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Are you buying more health insurance than you need? Do you even know?

Thursday, November 16, 2017

Authored by Rick Klein

When I go shopping, I don’t like to pay for things that I don’t use. That is why I am always amazed at business owners who are content with paying a fixed price for health insurance without any knowledge of what they are buying.

Not only do they blindly agree to buy an amount of coverage that they may or may not need, but they continue to pay annual increases on top of what becomes an ever-rising premium floor. This process continues year after year, building an ever-increasing layer of cost with no accounting of the actual amount of premium that is left over from the previous year. It is analogous to a procurement manager who continues to buy raw materials with no consideration to what is in inventory or the rate of utilization.

In the landscape, I just painted you never get rewarded for having a good year with regards to plan utilization or for implementing programs like worksite wellness. Sure, you may get a flat increase now and again, but that is on top of consecutive years of “average” 8 to 9 percent increases. Imagine the level of surplus that this funds at your favorite insurance company and you can begin to understand one of the reasons why their stock price has done so well over the last five years.

What if you could be rewarded for good years and only pay for what you use?

There is an opportunity to break this insane cycle of doing the same thing each year and hoping for a different result.  This process affords the C-suite tools to make better strategic decisions in reducing the cost of one of their most expensive budget items – health insurance.

This approach toward buying health insurance is called a Coalition Benefit Strategy. It approaches the buying decision the same way every other major expenditure would be by an organization – making decisions based on data.  It allows you to:

1.     Pay only for the insurance that you use and associates fixed costs to a number that can be correlated to CPI;

2.     Design plan benefits that address what your employees’ value and are in alignment with your company culture; and

3.     Plug and play various best in class vendors like pharmacy managers, medical management providers, and cutting-edge administration.

Healthcare Coalition Strategy

A Coalition Benefit Strategy brings together organizations by aggregating their risk. By leveraging scale, organizations enjoy the benefits of self-insurance, efficient and transparent use of plan funds to pay claims, access to providers and lower administrative costs while maintaining independence in plan design and structure.

This coalition strategy uses a captive funding structure to transform risk into return. There are three levels of inherent risk to this type of program:

1) Risk that is retained by the group

2) Risk that is shared with all of the members of the coalition

3) Risk that transferred to an insurance company.

First Tier – Employer group retains all responsibility for claims up to a specific amount.

In this tier, the amount of assumed risk is predetermined based on the group’s size and risk profile and claims are measured by severity and frequency.

Insurance is purchased to protect the group from claims that exceed a specific threshold for any member of the plan (severity).  It also protects up to a limit on the sum of all small claims (frequency) from those members.  Thus, the group is protected from large claims and the total of all claims.  If the group has funded too much into this first tier (as a result of good claims performance), a surplus is generated that is retained/returned to the group.

Second Tier – Employer shares in a pool with all other groups that will pay all large claims that are greater than the first tier threshold but below $500,000.

In this tier, claims are shared and paid by all of the groups in the coalition. At the end of the year, if a surplus remains in this tier, and after the coalition has been audited, the surplus is returned to the members by way of an underwriting dividend. Collateral is collected in the first year of participation to allow for each group to have equity in the coalition and thus receive this dividend.

Third Tier – All catastrophic claims in excess of $500,000.

At this level, all catastrophic claims are transferred to a reinsurance company.

The coalition platform is transparent in that every group knows exactly how and where their money is being spent. The group knows what claims are being presented to the plan (under the protection of HIPPA), what the loss ratio of the plan is, what procedures and medications are driving cost, and overall, whether the plan is operating as efficiently as possible. This transparency allows every stakeholder the ability to have an informed discussion around how the program is operating. It allows the consultant to provide specific solutions to known issues and allows the sponsor the ability to intelligently understand the potential ROI of those solutions. As a result, the cost delta at renewal is not a surprise; it is expected and budgeted.

This program transfers the buying decision about health insurance to the same analysis that is done for every other major purchase a company makes; namely making decisions based on information and need.  It affords the C-suite the tools to make better strategic decisions as opposed to the typical knee-jerk, tactical reaction that most company’s make when renewing their health insurance.

Stay tuned as I continue to explain the building blocks of this coalition buying strategy. In the meantime, feel free to reach me at or 708-845-3123 for more immediate information or to go deeper into any of what I have shared.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.

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