Reining in your healthcare line item with Allison De Paoli

Speaker 1:

If you’re going to take the risk of running an agency, shouldn’t you get the benefits too? Welcome to Agency Management Institute’s Build a Better Agency podcast. Now in our third year of bringing you insights on how small to midsize agencies survive and thrive in today’s market. We’ll show you how to grow and scale your business, attract and retain the best talent, make more money, and keep more of what you make. With 25 plus years of experience as both an agency owner and agency consultant, please welcome your host, Drew McLellan.

Drew McLellan:

Hey, everybody, Drew McLellan here with another episode of Build a Better Agency. And today’s topic, I can’t believe I’m about to say this, but I’m excited to be talking about health care costs. And not about the cost, but maybe how we can get our hands around them. So for many of you, this is your number two line item on your expenses, right under payroll comes health care expense. And what’s frustrating about health care expense, if you’re like me, is that you have very… it feels like you have very little control over it. And actually, you just sort of sit and wait for that renewal notice. You’re sort of hoping and praying for a single digit increase rather than a double digit increase. When you think about that, that’s insane that we just wait for that to happen to us, and we’re happy with an 8% or a 10% annual increase, even though nothing has changed inside our company.

So for many agencies, this is a great source of frustration, because a lot of us put money aside for raises and bonuses and things like that, only to watch it get sucked up into the health care costs. And while I know that our employees appreciate the fact that we offer them health care, they don’t really understand how expensive it is, and I think probably don’t appreciate how much of their compensation goes into this invisible vacuum of the health insurance premium.

For most agencies, this is an ongoing concern, you want to offer health insurance, because it’s a great recruiting tool, and you want to take good care of your people. But it just gets more and more expensive to do. Well, I’m just going to pause for a second and say this for all of my international listeners, this is a rare episode, but this episode is going to be very US centric. I encourage you to listen, because if nothing else, it will make you feel really good about your country’s health care system and the cost that you pay or don’t pay associated with that. But I promise that this is pretty US based. So this may not be your favorite episode, hopefully you’ll learn a thing or two. But for my US-based agency folks, this is really about the health care situation in the US and how employers are paying for that care for their people, and some ways, maybe to wrangle that.

Because the reality is every year, every year, employers see that their cost for health care goes up, and most of us feel pretty helpless around how to control it, how to contain it, how what our alternatives are, if there are any alternatives, other than sending people out to buy their own insurance and funding that. So I am excited, and I know that sounds odd to say, but I’m super excited to have the conversation we’re about to have with Allison De Paoli. Allison has worked in insurance her whole life, she was at Aflac for more than a decade and has been out on her own for a couple years. And her job is, her company’s job is to work with small business owners, like all of us, and help us figure out how to get our hands around our health care costs. And what can we do to contain them, to control them to really better leverage them so our employees get better care, and we get it at a better price.

Allison has written a book called Breaking Through The Status Quo where she walks through a lot of different benefits, and not just health care but other benefits as well, that business owners can offer their employees and really suggests with data, by the way, that there’s a better way than how we’ve been doing it. So I am I’m super excited to pick her brain on your behalf. There’s so much about this topic that is frustrating and is also I think in the dark. I think for a lot of us, we don’t really understand how they know when to raise our premiums, how they determine that and if anything, what we can do to try and combat that. And Allison is going to talk to us about all of that and more. Alison, welcome to the podcast. Thanks for joining us.

Allison De Paoli:

Thank you for having me, Drew.

Drew McLellan:

You and I were talking off air before we hit the record button and you were saying that for most small businesses, their health care costs are their number two expense, right after their actual payroll or salary expense. Is that true?

Allison De Paoli:

Absolutely. For just about any employer, I think it’s harder when you’re 20, 25, 30 employees, but for just about any employer… Excuse me, health care is the number two expense after payroll.

Drew McLellan:

Okay, so for a lot of my listeners, this is a source of constant sort of worry and they know their annual renewal is coming up, and they know they’re going to get dinged with a double digit increase. Yet, they feel obligated, not only by law, but because for a lot of them, it’s a recruiting strategy that to not offer health care means that they’re not going to get the best employees, so they sort of feel like they’re over a barrel. Are there some things that they can do to manage this cost and to reduce their exposure to risk and all of those sort of things?

Allison De Paoli:

Yes, I know, it sounds a little bit strange, but being fully insured without understanding what’s going on in there is almost the riskiest strategy at all, because you have no control, right? So you just pay your premium every year, you have no idea what you’re paying for, who’s paying it, why are you paying this? And there’s a lot of disaggregation, or separation between the person that’s ultimately paying the bill, and the person that is receiving the service. And at 20 or 25 lives, you don’t have a lot of flexibility, you don’t have a lot of leeway, or a lot of choices, you may have three or four choices in your market, and that’s it. So you do a lot of going from one to another to another to another. And it’s just kind of a never ending cycle.

There are fully plans that some of the insurance companies have that offer a level-funded arrangement, meaning you’re paying an administrative fee, and you’re paying for your claims, but you know what your maximum is, and you pay the same thing every month, just like you do when you pay a premium, only-

Drew McLellan:

So explain that more.

Allison De Paoli:

Sure.

Drew McLellan:

And by the way, some of our listeners might only have five employees. But anyway, regardless, help me understand paying the claim versus paying that premium.

Allison De Paoli:

Sure. That’s called a level-funded plan, and it can be a really good choice for a 20 to 25 person organization, it’s a little harder when you’re down at five lives. But for 20 to 25 life organization, there are a couple of insurance companies that offer something called level funded, and there are a couple of other types of companies that offer it as well. What that means is you pay a set premium every month, so much of that goes to administer your plan, and the rest goes to fund your claims. So of $100, 30% to 40% will go to administer your plan, and the rest will go to pay the doctor’s visits, the surgery, the therapy, the physical therapy, or whatever is happening with the plan participants. If there is money leftover at the end of the year, that comes back to you almost like a bonus.

Drew McLellan:

How often does money come back to you?

Allison De Paoli:

Pretty often. Not a lot, okay? This is not you’re paying $10,000 and you’re getting $8,000 back, you may get $600 or $800 or $1,200, or somewhere in there. So you’re going to get some back, unless you have big claims during the course of the year, and then your premium is going to go up next year, but you know why, and you’ll be prepared for that, and your maximum exposure’s already sets. So there’s no surprise at the end of the year.

Drew McLellan:

So part of the purchase of this is me saying, “I am insuring 27 people, and here’s their ages,” and all of that sort of stuff. So they fill out the normal forms that they would need, the insurance company comes back and says, “Okay, Drew, your monthly premium is going to be X. So you know that that times 12… “We think that’s going to cover your claims. And you know that X times 12 is this, so you know what your risk is.” Typically, is that plan cheaper?

Allison De Paoli:

It may be a little bit less expensive. And if you do some cost containment in there as well, it can definitely be less expensive.

Drew McLellan:

If it’s not less expensive, why would I do it?

Allison De Paoli:

It gives you cash flow, it gives you a little bit of control and a little bit of opportunity to save money.

Drew McLellan:

Well, but I’m paying my monthly premium either way, right? So I’m paying Blue Cross Blue Shield monthly either way-

Allison De Paoli:

You are.

Drew McLellan:

Yeah.

Allison De Paoli:

You are, but this way you know what’s happening in your plan and you know what you’re paying for. And because a level-funded plan is an ERISA product, meaning it’s a federally controlled plan, not a state control plan, it will remove some of the state obligations from you.

Drew McLellan:

So tell me what that means in regular English?

Allison De Paoli:

If you live in a state that requires you to offer fertility coverage, and you don’t want to offer it, you may want to do this. If you are in a situation where you have a couple of different… you want to offer a couple of different levels of benefit or a couple of different premium arrangements, you can do it in an ERISA plan because the state doesn’t have any control over it.

Drew McLellan:

So if I wanted to offer like an executive level where I paid more of my leadership team’s health [crosstalk 00:10:29]

Allison De Paoli:

Plan, you can do that more easily.

Drew McLellan:

Interesting. Okay. So basically, other than being able to offer sort of a menu of payment terms and being able to cherry pick what I cover and don’t cover, how else do I save money in this kind of a plan? Or is that pretty much it?

Allison De Paoli:

Well, those are the two big ones, right? For some smaller things, you can start to add in cost containment solutions, you can add in an independent telehealth. And by doing that, you can direct the 11:00 projectile vomiting child, because that only happens at 11:00 or 2:00 in the morning-

Drew McLellan:

Or on the weekends.

Allison De Paoli:

Or on the weekends. If you know that you have a sinus infection, and you’ve worked all day, rather than going to the emergency room, where you should never go for sinus infection, or the urgent care facility, you call telehealth. And when that’s an independent telehealth, you’re paying a small amount for the telehealth every month, but you’re pulling that claim out of your claims expenditure. So you’re removing $60, $80, $200, $500, depending on where you are and where you’re treated, from your claims. That telehealth service may cost you eight bucks a month.

Drew McLellan:

Per employee or in general?

Allison De Paoli:

Per employee. Usually when you do telehealth like that, you get advocacy with that as well, so your employees have a place to turn when they need help with a bill, they need to find a doctor. And the advocacy service will normally be the first point of entry, they’ll connect you right to the telehealth. The average savings per incident is $237.

Drew McLellan:

Wow.

Allison De Paoli:

So that’s $237 you haven’t paid in either medical expense or lost productivity because you’ve got somebody on the phone, and it’s either in the evening, or if it’s during the day, they can run to the pharmacy after work, or even if they run out to the pharmacy, that’s 20 minutes, that’s not three hours to try to go to the doctor, wait, go to the pharmacy and come back. It’s a two fold. It’s not just what the medical savings is, it’s what the productivity time is as well, and employees like it, it’s something you can do that’s inexpensive, that makes them feel valued.

Drew McLellan:

Just for clarity, telehealth is I literally am dialing the phone and I’m talking to either a nurse or a nurse practitioner or a doctor on the other end?

Allison De Paoli:

Or a physician. Yes.

Drew McLellan:

Right. Am I doing that over the phone? Am I doing that over video? How does that work?

Allison De Paoli:

That depends on your state. Sometimes that is telephone and sometimes it can be video. And some states are… That’s an ever evolving change.

Drew McLellan:

Inside the US, does every state offer that?

Allison De Paoli:

Every state offers it. Some only offer telehealth and some do video as well. And that is changing, more and more states every year are allowing the video.

Drew McLellan:

Sure. Then outside of the US, is that a common thing for our Australian and European friends and all those folks? Do you know?

Allison De Paoli:

I don’t believe so.

Drew McLellan:

Okay.

Allison De Paoli:

I think the whole health care system is very particular to the United States.

Drew McLellan:

Okay. All right, so that’s one option for me to try and control my costs. How else might I… If I want to get my hands around this huge expense, how else might I explore during that? You talked about sort of mitigating my risk or controlling my items, how do I do that without nosing into my employees business?

Allison De Paoli:

There are insurance companies that only do self-funded plans, and they do level-funded plans as well, like we talked about that. And you can get that from Aetna or United, or you can go to a private TPA that will do that for you. They use tools that larger employers use because they have larger employers also. So they offer tools that will help you control the expenses as they incur. One of the things that many people have been hearing about lately is the problems with pharmacy and what drugs cost. Huge conflicts of interests, and we call them misaligned incentives.

Drew McLellan:

Sure. Everybody wants to get rich, I think, is what I call that.

Allison De Paoli:

Yes, I think that’s an accurate description as well. And by changing simply the pharmacy provider into something called a fiduciary provider, you can usually cut the cost of a number of your medications, even generics.

Drew McLellan:

So what’s a fiduciary provider?

Allison De Paoli:

Fiduciary provider means that they are obligated to act in the best interest of their client, who is you, the employer, okay? Not the insurance company, not whoever, but the employer. And you should also be using, if you’re going down this route, a fiduciary TPA because they are also obligated to act in your best interest as the employer.

Drew McLellan:

When you say TPA, what is that an acronym for?

Allison De Paoli:

A third party administrator.

Drew McLellan:

Okay. So the fiduciary pharmacy, that is someone who’s going to basically negotiate down the cost of the [crosstalk 00:15:33]

Allison De Paoli:

They’re going to negotiate the price.

Drew McLellan:

… my people are using. Right.

Allison De Paoli:

Yes. And let me give you two examples.

Drew McLellan:

Okay, great.

Allison De Paoli:

I reviewed a contract for somebody, and it was a little bit of a larger employer. There were three things that stood out. There was a drug called vimovo on the paid claims list, vimovo costs $2,300 per prescription at the time, and I believe that’s gone up to $2,900 at this point, and I might be just a wee bit off there.

Drew McLellan:

Per month?

Allison De Paoli:

Per month. Per 30-day supply.

Drew McLellan:

Holy [inaudible 00:16:06].

Allison De Paoli:

That is a combination of naproxen and an analgesic. So-

Drew McLellan:

I don’t know what any of those things mean.

Allison De Paoli:

… for 25 bucks, you can go get that. Even if you need a prescription strength, and you take it in two pills rather than one. That’s it.

Drew McLellan:

So it was the combo that cost the… Well, you know.

Allison De Paoli:

Yes.

Drew McLellan:

We got to blend two pills together, Allison, come on.

Allison De Paoli:

Yeah, yeah, yeah, but so…

Drew McLellan:

That’s more than 700 bucks, come on.

Allison De Paoli:

So, one, that should not be on your formulary. That’s the first thing, unless you are… There are some medical reasons for that, but they are truly extenuating, and usually involves some sort of throat cancer or trauma to the throat where you cannot swallow a great deal of things. And then there are ways around that as well. One, that should not be on your formulary at all. A fiduciary PBM would stop that and not fill it, okay? And find out why, right? Why is this being prescribed and what can we do to help you get around this?

The other thing that sticks out a lot is Enbrel. So Enbrel costs about $55,000 or $60,000 a year depending on where you live. But there are programs where that drug can be delivered to the patient at no cost. So it is a fiduciary pharmacy’s obligation to find out if you qualify for that, or if the plan qualifies for any rebates and return those rebates to the employer.

Drew McLellan:

I’m just thinking that all of our Canadian and Australian and European listeners are like, “Oh, my God,” right?

Allison De Paoli:

They’re laughing at us.

Drew McLellan:

Yes, they are.

Allison De Paoli:

Yes, they are.

Drew McLellan:

I have to ask a very basic question. If my plan has one of these PBMs, and my employee [inaudible 00:17:49] goes to the doctor and gets a prescription, how does she fill that prescription? Does she do something different? Is it mail order? She’s not going to the local Walgreens to do that.

Allison De Paoli:

No, normally your employee would not… [inaudible 00:18:04] would not be aware that there has been a change to the pharmacy [crosstalk 00:18:08].

Drew McLellan:

Okay. So she would still go to Walgreens or wherever?

Allison De Paoli:

Mm-hmm (affirmative).

Drew McLellan:

Okay.

Allison De Paoli:

Yes.

Drew McLellan:

It’s just that the price that the insurance company is allowed to charge is got some sort of a governor on it, so they can’t charge me $2,900.

Allison De Paoli:

Yes. Correct. Pharmacy benefit management is all about contract negotiation and price of drug, right? And the price of drugs changes every day. I don’t really understand that portion, but those drugs change every day. So with a fiduciary pharmacy benefit manager, the pharmacy benefit manager’s obligated to go to the lowest price, and the plan pays the lowest price. And in case of Enbrel, that could be the difference between $55,000 and $30,000. That’s a pretty big difference.

Drew McLellan:

Yeah, it is. Yeah. Okay. So how would a average small-business owner even know about these? I’ve owned my own business for almost 25 years, I had no… And I’ve offered health insurance that entire time. I didn’t know that I could have a PBM that would help me manage what we paid for the prescriptions that my people-

Allison De Paoli:

Well, you have a PBM now if you offer health insurance, it’s just offered through your-

Drew McLellan:

I just don’t have one who’s actually negotiating on my behalf, is what you’re saying.

Allison De Paoli:

That is exactly what I’m saying. So I would tell you that you should be on the lookout for a forward thinking, benefits advisor. And I know a number of them, we’re not unicorns, but we’re in… There’s not a lot of us, but we’re not unicorns, and we’re in many markets. You can go to LinkedIn and search for us and you will find us. That’s what I would encourage you to do. And I would also encourage you, if you don’t want to go in the LinkedIn route, and I understand some people don’t, just get a couple of different opinions when it’s time for renewal. Now, I will tell you in the under 50 life market, fully insured plans, the rate is the rate. So if you’re happy with who you’ve got, you’re good. If you want to seek out something a little different, you may need to do a little investigating, but it is available, and it’s available in just about every market in the country.

Drew McLellan:

So if I have less than 50 employees, though, this is not an option available to me?

Allison De Paoli:

It is.

Drew McLellan:

[crosstalk 00:20:22]

Allison De Paoli:

You need to find somebody that understands how to make it work for you.

Drew McLellan:

Okay, all right. All right, so I can have somebody who helps me negotiate basically, the cost of the pharmaceuticals that my folks are taking. What else can I do to… If I’m inside a traditional plan?

Allison De Paoli:

If you’re inside a traditional plan, you’re pretty much inside a traditional plan for both the medical and the pharmacy. If you’ve sought out another type of advisor, and they’ve got you into a level-funded plan with a transparent or fiduciary TPA, not only are they going to work on your pharmacy spend, they’re also going to help you work on what your services actually cost. There’s data now available about where the best places to go for treatment are, and the best places to go for treatment are normally not the most expensive. Places that know how to do something generally do it well and for an appropriate price.

Drew McLellan:

Yeah. Because they’re more efficient and-

Allison De Paoli:

Because they’re more efficient. I think particularly, for small and midsize employers, you know your employees, they work for you, you value them, you know their families, and you want to do the best for them that you can. So by getting them to the highest quality provider, you get them the highest quality care, and you are fiscally responsible to your business as well. And I think a lot of people don’t look at it that way.

Drew McLellan:

So what you’re really saying is rather than… I’m probably putting words in your mouth. But rather than just going to the average insurance broker, what you’re saying is, you need to find someone different than that to help you go shopping for a plan that is financially more appropriate for your business and will take good care of your people.

Allison De Paoli:

Yes.

Drew McLellan:

Okay.

Allison De Paoli:

That is absolutely what I’m saying.

Drew McLellan:

Okay. Are there other things that we can do… Everybody seems to be on a big wellness kick that they are encouraging their employees to stop smoking and lose weight, think peaceful thoughts and all that sort of stuff. Are there things like that, that we should be doing to try and reduce our expense?

Allison De Paoli:

I think that wellness programs are always valuable from an employee engagement perspective, they generally do not produce in an ROI for what a good wellness program costs. Doesn’t mean it’s not worth doing, but do it because it’s the right thing to do for your employees, not because you’re expecting a return on your investment.

Drew McLellan:

Okay, so it’s a good investment to make, but I’m going to net out about even probably, at best, is what you’re saying?

Allison De Paoli:

At best.

Drew McLellan:

I’ll have happier, healthy employees, and that’s a benefit, but I’m not going to have more money in my pocket.

Allison De Paoli:

Correct.

Drew McLellan:

Okay.

Allison De Paoli:

And you might have happier, more productive employees, which is valuable, also.

Drew McLellan:

Sure. Yep. I know one of the things that you talk about is that the trick to health care management, in terms of cost, is to kind of manage the claims, not the administrative stuff. Is that what you’re talking about when you talk about having the fiduciary providers for both pharma and for the actual insurance [crosstalk 00:23:35]

Allison De Paoli:

Administration? Yes.

Drew McLellan:

Yeah. Okay.

Allison De Paoli:

I do. I think it’s important. Health care is like this black box, and nobody understands what’s in it, or nobody used to understand what’s in it. That’s not as true as it used to be. There are tools, and they’re just tools, right? You have marketing tools that… You have 100 tools, and this group works for this kind of employer, and this group works now, and this group works later, so there are a lot of tools that you can use to get a handle on what the costs are and how they’re happening, and making sure that they’re appropriate. Larger employers have been doing that for a long time. Now that’s coming down into the middle market, and it’s coming down into even small employers as well. You do need a savvy employer who wants to do the best for their employee and the best for their business. But it’s not horrible or completely undoable.

Drew McLellan:

Is all of this availability at a small business sort of size? Is this new, could I been doing this for 25 years, and I’ve just been paying out the nose, because I was too ignorant to know that I could do this? Please say no, make me feel better, Allison.

Allison De Paoli:

I’m going to make you feel better.

Drew McLellan:

Thank you.

Allison De Paoli:

It really wasn’t possible probably even five years ago.

Drew McLellan:

Oh, okay, I feel better.

Allison De Paoli:

I will tell you I worked in a family health insurance agency for a long time in a different state, and we had a group of 35 accountants who we could not get off self funding to save their lives in the early ’90s. They were very happy that way. That was an unusual situation. Then we moved back into the fully insured world where employers, even middle market employers, were usually better off being fully insured than self insured. And that pendulum has swung rather dramatically in the other direction, there isn’t a way to control your cost if you’re not seeing what it is.

Drew McLellan:

Yeah, it’s a valid point. So I want to ask you a little bit more about does it matter the makeup of my employees? Let’s take a quick break, and then I’m going to come back and dig into that a little bit. Thanks for tuning in to Build a Better Agency. Just want to take a quick second and remind you that throughout the year, AMI offers workshops for agency owners, agency leaders and account executives. So if you head over to the AMI website, and you check out under the training tab, you’re going to find a calendar of all of the workshops we offer throughout the year. We cover quite a wide variety of topics, everything from Bizdev, to creating a content machine for your agency, to making sure that you are running your business based on the best financial metrics and dashboards that you can.

We also have a workshop on agency owner management hacks, all the best practices that agency owners are using to run their businesses well and profitably. And of course, you’re always going to find our account executive boot camp and our advanced AE boot camp. So go ahead and check it out on the website, and hopefully one of those will meet a need for you and your agency, and we’ll see you soon. Let’s get back to the episode.

All right, we are back and we are talking about the always riveting topic of health care costs. So Allison, before the break, I had said… So in agencies, they typically have one of two sort of employment-based scenarios, either everyone they work for is a female of childbearing age, or they have a lot of older employees who’ve been with them for a long time, so they’re get a little gray haired, they’re on the blood pressure medicine, maybe they’re pushing… their blood sugar’s aren’t so hot anymore. Do I have to have this young, vibrant, unable to get pregnant because they’re boys population for this to work?

Allison De Paoli:

No, it is important to understand that if the majority of your population is women of childbearing age, that your premium is going to be a little bit higher, and-

Drew McLellan:

Right. But the methodology that you’re talking about, I still might be able to offer as good, if not better, care for less money?

Allison De Paoli:

Yes.

Drew McLellan:

Okay. And what about if I have a bunch of old people working for me?

Allison De Paoli:

Well, if you have a bunch of old people with you, if you were my client, I would tell you, you need care management to make sure that your older employees are getting the right care, there is a significant amount of misdiagnosis in medical care. So I’d want to make sure that diabetes diagnoses were being looked at, any cancer diagnosis was being looked at, if there’s a heart surgery, if just about any of that is being looked at to make sure that it is an accurate diagnosis. Then you also want to make sure, and you can do this for very little premium or cost, that your employees are taking their medication and they’re getting their checkups. It is so important that if your employees get regular care, a diabetes diagnosis is not the disaster that people think it is, because an in-control diabetic takes their medication, they get their eyes checked, they get their teeth cleaned, they get their routine physicals, they don’t one day show up in the emergency room with a sugar spike because they can’t afford their medication, they’re not taking their medication and cost your plan $50,000. That doesn’t happen when they’re well taken care of.

Drew McLellan:

So all of this sounds like a full-time job to keep track of all of this stuff. And again, I want to go back to… Before I even get into how labor intensive the sounds, you can help us understand what that all takes. How do I do all of this, again, without being a Nosy Nellie in my employee’s health? So for example, let’s say one of my employees gets a diagnosis of diabetes. He or she may not choose to tell me that. So how would I know that they’re doing… How do I intervene, as a business, when they’re not obligated to tell me and I certainly by law, can’t ask about it?

Allison De Paoli:

That’s a really good question and a really important question. Ideally, you should not be involved in this at all. It is a fair amount of work and it is a full-time job for many people I know. But it is not the job of the business owner. So the third-party administrator and your advisor should be handling all of that. And you should just be getting a regular review either on a monthly or a quarterly basis. And certainly you should not be surprised at anything that comes at open enrollment. And that it’s often [crosstalk 00:30:15]

Drew McLellan:

Okay. Again, so those people, that is part of how they’re earning the premium I’m paying, you’re the ones who are monitoring all of this, and they know all the super secret stuff that I don’t need to know about?

Allison De Paoli:

Absolutely. You do get some reporting, but it’s not, “John Smith has diabetes.” It’s, “You have a diabetes diagnosis, you have this diagnosis, you’ve paid these 25 prescriptions.” And that’s really all you’re seeing.

Drew McLellan:

Okay. But again, if I only have seven employees, unless I’m not-

Allison De Paoli:

You’d know, anyway.

Drew McLellan:

… paying any attention, I would probably know. Right.

Allison De Paoli:

Exactly.

Drew McLellan:

Yeah. Okay, so I know that there are all kinds of, what I know you referred to as sort of hidden drivers of health costs. Can you walk us through what some of those are, and how we watch for them, mitigate them, manage them?

Allison De Paoli:

Sure. The lowest hanging fruit and the one that everybody’s talking about is the pharmacy, that is, hands down, a quick place to find some savings. The other thing is getting the Small Claims out of your-

Drew McLellan:

With that telehealth idea.

Allison De Paoli:

With the telehealth. There’s another way to do that, it’s called direct primary care. And the model works differently in different parts of the country, some people love this and some do not. So it really is an employer dependent decision and really probably an employee choice, not necessarily something that the employer should force. But direct primary care is like having the old fashioned doctor, you had a doctor, you could call the doctor, you could visit the doctor the next day, you could talk to the doctor for more than the 38 seconds that you can currently, and you can have a holistic conversation about your health.

Ideally, a primary care physician like that can manage about 80% of the things, probably 90% of the things, that happen for most people, they can make sure if you’ve got chronic conditions, if you have diabetes… Let’s say I have diabetes, or I have hypertension, or I have high cholesterol, or I have a low-level autoimmune disorder, that those things can be managed on a monthly and more personal basis, you pay a set fee for that. And depending on your market, that fee can be surprisingly low, and those claims never hit your plan.

Drew McLellan:

So the pharma would if they’re prescribing medicine, right?

Allison De Paoli:

Mm-hmm (affirmative).

Drew McLellan:

Yeah. So what you’re really talking about, in my world, I would call that a concierge doctor.

Allison De Paoli:

It is a concierge doctor.

Drew McLellan:

Yeah, yeah.

Allison De Paoli:

And you don’t have to pay $1,800 a year for it, or $3,600 or $5,000, depending on your market.

Drew McLellan:

Okay. And if the going rate in my market is $1,800, how is it that I would get it less expensively?

Allison De Paoli:

That’s how a concierge physician will normally charge. A direct primary care physician normally works on a different business model, and it should be less than $100 a month in most markets.

Drew McLellan:

For each employee.

Allison De Paoli:

For each employee.

Drew McLellan:

Okay. But again, one doctor’s visit probably-

Allison De Paoli:

Will take care of that.

Drew McLellan:

Yeah, right.  Okay. So what else? What are some of the other hidden cost drivers we have to be mindful of?

Allison De Paoli:

Where your employees are seeking care? How are they ending up at a particular facility? How are they ending up with a particular provider? And let’s use a knee replacement. So the best place to get a knee replacement probably is in the neighborhood of $25,000 to $40,000. We see a lot of $70,000 knees.

Drew McLellan:

Wow, you should get two knees for that. But on, get one free.

Allison De Paoli:

Yes, you should. You should, but you should get it by the guy that charges $25,000, because he does many knees a week, and that is what you want. So there are tools to identify the facility that does the best job, as well as identifying providers that do the best job. And I don’t think that it is appropriate or probably even legal for you to force your employee to go to one or another, but you can incent your employee to go to the provider that does a better job.

Drew McLellan:

So inside the plan, what would that incentive look like?

Allison De Paoli:

That is usually a part of care management, where if a knee diagnosis or a musculoskeletal diagnosis is coming into the plan, it’s going to be sent immediately to the care management firm and the care management firm will reach out, not once, until they get the employee and have a conversation about what is going on. Back surgeries, people have back pain, they go to the doctor, the doctor says, “Well, we need to fuse your disc, we need to cut this, we need to do that,” and more than half the time, that’s not a correct diagnosis. So at least get a second opinion. And you may need that, or you may not.

Drew McLellan:

So this becomes almost like a medical coach, where somebody is saying to the employee, “Have you got a second opinion? We have a lot of misdiagnosis around this, let’s make sure that this is what you need.”

Allison De Paoli:

Yes. And you get [crosstalk 00:35:13]

Drew McLellan:

But not saying, “You don’t get to have it done.” Or, “Here’s where you have to go to do it.”

Allison De Paoli:

Correct. Maybe the conversation is, “Have you had a second opinion? Do you need help finding somebody to conduct the second opinion?” And then the next conversation is, “Okay, you need this knee, your provider wants to go here, but they also have admitting privileges here and here, and this is where we get a better result. Would you like to go here?” And most people value the help. How would I know what is the right guy to do a knee replacement? So having some unbiased information can be incredibly helpful to your employee and save your plan an awful lot of money.

Drew McLellan:

You’re saying this is a better option than asking your friends on Facebook who should do your knee surgery?

Allison De Paoli:

Just a little bit.

Drew McLellan:

Okay. Fair enough. I think one of the challenges for agency owners is that they feel the pending doom of the renewal and the hardest part is, you have no idea what you’re going to get hit with, because you have no idea what the charges have been throughout the year. So you have no idea if you’re going to get hit with a 5% increase and that would, of course, make you cry with joy, or a 25% increase, which seems to be the more the norm as it’s for certainly double digits for most small businesses. Am I circling back around to the same answer? If I want to have more control and predictability, and a longer term of longevity without huge spikes, so I want that repeatable predictability year over year, how do I do that?

Allison De Paoli:

You have to get control of it, you have to start the journey from a fully insured plan into something that is more self funded. And there’s level funding, there’s coalition plans, there’s co ops where a group of private employers will be together with one stop loss carrier, that’s what the reinsurance is called. And you’re in a pool, and the pool shares the risk. So even if you have a bad year, you may not get hurt as much, because the next guy had a good year. That’s more complex and is a little bit further down the road. But I would encourage you to talk to your advisor, or find an advisor who will help you move from fully insured, and get you into some sort of self-funded arrangement, where you at least have a little bit more visibility into what’s going on. There’s a couple steps in that journey, but they’re all doable, and it’ll take a little time as well.

Drew McLellan:

So when you say self-funded, my chest clutches just a little bit, because I think, “Oh, my God, that feels so risky.” And I have to think that for a lot of business owners that don’t understand it, like clearly I don’t, that’s what they’re thinking is, “I’m fully funded, so I have no risk, I just pay this hideous premium. But then whatever happens to my people, A they get the coverage they need, and B, I’m not on the hook for their open heart surgery,” or whatever, right?

Allison De Paoli:

Well, you are on the hook for their open heart surgery.

Drew McLellan:

Next year with renewal, right?

Allison De Paoli:

Next year with the renewals. So I can understand that and I come from a family of entrepreneurs and we all think that. So even if you’re self insured, you do have something called reinsurance, which is like health insurance with a really big deductible. Depending on your size, it may mean that you have a responsibility for the first $10,000 or the first $20,000 of a claim. And then after that it goes to the reinsurance company, and it’s their responsibility.

Drew McLellan:

Got it.

Allison De Paoli:

And then you also know, when you’re looking at your proposal, what your responsibility is, what your maximum responsibility is for the entire year, and what your expected claims are. So if you’re going to spend $1, you’re expected claims probably come in at about 85 or 90 cents. And then you may save that 15% if you have that expected claim level, and often you have an expected claim level. Every once in a while you’re going to get smacked, but usually you come in where expected.

Drew McLellan:

This feels like a whole nother world that that nobody knows about. Have I just not been reading about this? Am I missing it? Are there places where, if an agency owner wants to learn more about this, are there places they can go to get better educated? So before they hire someone like you, it seems like you sort of have to understand the rules of the road a little bit.

Allison De Paoli:

Yes.

Drew McLellan:

Where would you send someone if they were saying, “Look, I just want to know more about this before I pick up the phone and start, or I go to LinkedIn and I start looking for a TPA with that sort of fiduciary.”

Allison De Paoli:

Well, I wouldn’t go looking for a TPA, I would go looking for an advisor, and I would start my search on LinkedIn. There are a couple of books, one is by David Chase, about how health care is destroying the American dream. And he’s got great examples in there about how different employers are taking back control over the long term.

Drew McLellan:

And you wrote a book about this as well, that I mentioned in the intro, right?

Allison De Paoli:

I did. That book is called Breaking Through The Status Quo. That is a collaboration with 29 other, or 28 other, forward thinking benefit advisors, and it is all of our strategies for how to get control of your spend, and all of your benefits, not just your medical spend.

Drew McLellan:

Again, that would be a place where I also could go to shop for an advisor, is I could read what you all wrote, and then, “Oh, I like the way this person thinks, I’m going to track them down.”

Allison De Paoli:

Yep. And we’re all over the country, so you can probably find one reasonably close to you.

Drew McLellan:

And does it matter… If I’m looking for one of these folks, someone like you, does it matter if we live in the same part of the world?

Allison De Paoli:

I think you want an agent nearby, not necessarily down the street, but in some geographic proximity, just to help service and pop in every once in a while. Most employers, especially smaller employers, have quite a close relationship with their advisor, and it is quite personal. I mean, you’re sharing a fair amount of information, personal information, and there’s a trust level there. Does it have to be really close? Nope, it doesn’t. But often people are more comfortable that way.

Drew McLellan:

So with the adviser or whoever’s sort of looking at all the claims and doing all the things that we talked about, do they see… I’m sure there are some people listening who are like, “Either I don’t want someone else knowing what is going on with my people, or maybe even with me as an owner.” So would the adviser actually be able to go, “Oh, you know what, Drew’s on antidepressants,” or whatever the deal is, right?

Allison De Paoli:

There are always health questionnaires when you’re moving into a self-funded arrangement, and they are confidential, they’re subject to HIPAA rules. But your plan will run much better when those are fully and truthfully answered. And that’s private, those come back to me or to the TPA, they don’t go back to the employer.

Drew McLellan:

But for example, if I hired you to do this for my company, and by the way, listeners I’m good, I am not on antidepressants. But if I was, you would see that on the list, you would see that Drew is on antidepressants.

Allison De Paoli:

Yes, I would.

Drew McLellan:

Okay. So again, it’s immediately a pretty intimate relationship that you would have with your advisor-

Allison De Paoli:

Immediately, yes.

Drew McLellan:

… because they’re all in your business as well as [crosstalk 00:43:00] business.

Allison De Paoli:

Absolutely.

Drew McLellan:

Okay. But somebody at Blue Cross Blue Shield is looking at that too, right? I just know they are.

Allison De Paoli:

Exactly.

Drew McLellan:

Yeah. Right. So somebody is already peeking into what’s going on with our health, it’s just not somebody we’re having coffee with at Panera.

Allison De Paoli:

Correct.

Drew McLellan:

Right. Yeah, okay. What else? Obviously, this is a fascinating topic, and we could talk for a lot longer, but I want to be mindful of your time. But what else should owners be thinking about in terms of sort of managing this huge cost to their business every single month?

Allison De Paoli:

Two things. One is an immediate strategy if you are coming up for renewal, and one of the things that is being presented to you is a health savings account. Though, that is an often overlooked retirement savings vehicle that particularly smaller employers can take advantage of. So-

Drew McLellan:

So talk a little more about that.

Allison De Paoli:

Gladly. A health savings account will allow you to save a set amount every year on a pre tax basis to use to cover unreimbursed medical expenses, deductibles, co pays, things that are not covered, anything like that. Unlike the old flexible savings account, and Health Savings Account HSA, that money belongs to the employee and that money can grow year over year, and at some threshold will be investable. Once you reach your retirement age, you can withdraw that money for any use, not just for medical use, without any penalty and without paying any tax.

Drew McLellan:

Can I overfund it on purpose?

Allison De Paoli:

You cannot overfund it on purpose and the limits change every year, it’s about $3,450 this year for single and I want to say $6,700 for family, I’m not quite sure about that. The limit-

Drew McLellan:

But still, that’s a decent chunk of money.

Allison De Paoli:

It is absolutely a decent chunk of money and if you start that early enough, you can have a nice amount of money in there by the time you need it, and if you are a healthy person, and you start that now, 5 years, 8 years, 10 years later, when something happens, and you’re in a fully insured plan, and you have a $5,000 deductible, your financial worry for that is gone because you have the money.

Drew McLellan:

Yeah, it’s a really good point.

Allison De Paoli:

So it’s a dual fold, two fold benefit. And I think it’s often overlooked. I would also encourage you, as an employer, and I know this is a big ask, that you fund a little bit to that every year, maybe $250, or $500. I know health care costs are out of control, but the average person doesn’t have $1,000 set aside for any unexpected expense, let alone a medical expense. [crosstalk 00:45:45] have a plan with a $2,500 or a $5,000 deductible, which is not all that unusual, so now the stress level about having an incident is now compounded by, “I’m not at work, I’m not making any money, I don’t have money to pay for this,” and it just gets out of control. So I’m a big proponent of that. I know, sometimes that can be a difficult addition to make. That, for somebody that’s fully insured, I think that’s a great way to do a number of things for your employee.

Then I would encourage you to take control. If it is as simple as get a GoodRX card, you just download that onto your phone, they send you a card, and you will find that sometimes it is less expensive to use the GoodRX card than it is to pay your co payment. It’s-

Drew McLellan:

What is a GoodRX card for people who aren’t familiar with that?

Allison De Paoli:

GoodRX is a company that has… They act almost like a pharmacy benefit manager and rather than having a copay, you pay whatever the cost is, but sometimes that cost is less than your copay.

Drew McLellan:

Ah, okay. So instead of paying my $25 of my copay, it might be $17.

Allison De Paoli:

Or $8. That’s happened to me.

Drew McLellan:

Yeah, wow.

Allison De Paoli:

Then that never hits the plan. So over time, that’s helpful. So those are two really small things. And take control one step at a time. If it’s telehealth, if it’s using the GoodRX card, if it’s finding another advisor, whatever it is for you to get control of it, there is not another area of any employer’s business that they have as little control as they do here.

Drew McLellan:

Yeah, yeah. Such a good point. Allison, this has been fascinating. Thank you. Thank you so much for sharing your expertise and tolerating my stupid questions. I appreciate it very much.

Allison De Paoli:

Your questions were not stupid, they were fabulous. Thank you so much for having me.

Drew McLellan:

You bet. If folks want to track you down, what’s the best way for them to find you?

Allison De Paoli:

We have a special landing page just for you, allisondepaoli.com/build and De Paoli is D-E P-A-O-L-I, so allisondepaoli.com/build, and they’ll find… I have a guide that is free to download that will give them the steps to start on this journey, and there is a number of other resources there as well that’ll help get them started.

Drew McLellan:

Okay. And, guys, we’ll make sure that hat link is in the show notes as well. So if you are listening to this while you’re running on the treadmill, or walking the dog, hello, Ginger, by the way, I know you’re out walking with your mom, then don’t have to try and remember, I promise we’ll have it in the show notes as well. Allison, this has been great. Thank you so much.

Allison De Paoli:

Thank you very much for having me. I appreciate it.

Drew McLellan:

You bet. All right, guys, this wraps up another episode of Build a Better Agency. Again, my whole goal is to help you make more money and keep more of the money you make, and boy did this episode deliver on that. So explore some of these things that Allison talked about, even if you take the baby steps. Everything you do that serves your employees better, that also puts a little more money back in your pocket, I think that’s a day well spent. So I highly encourage you to explore this topic, to learn more about Allison and her colleagues in the field, and I suspect this will be a topic that we will revisit. So thanks for listening. As always, you can track me down at [email protected], always happy to hear from you and always grateful for your ratings and reviews. Talk to you next week. Thanks.

That’s all for this episode of AMI’s Build a Better Agency podcast. Be sure to visit agencymanagementinstitute.com to learn more about our workshops, online courses and other ways we serve small to mid-sized agencies. Don’t forget to subscribe today, so you don’t miss an episode.