentives to enroll folks, which will improve employee health, productivity and absenteeism rates and lower costs.

At the end of the day, if you can reduce your claims, you will reduce your costs.

How can employers determine if this is right for them?

If employers are looking for short-term cost reduction, a captive isn’t for them. Employers need to have a commitment to the long-term success of the captive. This is not a one-year solution or a short-term view. A captive is not for all small businesses.

It’s all about risk management and being able to manage your claims. The largest piece of insurance premiums — 85 percent — is claims. So if you can impact claims up to a certain level, you can reduce costs.

Within the captive, you may have a 50-person employer that can only take on $20,000 of liability per person, and a 200-lives employer that can take on $100,000. Each employer wants to make sure that the risk corridors are properly set for their risk tolerance, and premiums will be based on the amount of risk that each company adopts. Each employer group is underwritten independently at a different rate, depending on the level of risk it wants to take, demographics and plan design.

As employers seek cost-effective ways to continue offering health care benefits to their employees, RRGs, or captives, are becoming a more attractive option. A captive allows employers to share the cost of their liability for funding their benefits plans by pooling costs with other employers. And by providing transparency, it allows employers to target wellness and disease management programs right for their population, resulting in a healthier work force.

Steve Freeman is president of USI San Francisco. Reach him at (925) 472-6772 or [email protected]

What has your health insurance broker done for you lately?

Steve Freeman, President, USI San Francisco

If all your insurance broker has done is market your health care plan to a half-dozen carriers, you may not be getting your money’s worth, says Steve Freeman, president of USI in San Francisco.

“If you have 100 employees and multiply that by $10,000, the average annual premium is $1 million,” says Freeman. “If you are paying a 5 percent commission, your broker is making $50,000 a year on your account just for negotiating premiums. And there’s not a lot of incentive to work for lower premiums, because, as premiums increase, so does his or her commission.”

Smart Business spoke with Freeman about how to create transparency in broker fees and how to get the most for your money.

Why are broker fees becoming more transparent?

The Accountable Care Act requires a minimum loss ratio of 85 percent, so insurance companies have to spend at least 85 percent of premiums on claims for employers with at least 50 employees. And that cannot include broker compensation. As a result, brokers will have to be more transparent with their services and fees.

What questions should business owners ask their broker to make sure they’re getting the best value?

First, ask, ‘How are you impacting the cost of my medical claims, rather than just shopping it to insurance companies?’ Claims costs drive premium. The broker should also be focused on changing employee behavior to make them become better health care consumers. Suggestions should include ideas around aggressive wellness programs, evaluating different funding alternatives and analyzing the overall health status of the group. The broker should un-bundle your claims to help determine what is driving your price, because, if you can lower your claims, you can lower your premiums. Businesses should understand their claims utilization. For example, they could assess whether their emergency room visits are higher than other groups benchmarked in their region or industry. If so, the broker can target employees using the ER and educate them about how using urgent care instead of the emergency room will cost them and the employer much less.

Your broker should also conduct a large claims analysis. If there are very large claims, are employees utilizing the most cost-effective facilities that have better outcomes? You can also design programs to migrate more employees to facilities with better outcomes and lower costs than, for example, a teaching hospital, whose charges may be double but that have the same outcomes.

Can a small brokerage firm meet these needs?

The one-man or 10-man brokerage is dead. If a broker says, ‘call me for everything,’ or ‘I can take care of all your needs,’ that should be a red flag. Those shops can’t survive because they don’t have the intellectual capital for all of the necessary areas of expertise. Nor do they do the volume of business with insurance companies to get the deals that someone with a large volume of premium with these companies can get.

A larger broker will have ERISA attorneys on staff to advise on compliance issues, a medical director to do clinical reviews, teams that conduct analytic and underwriting work, and individuals doing HR and IT work. Brokers should be the quarterback, with a team behind them that understands compliance, legal, clinical, underwriting and communications. The broker’s job is to understand how to orchestrate that team, not to pretend to have all the answers.

What would you say to business owners who are comfortable with their broker simply shopping their plan?

I would ask what that relationship is worth to them. There are businesses that have a few hundred employees with fully insured plans that budget an increase of 12 percent a year.

If that broker is making a 5 percent commission and you are paying him $100,000 a year, what does he bring to you in value? How much business do you have bring in to make $100,000 in profit? Is your broker worth that revenue? What is he doing to bring your costs down?

Employers think they are just paying the insurance premium, and the broker is part of it, and that it is difficult to influence cost. But brokers actually can influence cost. Insurance companies come out with a 12 percent rate increase knowing that they can be negotiated down to 8 percent. The business owner thinks the broker did a good job getting to 8 percent. But a broker with underwriting and claims experience, before you even get the renewal notice, will tell the insurance company that your renewal should be 5 percent based on the underwriting formula of what you’ve done in the past. The broker should say, ‘Our expectation is that you will come back with a 5 percent rate increase, not 8 percent or 12 percent. But based on facts and claims use, it should be 5 percent.’ There is lot of room for negotiation.

How is the commission system changing with more transparency?

Instead of staying with percentage-based commissions, employer groups are paying a flat fee per year, and the broker compensation is based on the level of service he or she is providing. It is not a function of premium, it is a function of the services that broker is delivering to the firm. The employer group negotiates a flat fee per employee per month, or a flat dollar amount per month for the services it is getting, more like fees that are paid to an accountant or attorney.

The value of the insurance benefits should be evaluated based on results and managing total cost. The more transparent compensation becomes, the more aware clients will become of the services that their brokers are providing, or should be providing.

Steve Freeman is president of USI San Francisco. Reach him at (925) 472-6772 or [email protected]

How to offer your employees disability insurance at little or no additional cost

JP Pressley, Vice President, USI

Three in 10 Americans entering the work force today will become disabled before they retire. And 43 percent of those ages 40 and older in the work force will have a disability event prior to age 65.

Employers should be asking themselves if they are doing enough to protect their employees if they become disabled.

“Disability insurance can help keep your employees part of your active work force,” says JP Pressley, vice president at USI. “Employees who have a disability plan are four times more likely to return to work following a disability than are employees without insurance. The cost of recruiting, training and getting a new employee up to speed is significant. Just being a good corporate citizen is one thing, but when you see the value of how it impacts the bottom line, that’s when employers really start putting a value on the benefits of disability insurance.”

Smart Business spoke with Pressley about how short-term and long-term disability insurance can financially protect employees and how it can directly impact a company’s bottom line.

Why are so many employers unaware of the need for disability insurance?

When companies are buying employee benefits, their primary concern is to get medical costs under control. When it comes to discussing disability, there is little to no time left at the end of the conversation to discuss this extremely valuable benefit.

That conversation needs to be moved to the forefront, because the dollar value of this benefit is 10 times the dollar value of medical benefits.

How does disability insurance work?

With short-term disability, the disabled employee is paid weekly between 40 and 70 percent of pre-disability earnings. Depending on coverage, that lasts 11 to 52 weeks. After that, the employee transitions into a long-term disability program, in which payments are made monthly.

Those payments can continue until employees reach age 65, if they are no longer unable to perform the material duties of their occupation, or if they are unable to return to work making more than 80 percent of pre-disability income.

If someone becomes disabled at age 35, gets a disability payment of $7,000 a month and remains disabled until age 65, that person will receive well in excess of $2.5 million of benefits. There’s a real financial incentive to have this coverage.

Where should an employer start?

The key is to design a plan that allows all employees, regardless of your budget, to participate in a plan that gives them access to this insurance, either through a plan subsidized by the employer or by buying the entire package themselves.

Work with a financial professional to help you understand this insurance so that you can easily communicate it to your work force. Once you start having those conversations, it’s eye-opening to both the employee group and the employer that there’s a liability they are facing without the safety net of both short-term and long-term disability insurance.

What would you say to business leaders who say they cannot afford to offer this benefit?

We are seeing more employers go to full voluntary programs, in which employees pay their full premium. However, if an employer pays even a small amount, say 10 percent of premium, employees see more value in it because they see that the employer has made a financial commitment to it. Typically, your insurance broker can find other areas in the company’s overall benefits spending to offset the minor cost for a percentage of disability insurance, so there’s no net increase in benefits cost to the employer. And if you can’t afford to cover all your employees’ wages, you can still set up a plan that allows them to participate in bridging the gap between your financial ability and their financial needs.

Won’t the government take care of employees who become disabled?

The perception is that the government will take care of you. In California, and in four other states, there is state disability insurance, and some employers don’t purchase disability as an employee benefit because they think state-mandated benefits will cover their employees’ needs. But those benefits don’t provide full coverage for all of your employees, and they are significantly underinsuring your most highly compensated employees.

Many also believe that Social Security will take care of employees who become disabled. However, Social Security benefits for the long-term disability are really difficult to qualify for, and it is estimated that less than 13 percent of the work force that is currently disabled is receiving benefits from Social Security.

With disability insurance, employers have a really big opportunity to provide a low-cost, well-received benefit that employees appreciate because their employers are looking after their financial well being.

How can having disability insurance get employees back on the job more quickly?

There are a huge number of local resources that insurance companies have access to, and they have a financial interest in getting employees back to work.

Most insurance companies, during the first 24 months of a disability, will assign an outreach counselor to work with the disabled individual to access physical and vocational training. And they will work with the employer to set up a part-time disability program in which the disabled employee can at least get back to work on a part-time basis. Because once they’re back part time, that really paves the road for them to return on a full-time basis, saving the employer the time and expense of hiring and training someone new.

JP Pressley is vice president at USI in Walnut Creek. Reach him at (925) 472-6770 or [email protected]

How aggressive financial incentives can encourage a healthy lifestyle for employees

Steve Freeman, President, USI San Francisco

Even employers who maintain a workplace that encourages employees to eat better, exercise, stop smoking and follow doctor’s orders regarding chronic illnesses will continue to have employees who smoke, who aren’t taking their medications and who are out of shape. These unhealthy habits hurt the company through lost productivity and increased health care costs.

“Employers have tried to play nice, meaning that if employees did specific things, such as stop smoking or complete a health risk assessment to understand their numbers, the employer gave them a gift certificate,” says Steve Freeman, president of USI. “The problem is, employees that don’t want to change and continue their poor behavior will continue to do so if the incentive isn’t meaningful. A gift certificate isn’t going to cut it if you want to change behavior.”

Employers are seeing that this behavior is affecting their bottom line costs, and are using more drastic measures to take control.

Smart Business spoke with Freeman about how to use financial incentives to promote wellness and how doing so can improve productivity and your bottom line.

Why should employers care about the health of their employees?

Health risk factors pose a substantial economic burden to businesses. Health care spending is projected to reach $4.2 trillion per year by 2012, or 20 percent of GDP. Of that, $450 billion will be spent on direct costs, and American companies are bearing the costs of poor employee health. But it’s not just direct costs. Obesity, heart disease, depression, diabetes and other chronic illnesses lead to sick days, absenteeism, decreased productivity, low morale and staff turnover, which are estimated to cost U.S. corporations an additional $225.8 billion per year.

If people are healthy and feel good about themselves, they are more productive, miss less work and claim less on medical plans. Employers are realizing they can provide an environment that promotes a culture of good health, resulting in direct and indirect benefits.

How can employers begin to build a wellness program that works?

Start with getting the overall health status of your employee population by having everyone complete a health risk assessment (HRA). This will give you a profile of your employees regarding their overall health. For example, It will share how many people have high blood pressure, diabetes, or a BMI over a certain level so that you can establish a starting point. That way, if people participate in wellness programs, you’ll have a benchmark to compare against the following year.

From there, determine the incentives based on actual results. It is important to keep score, monitoring and measuring results or changes in activities. Sharing aggregate results and success stories will help promote these programs.

What financial incentives can employers use to encourage people to participate?

Instead of a gift card or a minimal cash incentive to fill out a health risk assessment, consider discounts on contributions to the health plan or offer those who participate a better plan with a lower deductible, coinsurance and copay. Also, some employers can make cash contributions into health reimbursement accounts for employees.

Under HIPAA’s 20 percent rule, the reward offered cannot exceed more than 20 percent of the cost of the insurance. For example, if a single employee’s insurance costs are $550 a month, and the employee pays 30 percent, that’s $165. If that employee made improvements in his or her wellness measurements and scored well, the person could only pay 10 percent, or $55, which is a considerable savings. As an employee, why wouldn’t you participate and try to make some improvements?

Under HIPAA, a program that offers incentives must be reassessed yearly, be designed to promote health and wellness, and be made available to all similarly situated individuals to provide a reasonable alternative method of receiving the reward.

How can a program be structured to reward healthy behavior?

If employees are overweight, you’re not telling them they have to be a certain weight. It’s about making incremental changes and seeing results. Or if employees have diabetes and are not taking their medication, but the programs get them to adhere to their medication plan, then they’ve satisfied that criterion. There are a lot of ways to set it up and measure results.

How are insurance companies encouraging employers to incentivize employees?

If companies provide a smoke-free environment, an onsite exercise facility or gym memberships, many insurance companies will reduce their premiums. In addition, if you mandate HRAs and get a certain percentage of employees to participate, there may be premium reductions because it gives the insurance company a snapshot into the overall health status of the group. That allows them and the employer group to set up a targeted wellness program that is tailored to their own population. For example, if you have a high prevalence of individuals with diabetes, you can focus your wellness communication on how to manage diabetes. If you have a high prevalence of smokers, you can zero in on smoking cessation programs. It allows you to tailor your communication to your population versus just pulling something off the shelf and saying you have a wellness program.

What is the role of management?

It is critically important that senior management endorse and participates in the program. If they don’t, it won’t be successful. If the CEO knows it’s important and is participating, employees will follow. Companies that want to increase their bottom lines may want to influence their employees with more aggressive incentives, which will increase productivity and moral and decrease absenteeism, turnover and medical premiums.

Steve Freeman is president of USI San Francisco. Reach him at (925) 472-6772 or [email protected]

How understanding utilization can help employers reduce health insurance premiums

Steve Freeman, President, USI San Francisco

As health care premiums continue to rise, business owners are scrambling to keep up with increasing costs.

By understanding the components of your premiums, encouraging your employees to be healthier and working with your broker to identify the best plan for your needs, you could see a significant savings, says Steve Freeman, president of USI in San Francisco.

“There can be a huge savings,” says Freeman. “Employers that implement wellness programs and embrace a culture of health and consumerism, as far as being smart consumers of health care, typically see a savings of 15 to 20 percent. Once you understand how insurance premiums are determined and what the components are, you will be a lot more comfortable taking steps to drive down your premiums.”

Smart Business spoke with Freeman about how health insurance premiums are determined and how you can influence those rates.

How does an insurance company calculate premiums?

The pricing, or rates, are based on the size of the group, industry, the demographics and    location of the employees, as well as plan design. Once the insurance company determines these manual rates, they may be adjusted based on prior years’ claims experience, if available.

Next, there are two ways a company is rated. The insurance company has pooled contracts, typically for smaller employers. That means that, regardless of your underlying claims experience, everyone in the pool essentially gets the same rate increase. That pool may not be the best option for you if you have a good claims experience, because you are supporting the groups with bad experience; that is, an employer with employees who make efforts to be healthy is paying the same rates as the employer whose employees are unhealthy.

With a nonpool product, claims experience will influence the rates based on the size of the employer. That experience is more predictable or credible with a group of 500 lives than with a group of 50. That’s because, in a smaller group, you can have drastic peaks and valleys in claims experience. Insurance companies will blend that experience with the manual rates they have identified to level out the peaks and valleys of the premiums.

What are the main factors of premiums?

There are basically three major components that contribute to setting the premium amounts. The largest is claims, which influences premiums dramatically because they are the major element of what insurance companies charge. The second largest is reserves, money held by the insurance company to pay claims filed after a company has terminated its contract. The third is administrative, risk and pooling charges — used to administer claims, print booklets and ID cards, compensate the insurance broker, etc.

What can employers do to help lower costs?

Group plans are now allowing employers to view and analyze their actual claims experience. From there, employers can motivate employees to take care of themselves and, as a result, pay a lower rate.

There is a real emphasis on incentives for people to be more consumer-centric. For example, instead of going to the emergency room, go to an urgent care unit. Instead of brand-name drugs, use generics.

Wellness programs can also help cut costs by encouraging people to eat healthier and exercise. As well, programs can be designed to encourage those with chronic illnesses to take their medications and see their doctor. Screening should also be made available to help identify potential risks, instead of waiting for something as serious as a heart attack or  stroke to take action.

More companies are also asking employees to fill out health risk assessments, which gives each individual an overall health score. Many employers offer incentives in exchange for a completed assessment. With those results, the employer can craft a wellness program around the overall health status of its group. For example, if employers have a high prevalence of smokers, or overweight individuals, they can target those areas.

At the end of the day, it’s all about claims management, which drives premiums. If an employer wants to hold costs down, the only way to do that is to get data from its insurance company to understand actual utilization by its employees.

How can a broker assist with the process?

Because every company has different types of products and funding arrangements available to them, a broker can help navigate the different insurance policies available. It’s constantly changing, with new products being rolled out. Unless you are a very large employer who has an in-house risk manager who understands all this, every employer can benefit from a broker to help work through the process.

What would you say to employers who just want to pay their premiums and be done with it?

At the end of the day, your claims costs drive your premiums, regardless of whether you’re fully insured, in a nonpool environment, or in a self-funded plan. If you don’t control your claims utilization via wellness programs and other efforts, you are going to pay more.

The broker adage of, ‘I can get you more benefits at a better rate’ doesn’t work anymore. If you have a group claiming more than average, you’re going to pay a higher rate than the average cost increase because you’re going to have to cover paid claims, reserves and administration, as well as risk charges.

In the end, it’s all about managing risk, with savings as the likely result and reward.

Steve Freeman is president of USI San Francisco. Reach him at (925) 472-6772 or [email protected]

How to address the impact of health care reform on your business

Steve Freeman, President, USI San Francisco

The major components of health care reform don’t go into effect until 2014, but that doesn’t mean that you can wait until then to act.

If you don’t begin planning now for how the changes will impact your company, you could find yourself in trouble, says Steve Freeman, president of USI in San Francisco.

“There are going to be specific requirements and mandates,” says Freeman. “You need to start the process today. Have a plan, know what your core values are on offering benefits to your employees and know where you want to be versus your competition on compensation and benefits. Make sure your plan is in compliance for what you need to be doing now, and make sure you’re going to be ready for 2014.”

Smart Business spoke with Freeman about how to prepare for the coming changes.

What changes have already been implemented?

Effective Sept. 23, 2010: plans can no longer have lifetime limitations on essential benefits or unreasonable annual limits on essential benefits. Also, employers have to provide coverage for employees’ children up to age 26. There are no rescissions on coverage and insurance companies can’t impose any pre-existing conditions exclusions for individuals under the age of 19. And as of Jan. 1, 2011, flexible spending accounts can no longer be used to pay for over-the-counter drugs without a prescription.

What changes have impacted employers that cover part-time or seasonal workers?

Many employers with seasonal or part-time employees offer limited medical plans, providing a fixed amount of medical benefits, typically up to an annual maximum of $15,000 to $25,000. Under the new rules, health care reform prohibits imposing annual limits.

For plans beginning after Sept. 23, 2010, to Sept. 23, 2011, the maximum on limited medical plans increases to $750,000. After Sept. 23, 2012, that goes to $1.25 million, and in 2013, it increases to $2 million, making those plans cost prohibitive to employers and employees.

However, the government has allowed employers to file for waivers that restrict the annual limit at the same level. If the Department of Health and Human Services determines that compliance would result in loss of access to benefits, or a significant increase in costs to those covered, it will grant the waiver.

Can plans be grandfathered in under the old rules?

If you don’t make any changes to your benefit plan, it is considered grandfathered. If you make any significant changes in regard to deductibles, coinsurance or employee contributions, you lose your status. And because costs continue to rise, most employers will have to change their plans.

Once you lose your grandfathered status with your health plan, you have additional requirements in the benefits you offer, which include preventive service at 100 percent. In addition, if you have a fully insured plan, you can no longer discriminate in favor of highly compensated individuals. There are also other patient protections in regard to primary care physicians, OB/GYN access and emergency services.

What changes are coming in 2014?

The most significant is that employers will be mandated to provide health care coverage if they have more than 50 employees. If they don’t provide health care coverage, there is a penalty of $2,000 a year, per employee, in excess of 30 employees. Now, most employer groups pay an average of $8,500 to $10,000 per year, per employee. If an employer can pay $10,000 a year for coverage or $2,000 in a penalty, it may choose the penalty.

Employers of choice will continue to offer benefits to attract and retain employees, but in a  recent survey by McKinney & Co., 30 percent of employers said they will definitely or probably stop offering employer-sponsored health plans after 2014.

Individuals will also be mandated to have health insurance, but, again, the penalties are not significant. In 2014, it is $95, or 1 percent of one’s taxable income. In 2015, that increases to $325, or 2 percent of taxable income and, in 2016, that goes to $695, or 2.5 percent of taxable income.

What should employers be doing now to prepare for 2014?

Many owners are so busy running their businesses that they’re not thinking about how this is going to impact their business and their employees. But you need to look at your existing program now to make sure you’re in compliance with the parts of health care reform that have already been implemented.

Second, develop a strategy for the next two to three years on where you want to position your benefits as a percentage of total payroll. Develop that benchmark of where you want to be, what you want to pay and where you want to be positioned versus your competition.

If you’re not paying attention now, you have two-and-a-half years to the day of reckoning, and you need to be aware that your competition is probably thinking about it. How is your competition going to be positioned to attract and retain good employees? If the competition is going to offer benefits, what are those, versus forcing employees to buy through an exchange?

Businesses need to act now, as failing to address the impact this will have on your company will put you at a distinct disadvantage come 2014.

Steve Freeman is president of USI San Francisco. Reach him at (925) 472-6772 or [email protected]

How population health management increases the ROI of company wellness programs

JP Pressley, vice president, USI

The employer-sponsored wellness programs of today are designed to offer companies the ability to impact the overall health of their employees and, in turn, improve moral, decrease absenteeism and presenteeism, lower medical costs, and lower disability and workers’ compensation claims.
“Unfortunately, most of these programs are not set up to measure effectiveness, or return on investment,” says JP Pressley, vice president at USI. “Innovative companies are beginning to incorporate their wellness programs into a robust population health management program to better manage health care cost increases.”
Smart Business spoke to Pressley about what population health management (PHM) means to employers and what they can do to get a better return on investment for their wellness efforts.

What is population health management?

A typical PHM program may identify several areas of focus, and work to implement two or three strategies annually. The goal of these programs is to:
■ Keep healthy employees healthy
■ Effectively manage the expenses of employees with chronic conditions, while providing exceptional care
■ Motivate at-risk employees into the health population, as compared to letting them slip into the chronic category
Typically, these programs are broken into different strategies — retrospective, prospective and motivational.
Retrospective strategies are focused on treating conditions that currently exist. These include large claims interventions, disease management and prescription assessment. When health care providers, prescription vendors and insurance payers are connected effectively with these strategies, it can generate claims savings in excess of 10 percent.
Prospective strategies focus on keeping current healthy employees healthy and preventing any at-risk conditions from becoming chronic. Tools such as predictive modeling, health risk assessments, biometric data collection and metabolic syndrome identification allow a company to set a baseline. Since it is impossible to save money on conditions that did not occur, the year-over-year comparison validates the resources dedicated.
Motivational strategies allow a company to choose a carrot-or-stick methodology to encourage employees into a healthier lifestyle. Mandatory participation in wellness programs and evidence-based plan designs set an incentive for good behavior. Non-participating employees can actually be charged a higher premium rate on their employee benefits, and can fund a significant portion of a company’s wellness programs.
With an integrated PHM component, companies can pick from a menu of programs that are run similar to any other business endeavor that include implementation timelines, desired outcomes and an expected ROI.

What kind of cost increases do companies face if nothing is done?

Let’s assume there is a mythical 200-employee company named High Flyer, Inc. High Flyer has a production revenue of $50 million with a 10 percent profit margin in 2011. High Flyer also has an annual benefit spend of $1.6 million and an annual payroll of $15 million in 2011. Wall Street wants High Flyer to obtain a growth rate of 8 percent. Benefits will continue to increase at a rate of 15 percent annually, and the company will provide an annual pay increase of 4.5 percent. Left unchecked, this company will pay $1.6 million in 2016 and $3.2 million in 2021 for its employee benefits program. As a percentage of payroll, benefits will have grown from just over 10 percent in 2011 to just under 28 percent in 2021, and profits will have been eroded an additional 20 percent. This is an aggregate loss in revenue in excess of $21 million over 10 years from this company’s 2011 cost of providing benefits.
The unfortunate fact is that most companies will not be nearly as consistent as High Flyer over the next 10 years. At some point in time, High Flyer will decide it is not in business just to pay for employee benefits and will either cease providing benefits, or the cost of providing benefits may become too burdensome for the company to exist.

How employers can keep their health and welfare plans compliant

Jeff Morgan, executive vice president, USI

Health and welfare compliance requirements have increased considerably over the last several years and continue to grow in number due to new provisions from health care reform.

Even employers who have been diligent about complying with new issues as they have arisen are finding it overwhelming to track the accumulation of these requirements, says Jeff Morgan, executive vice president of USI’s San Francisco office.

“Even employers devoting significant resources to staying on top of this are having difficulty getting their arms around it,” he says.

Smart Business spoke with Morgan about how employers can keep plans compliant.

Why this onslaught of new compliance tasks?

It would be easy to blame health care reform for the additional reporting requirements, but this is nothing new. Over the last several years, new notice requirements for Medicare D, CHIPRA, and the Newborns and Mothers Health Protection Act, to name a few, have been accumulating. When you add the San Francisco Health Care Ordinance (SFHCO), HIPAA and the Patient Protection and Affordable Care Act (health care reform) to this equation, the result is a daunting project for even experienced human resources staffs.

How can employers begin to bring their plans into compliance?

We often find that employers have added new requirements to their routine on an ad hoc basis and that when a broader review is performed, some items have been overlooked, or the employer was not aware of a specific requirement. They should perform a full review based on a long list of criteria. This will catch the new requirements from health care reform, as well as older requirements from COBRA, HIPAA and ERISA.

In which particular areas are employers overlooking requirements of the law?

There are three areas to which employers should be paying particular attention: HIPAA privacy and security rules, discrimination rules under health care reform and the funding requirements of the San Francisco Health Care Ordinance.

For employers that self-fund their benefits or otherwise handle protected health information regarding plan participants, the requirements under HIPAA to build an infrastructure to protect that information can be formidable. Without guidance, many employers may neglect what is prescribed by regulation.

Health care reform places new requirements on insured plans to not discriminate in favor of highly compensated employees. This includes not only differences in benefits but also in employer contributions toward benefits. Executive perquisites in benefits need to become a thing of the past in order to comply. Self-funded plans always had nondiscrimination rules, and these are unchanged.

SFHCO requires employers to fund at specified levels for the benefit of any qualified employees. Many employers do not clearly understand these requirements or fund correctly for them.

How transparency in health insurance can save money and drive better care for employees

Steve Freeman, President, USI San Francisco

Each month, employers dutifully pay their health care premiums, but many don’t understand what they’re getting for their money.
By demanding claims data transparency in health plans, employers can better understand their expenses and shift money to the areas that will best benefit their employees.
“A lot of insurance companies don’t want to give you that information for a lot of different reasons, but that’s like getting a credit card statement without any detail about your purchases and just paying it,” says Steve Freeman, president of USI in San Francisco. “With claims data transparency, the insurance company provides the employer with the details of the claims expenditures. And the more information you have, the more power, leverage and control you have over your health care spending.”
Smart Business spoke with Freeman about claims data transparency and how employers can use it to control their health care costs.

Why are insurance companies reluctant to share claims information with employers?

If an employer knew it had a better-than-average claims experience, it could more easily go to another insurance company and get a better deal. Employers with a worse-than-average claims experience would see their information and know they couldn’t get better rates elsewhere, and wouldn’t bother seeking out a better deal. This leaves the insurance company with only risky clients.
Some insurance companies will provide the information for companies that are at a certain size employee group, for example, 200 members. Others will say they need 200 members in each of the plan choices, such as POS and PPO plans. Also, insurance companies have different rules regarding data depending on the state in which employers are doing business.

How can employers benefit from health care transparency?

Typically, health care premiums are the second-largest expense for most employers, behind payroll, and they need to get their arms around what is driving premiums.
Transparency gives employers a better understanding of claims utilization by employees and what services are being used. Are people going to the emergency room, versus utilizing an urgent care clinic? How many office visits have employees made? What is the hospitalization rate, prescription drug usage, large claims information? How are disease management programs being utilized? What is inpatient utilization versus outpatient utilization versus benchmarking norms? Is the employer above or below those benchmarks?
At the end of day, claims costs drive premiums and rate increases. But if the insurance company doesn’t give you any information, it’s hard to know where you stand.

How can this information help an employer structure a wellness program?

This information gives you more detailed aggregate information about your population and its needs, allowing you to offer more customized solutions. If you have a lot of employees with conditions such as asthma, diabetes or high blood pressure, you can craft a more customized wellness program, instead of just guessing and pulling one off the shelf.