Episode 176

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This is one of those episodes that proves that you don’t know what you don’t know. We’re tackling the subject of health insurance – how to manage costs as an employer since it is such a big-ticket cost for most agencies.

I’ve been an agency owner for the past 25 years or so, and health insurance is something I want to offer because I value my team and want to provide a generous benefit package. But when renewal time comes around, I’m always wondering what kind of increase is coming. Like most of you, it’s usually in the double digits and super painful. Someone (me or my employees) has to endure that increase or we have to increase the deductible or reduce features.

One thing I do know: For all of us, healthcare costs typically one of our biggest expenses and feels completely out of our control.

I wanted to tap into the wisdom of Allison De Paoli, who works with businesses to get more out of every healthcare insurance dollar. She offered some incredible insight on managing the costs, increase the benefits to your team and protect yourself when it comes to renewals.

A veteran of the insurance and benefits industry, Allison and her firm are members of Next Generation Benefits Network (NBN). NBN is a national alliance of elite independent benefits firms that are successfully challenging the healthcare status quo to improve benefits for employees, while reducing the costs for employers.

 

 

What You Will Learn in This Episode:

  • Creative ways to manage your healthcare line item
  • The difference between a level-funded plan and a standard premium plan
  • Cost savings and other benefits of telehealth programs
  • Finding a benefits advisor who will truly advocate for your best interests
  • How to make sure employees of every age are getting the right kind of medical care
  • Hidden drivers of healthcare costs
  • The role and surprisingly affordable cost of a direct primary care doctor
  • Why self-funded plans are not as scary as you might think
  • How a health savings account can act as a retirement savings vehicle

The Golden Nuggets:

“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.” – @acdepaoli Click To Tweet “A good care management firm will contact an employee until they reach them, and then have a real conversation about what is going on and next steps in the process.” – @acdepaoli Click To Tweet “Being fully insured without understanding the policy details is the riskiest strategy of all because you have no control.” – @acdepaoli Click To Tweet

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Ways to Contact 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 effic