Presentation on theme: "1 Taking Control of our Nonprofit Employee Health Insurance Costs & Benefits Phil CollyerJohn Cassell PresidentSenior Partner National Assembly Spring."— Presentation transcript:
1 Taking Control of our Nonprofit Employee Health Insurance Costs & Benefits Phil CollyerJohn Cassell PresidentSenior Partner National Assembly Spring Consulting Group LLC Business Services, Inc.
Today's Agenda Introductions and past progress Health reform – Its affect on Nonprofits Controlling healthcare costs – Why and how Presentation summary and next steps Questions and answers 2
Introductions 3 National Human Services Assembly Formed in 1922 American Red Cross, Boys & Girls Clubs, YMCA Human services / community development sectors Youth-serving agencies, family strengthening, workforce development 75 national members, 150,000 affiliates
5 Spring Consulting Group LLC Leading US actuaries and consultants in employee benefits funding Spring associates established one of the earliest employer group employee benefit funding programs using a captive insurance structure in 1996 Works with a wide range of associations and employer groups including National Assembly since 2006 and ASAE since 2009 Designs employee benefit funding programs for many Fortune 500 organizations including UTC, Dow Corning, and Subaru Independent and 100% employee owned.
Recent progress In nonprofit agencies embarked on a mission to investigate health care options 11 agencies funded a detailed feasibility analyses to cover 4,000 employees Aggregate savings average 5.7% in year one $18M saved over 5 years Insufficient employee reserves to date for successful launch 6
Recent progress Premiums continued to rise dramatically Economic downturn affected (and will affect) all nonprofits Staff reductions and reduced mission resulted Government focus on reform unlikely to help nonprofit employers in current climate 7
Recent progress Members asked National Assembly to try again American Society of Association Executives (ASAE) Joined with National Assembly IS NOW THE TIME? 8
Healthcare Costs: Still Out of Control 9 Percentage Increase in Health Insurance Premiums Compared to Inflation 1 15 th Annual National Business Group on Health/Towers Watson Employer Survey on Purchasing Value in Health Care 2010.
Healthcare Costs: Not Just Health Insurance The prevalence of chronic disease and overall declining health of the population has a significant impact of lost days, and therefore productivity 10 1 Newsweek Web Exclusive. Average Annual Days Lost by Workers with Chronic Conditions 2 2 U.S. Chamber of Commerce and Partnership for Prevention. 55% of the American workforce 1
Impact of the Recession Organizations with real financial problems are : –Selling off assets –Cutting headcount –Decreasing or freezing benefits –Reducing work hours and eliminating pay during those times Employer downsizing drives up health and disability utilization as employees anticipate losing their benefits 11
Impact of the Recession In the small business sector, failure to pay medical bills is a dominant cause of bankruptcy The current economy threatens health and life insurer profitability, driving up rates All organizations are looking for ways to cut their benefits spend and reduce the rate of future cost escalation 12
Employee Worries Related to Health Care 13 Source: Kaiser Family Foundation Health Tracking Poll (conducted July 7-14, 2009) Note: various items asked of half sample. *Asked only of those employed. **Asked only of those insured.
Health Reform: What is Likely to Happen What will happen now? – Some of the relevant changes within the first year under the Reconciliation Bill include: –Tax credits for businesses - businesses with fewer than 25 employees and average wages of less than $50,000 could qualify for a tax credit of up to 35% of the cost of their premiums (25% credit on payroll tax for non profits) –Coverage of children under parents plan until age 26 –Elimination of: lifetime caps on benefits ( annual limits 2014) Ability to rescind plans Pre-existing conditions Extended waiting periods Increased government oversight and penalties levied against health insurers pharma and medical device companies 14
Health Reform: What is Likely to Happen What will happen in the future?- A complex series of reforms that may be resisted at the individual state level –Health insurance "exchanges for employers up to 100 employees –Employer penalties for not providing appropriate cover –New employer reporting requirements –New charges for self insured plans –Rules requiring insurers to accept all applicants –Excise tax on Cadillac insurance plans 15
Health Reform: What is Likely to Happen Other Key Proposed Developments –Establishment of the CO-OP program (designed to foster the creation of non-profit, member-run health insurance companies); $6B will go toward financing the program to establish CO-OPs by July 1, 2013 –Premium subsidies for take up of prevention and wellness programs in 2014 –States can form healthcare choice Compacts allowing cross selling of state health plans from Jan For employers the health insurance environment will become even more complex
Developing Our Own Health Insurance Program – why it is essential Cost escalation in healthcare is unlikely to be fully addressed for decades Political resistance is likely to dilute and delay health reform Expanded coverage costs will be shifted to employers by the government and insurance companies 17
Developing Our Own Health Insurance Program – why it is essential It will take time to create real insurer competition and efficiency at the state level Health insurance costs are damaging the effectiveness of nonprofit organizations now 18 As healthcare costs continue to grow the imperative is to take control
Taking Control: Our Own Health Insurance Program National Assembly and ASAE invite you to join in forming a new captive health insurance program that will be owned and run by its members - You The program will be established in Washington, DC : –It will offer a wide range of health plans tailored to its members needs –Members as owners will be able to respond quickly to any benefits of health reform –The program becomes increasingly cost effective over time as the group grows 19 So what is a captive?
What is a Captive? An insurance or reinsurance company Specifically established to insure or reinsure the risks of its parent or associated third parties Part of an organizations risk financing repertoire The main reasons for most organizations to use a captive are: –To gain cost savings and to increase cash flow –The ability to tailor-make benefit designs –Tax advantages –Transparency 20
What Makes this Health Insurance Program a Priority Now 50,000 insured employees will cost $1.5B in health insurance over the next three years The health insurance program could save 5-10% of healthcare costs ongoing, improving productivity, reducing HR overhead and making millions more dollars available for members programs The program can be expanded to nonprofit affiliates and association members to provide them with the same benefits 21 The program is designed to be a long term solution to a long term cost issue 21
Major Advantages of this Health Insurance Program Strength in numbers Spread of risk Access to more sophisticated healthcare plans Members of the program are owners of the Captive Insurance program Advanced wellness and disease management programs can be custom designed for the group 22
Eventual Long Term Benefits In the long run, the captive should allow the members to: Develop targeted health management mechanisms to save additional costs Add additional liabilities through the captive structure to achieve the same benefits as the initial program, such as life, disability, vision, dental, accidental death and property and casualty risks 23
Eventual Long Term Benefits In the long run, the captive should allow the members to: Benefit from investment returns from accumulated reserves, reduced risk charges and leveraging scale. Pay dividends from reserves as the program becomes larger and the risks more predictable 24 Using the results from the National Assembly study, Captive members with a combined 50,000 employees would save $230M in healthcare costs over five years
25 The Health Insurance Program – Structural Background The program will be available to National Assembly and ASAE members, their employees and associates, today representing several million workers A program has been designed for an initial employer group providing health insurance with a wide choice of nine plan options. A number of organizations are being evaluated as potential providers of administration and reinsurance services Working with legal advice from McDermott, Will & Emery, we are proposing a group captive, domiciled and licensed in Washington, DC
26 The Health Insurance Program – Structural Background The captive would be owned and directed by its members Recruitment of additional members will create significant risk-bearing capacity over time that will minimize stop loss costs and enable the captive to purchase health services for its members very cost effectively Stable design with all participants committing to the program for a minimum of three years The original study covering approximately 4,000 employees indicated that in the first year of operation of the captive, conservative average health cost savings of 5.7% could be achieved
Timetable: Phases Pre-decision Financial & Benefit Analysis –New Feasibility Report (new participants) –Undated Feasibility Report (earlier participants) Decision –Commitment to launch (need threshold number of EEs) Implementation –Captive setup, legal documentation, domicile plan submission, board development, approval, employee communication Launch 27
Timetable: Costs Pre-decision Financial & Benefit Analysis 1 –$3600 : up to 100 EEs + $6/EE additional (new participants) –$2400: up to 100 EEs + $4/EE additional (earlier participants) Decision –Commitment to fund going forward Implementation –Formation cost: ~$15/EE 2 –Capitalization: ~$500,000 (entire Captive) 3 –Claims pre-funding: ~3 months premiums 4 Launch –Premium payments monthly 28 1 Payments made in advance to Natl Assembly/ASAE or Captive once formed; cost as incurred 2 Implementation costs will depend on numbers of final participants. Initial feasibility, captive design and product development have already been funded 3 Capitalization is $500,000 and remains in the captive as an investment owned by its members 4 Typically 3 months of estimated working rates are deposited into the Captive in advance
Timetable: Completion Dates Recruit members for the programMay 2010 Update financial analysisJuly Approve implementation of the captiveAugust Establish management entity and BoardAugust Finalize participants and numbersAugust – September Approve legal documentationSeptember Confirm 2011 rates and contract with administratorSeptember Draft captive submissionSeptember Obtain approvalSeptember – October Employee communicationSeptember – December Launch programJan 1 st
Timetable: Completion Dates (with Phases) Recruit members for the programMay 2010 Update financial analysisJuly Approve implementation of the captiveAugust Establish management entity and BoardAugust Finalize participants and numbersAugust – September Approve legal documentationSeptember Confirm 2011 rates and contract with administratorSeptember Draft captive submissionSeptember Obtain approvalSeptember – October Employee communicationSeptember – December Launch programJan 1 st PRE-DECISION DECISION IMPLEMENTATION
31 Why Now and Next Steps Summary
Participation in the Health Insurance Program A major opportunity for our Sector Most of the preparation work has already been undertaken Feasibility studies and example rates are available A solid partnership of leading nonprofits and associations is needed to launch the program Acting together our benefits overhead can be reduced substantially Looking beyond our own organizations we need to build something for our common benefit that will work for large and small nonprofits 32
Will it be Cheaper (and Better) for Participants? Goal of the program is to decrease costs – not benefits –You can still offer your employees a comprehensive benefit package As part of a larger group, your organization has the opportunity to improve on its current benefit offering at a lower rate –Over time, access to more sophisticated health and wellness programs will reduce claims and save costs –The aim is not simply to improve wellness but to reduce absenteeism and increase productivity Overhead resources can be freed up –A central administration point will be created for all program participants 33
How Can I Evaluate this Health Insurance Program for My Organization? To find out the specific benefits for you and your employees before you commit to the program: –Send us data on your health insurance Census, plan design(s) and current rates Claims history if available and current carrier –Invest in the analysis costs based on your organizations size (this will be reimbursed from the Captive once the program is up and running) Participants will receive a custom risk/benefits report and conference call with: –Full details of program structure/ownership –Recommended plan design(s) reflecting your current coverage –Actuarial high level cost analysis and savings projections for your organization 34
Timetable: Completion Dates (with Phases) Recruit members for the programMay 2010 Update financial analysisJuly YES, We want to take the next step 35 PRE-DECISION
Phil and John are available to: –Answer questions –Talk to your team/set up a discussion with your stakeholder group Taking it Forward: Next Steps 36 Philip L. Collyer President & CEO National Assembly Business Services, Inc x17 John D. P. Cassell Senior Partner Spring Consulting Group x103