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Mergers & Acquisitions: Employee Benefits Considerations

Tuesday, September 17, 2019
Warren Olaya
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Merger and acquisition activity continues to be healthy – both in deal size and volume. Even within our industry, we have seen a fair amount of consolidation amongst other insurance brokerages. 

Our objective is to urge you to incorporate a due diligence process for your health insurance if you are considering an acquisition or if you have recently made one.  

Before an acquisition, we evaluate several critical factors that all boil down to identifying financial and cultural effects. First, related to financial effects, we evaluate the plan design of the current company and the one you’re acquiring.  

  • How does it compare against the benchmark for the industry?  
  • Will you put all employees on one plan or the other? 
  • Will there be a cost associated with making that switch and should that be negotiated in the purchase price?  
  • If a group is self-funded, how will outstanding claims be handled and paid?  

All of these questions need to be answered in advance.

Another area affecting financials is related to compliance. There are a variety of assessments and evaluations that can be done to test the level of compliance of the firm being acquired.  This, too, needs to be examined, so an employer does not mistakenly take on a company out of compliance, leaving them exposed to massive fines.  Wellness programs are a common gray area – for instance, under HIPAA wellness rules, companies have to offer an alternative, and many groups are not managing these alternatives.   This becomes especially pertinent when you acquire a company operating in a different state, and you are not familiar with their regulations. 

The second effect to consider is cultural.  

  • If changes are adopted (which is often inevitable in these situations), how will employees react? 
  • Will it affect the ability to attract and retain talent?  

This is where understanding the population you are taking on is key. If the generational makeup differs, consider whether the benefits you offer going forward will fit everyone’s needs.  If not and more offerings are needed, will that add an expense?  

Industry research indicates that both a sound diligence process and accurate valuation account for nearly 1/3 of the factors in achieving a successful M&A transaction. Employee benefits could potentially affect both of these.  If your organization is considering an acquisition or just completed one, feel free to reach out to a Horton representative would like to explore this strategy further.  

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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