For the past three decades, the American healthcare consumer has been the leverage used by insurance carriers and healthcare systems against each other. Which strategies must be implemented to give them back this leverage and simply settle with the lowest plans? Louis Bernardi talks with Chris Hamilton of Hotchkiss Insurance about the best approaches in mending the gap between health insurance and healthcare. They break down how to create an ecosystem that allows employers to give consumers a choice and drastically lower insurance costs. Louis and Chris also talk about the importance of educating employees about getting the right health plan instead of assuming they wouldn’t care about such a complicated matter.
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Understanding The Winning Strategies Of An American Healthcare Consumer With Chris Hamilton
Benefits With FriendsIn this episode, we have a special guest, Chris Hamilton. Chris, how are you doing? Lou, I’m doing great. It’s good to see you. Thanks for joining. Chris is a partner. He heads up the Employee Benefits Division at Hotchkiss Insurance, which is in the Dallas-Fort Worth area. His focus is working with clients who improve profitability and valuation by helping them reign in runaway healthcare expenses, which is why he’s on the show. I followed Chris on LinkedIn and we’ve spoken a couple of times. We have a lot of similarities and a like-minded approach to the way we’re doing things. We’re going to talk about something near and dear to me, the American healthcare consumer, who they are and what strategies are they winning with. You can’t use the word consumer when you’re talking about healthcare or health insurance to the fullest extent of what that word means. We’re going to get to that. Anything you want to add to your intro? I’m not good at intros. This isn’t Hollywood. You did a great job. Thank you for that. I appreciate it. Getting to it, the American healthcare consumer, when we spoke and talked about topics, you jumped right onto that one. For me, the American healthcare consumer is many different entities. It’s employers who are purchasing health insurance on behalf of themselves and their members. It’s the members, the employees at businesses when they’re selecting among the plans that are being offered by their employers. They’re a consumer. They have to decide at that point. Also, they’re a consumer with a different hat on when they take their ID card and enter the healthcare system. At least that’s in my mind. Is it similar to what you think of as the American healthcare consumer? There are different consumers. Primarily I identify as a consumer of healthcare because we work with commercial health plans and are employers. The employers are who set the ecosystem that employees have to work within. I believe that the ultimate consumer of healthcare is the employers and primarily self-funded employers. Employees are buying what the employers set up for them. I view the employee and the members as the ones that decide what they’re going to buy but they only get to choose the options the employer has laid out for them. When you think about healthcare, the visits and basic generic medications and those things are not what’s driving healthcare. It’s a big facility for imaging infusion. It’s the big-ticket items. For most members, do you have any one of those things you’re going to spend your deductible and out of pocket? You might buy something that’s $100, $200 or $1 million and your cost is capped at $3,000 to $5,000, whatever your out-of-pocket is. You’re making a purchasing decision but you’re not paying for it. The cost is the same no matter where you go to the member. Visits and basic generic medication are not the things that drive health. It’s the big facility imaging infusion and the big ticket items. Click To Tweet I went through this so many times in my brain and where I landed was this and see if you agree with this or not. That’s what we do, the same thing. Hopefully, people are reading because it’s important for them not to be reading. As employers think of themselves, I think as health insurance consumers. They’re focused on the cost and what they can afford to buy and roll out to their employees. I love the idea of getting employers. I call them benefit decision-makers, HR directors, CEOs, COOs, CEOs and whoever’s involved in that benefits decision-making process as a company, I want them to think about healthcare because that’s what they’re buying. They’re buying access to healthcare for their employees. They’re so focused on the insurance because that’s the easy part. It gets wrapped up in a bundle. This is what the cost is. I love the idea of calling them healthcare consumers but I don’t think that’s where their mind is. They think buying insurance is. They set it, forget it and move on. You have the employees picking a health insurance plan that their employers offer. A lot of the time, they’re not thinking about their healthcare consumption when they’re making that decision and they make the wrong decision. We finished an open enrollment meeting before this call. Base, mid and high plan. I emphasize strongly, “Don’t think about what’s coming out of your paycheck. Think about what the next twelve months are likely to look like for you and your family and the different nuances between all of these plans because you’re a consumer.” “Don’t pick the lowest plan because you’re paying less and you enter the healthcare system after the fact and you find out this is going to cost you what. You can’t change it.” I don’t know what you think about that. That’s my play on health insurance. I want that mindset to shift to healthcare because that plays into what you and I talk about in the plans that we’re offering people. I don’t know if you have anything to add there. At the end of the day, what I always try to explain to both employers and employees is whatever you spend on healthcare is going to dictate what your insurance costs are. Directionally speaking, the more I spend on healthcare, the higher my insurance premiums have to go. The less I spend on healthcare, the lower insurance premiums can go. At times when you talk about spending less on healthcare, people think you’re talking about rationing or foregoing care. You and I both know that about anything in healthcare, whether it’s expensive medications, surgeries, imaging, you name it, the things that drive healthcare costs, you can buy the same thing at the same place for a fraction of the cost. I always tell CFOs, “If you spend half as much for healthcare, you can provide twice as much at the same price.” It’s about understanding what we spend on healthcare and who in the marketplace can design a plan that allows us to spend less for the same things. We share at least half of the same brain because it’s amazing. Everyone I talk to when I get together with other advisors, we’ve come down the same path. It started for me years ago. Let’s talk about the false narratives and misconceptions. Unfortunately, as advisors, we’ve perpetuated some of this. To be a consumer, you need to see the data. The data has been closely held by the healthcare world, hospital systems, providers, facilities and insurance world. They didn’t want anybody to see the real data because they wanted you to believe. I’m going to ask you a question and it’s meant to be silly to us. The claims are the claims. What do you mean? Aren’t the claims the claims? Isn’t an MRI the same no matter where you go? Isn’t a knee replacement the same wherever you go? Isn’t the quality the same wherever you go? What do you think about that? That’s hitting the easy button. It’s false. The reason why I know it’s false is we have enough clients, our company included, that are self-funded. We see what we pay for claims and it’s amazing. I’ll give you a perfect example. I got a claim notification and this is one I love talking about but for dialysis. We have two patients going to the same clinic for dialysis. One of them is on a major carrier network plan and the other is on one of the customized plans, what we call the benefit insider plan. The claim cost for that member that’s on the Benefit Insider plan is about $5,800 per month. Do you want to take a stab at what the dialysis treatment for the same facility is the on a BUCA plan? I can tell you that we had one and the projection was $300,000 to $700,000 per year. Let’s say $25,000 a month on the low end of the projections. It’s closer to $30,000 in this case. Let’s say there’s a $24,000 to $25,000 delta per month in cost for the same treatment, at the same location. Which 1 of those 2 employers do you think is going to have a better opportunity to lower their healthcare costs or off put an increase in at their renewal? It’s a no-brainer. People think, “I don’t have to worry about that if I’m fully insured.” If you’re fully insured, you’re paying that higher amount and you don’t have any negotiating power. You cannot manage that claim whatsoever. Dialysis is a great example. In my first experience and we call our plans BritePath, when we’re working with independent TPAs, we still have a network on the plan. However, we have a separate carve-out for dialysis. At the time that this first occurred, we could plan addition that we could have put on. We were on the TPA working with and brought it to our attention. A gentleman was about to start dialysis. The cost projection was right there. We have a great option for you. I don’t bash too much here but this client had one of the major carriers, which is a TPA owned by a major carrier. We approached them and said, “We’re going to carve this out in the contract and allow this member to use the same facility.” You don’t have to change the facility but a third-party agreement with another entity. We’re going to bill and pay it through there. It’s going to go through the TPA with similar numbers as yours. The TPA said, “No, you can’t do that.” “What do you mean we can’t do that?” “We can’t allow you to do that. It’s not in the best interest of the member.” I said, “We’re going to the same doctor.” We have the best deals around. I’m like, “I gave you the numbers. I know what you’re going to pay. Can you dispute this?” “No.” “How is it in the best interest of the member?” “We can do the pre-certification for it.” I was like, “You can do the pre-certification anyway if you like but we’re going to do it elsewhere.” They didn’t like that. What we ended up having to do is change TPAs. They wouldn’t even allow us to exclude it. Our backup plan was, “Let’s exclude dialysis and we’re going to have a separate plan document specifically for dialysis over here,” which meant we’re still covering it. We’re just not covering it through that BUCA network contract. They wouldn’t let us do it because we all know the kickbacks that they get from these facilities and premier partners of them. They’re not partnering with these facilities because it’s in the best interest of the employer or members. They’re partnering with them because they make major financial incentives behind the scenes. Let’s unpack this a little bit if you don’t mind. There were two things that you said. I’m going to work backward. You talk about financial incentives. Anybody can research this. You can pull their 10Ks and 10Qs, their public financial reporting. Let’s pick on United Healthcare for a minute. I don’t mind naming names. We work with them and we’ve run into some similar issues but they have a group called Optum. Most people recognize that name because it shows up on their ID card as a pharmacy vendor, which they’re massive in that space. What most people don’t know is they’re the largest employer of healthcare providers in the country. They’re behemoths and they’re getting bigger every single day. One of the interesting things, particularly when we’re talking about dialysis, is they bought a group from DaVita, which is the largest dialysis provider in the nation. Optum bought a unit from DaVita and that creates somewhat of a conflict of interest in my opinion. If I was to look at it, I’m going to explain what I mean by this because people sure will make the argument that these carriers vertically integrate to lower the cost of healthcare. My question in response to that is if they’re creating value, is it resulting in lower premiums and lower costs for employers and employees? The answer is no. When you look at their financial reporting, the profitability is going up, primarily driven by those units. If I’m with a major carrier that owns a dialysis provider and I’m going to charge my insurance company $40,000 or $30,000 a month for treatment, I’m going to have to go back to the employer and say, “Claims are up. I’m going to have to jack your premium up.” Knowing full good and well that I could only charge myself $5,000 or $6,000 and make a profit but we’re not going to do that. That’s where I see the conflicts in health insurance and healthcare. That’s an interesting point. This leads me to my second point and I talked about this on LinkedIn about the notion of being fully insured. The only true, in my opinion, fully insured groups that exist in America are those that are in the community-rated pool. I don’t even believe that’s fully insured because, at the end of the day, rates can go up. Let’s say I’m an experience-rated fully insured customer, which we have a lot in Texas. There’s nothing wrong with being fully insured necessarily. It depends on what you’re trying to accomplish and what your goals are. What I would tell somebody is in an experience rated fully insured plan, “You’re delayed self-funded.” What I mean by that is if your claims experience is high and the carrier doesn’t make their profit, they’re going to increase your premium at renewal. What the impact of your claims experience is going to affect your renewal and what you pay in year 2, year 3 and beyond. The problem that I see, particularly with fully insured plans is that the carriers don’t give you tools to manage the cost of claims. Going back to the dialysis example, am I paying $40,000 per treatment or $5,000 per treatment? Am I going to pay $40,000 per infusion for a cancer patient or $12,000? What do I pay for hip replacements? Is it $20,000 or $60,000? There are mechanisms that advisors like yourself and I are using to create an ecosystem that allows employers to lower their costs of healthcare and their claims experience, lower the cost to the company for their insurance program and at the same time, drastically lower the cost of insurance and out-of-pocket for employees. It’s like you’re creating this perfect trifecta where the insurance, employer and employees are happy. I would call it a four-way win. The providers are happy. There’s that much meat on the bone out there. It’s a great example and you’re right. In the community’s way, your claims don’t impact directly your premiums if you are a large group but not experience rated. We have some manually rated groups where it’s the demographics, the average age, the family sizes, the genders and the ZIP codes. You could argue they’re insured. I had one group which is a perfect example. It’s a 250-person company but only 50 enrolled because we have a large union population. They’re a large group because their full-time equivalents are more than 50. The carrier that we have, they’re manually rated. Their loss ratio was shared with me because I was aggressively trying to negotiate their renewal. They had a 246% loss ratio, claims versus premiums. The nice thing is the carrier renewed them at manual rates but they did not negotiate at all. It was approximately a 10% increase, which was the book rate. Any group that’s fully insured and experience-rated is paying top dollar maximum liability and they have no ability. First of all, we both know they’re overpaying for prescriptions by 30% to 50%. Rebates, spread pricing, formulary manipulation and all of those things that a lot of employers aren’t even aware of. They’re not thinking about you. You think your insurance carrier is getting the best rates and aligning the formulary because this is where it’s the cost of the medication shuffle but it’s not. It’s a profit to the insurance carrier, PBM or both Shuffle. That’s why the rebates are there so that they’ll place it favorably on the formulary and more people will fill it. If you eliminate that barrier, that cost to the member, there’s nothing to think about. You have to put it where more people will fill it and that’s why you’re paying so much more for specialty medications. On the medical side, you’re paying top dollar, you have no guidance and navigation support for your members. The BUCA discounts are gone. I’m writing a book. I always mention it. It’s 2 years in the making but 30 years of thoughts in the making. In 1992 when Managed Care entered the New York marketplace, the rates were simple. The rates were the rate. They hadn’t had a chance yet. You were getting a discount. Premiums were lower. Over time somewhere along the way, the executives, those people in the boardrooms understood that they have such an advantage by keeping the consumer in the dark. It has been intentional. You’re not allowed to see the prices or the negotiated rates. It’s confidential. That was the narrative. We’ve been selling it as advisors. You can’t see what it costs. Those contracts are confidential. They don’t want one doctor to know what the other doctor is making, because then all of a sudden, they’ll all want the top dollar. They’re giving the top dollar away because it doesn’t behoove the insurance carriers to negotiate prices on behalf of the members. They want to pay higher claims so they can charge higher premiums. That was one of the flaws of the Affordable Care Act, which escalated that so profoundly because they changed the math. You have no ability to do some of the other things. You’re paying top dollar for medical. I’m going to have someone on the show from a company called Slingshot. What Slingshot does is it taps into the claims and it’s all automated AI. They go in, see all the codes and identify all of the upcodes and the unbundled bundles where you’re getting charged for multiple procedures within one bundled procedure that should be, let’s say, $5,000 but the facility is unbundling and charge $12,000. We can’t do that and it’s not regularly caught by insurance carriers. They’ve been running their program for about 6 months and 60% of claims have upcoding issues on them. I said, “No, you’re missing something. You’re missing another 30%.” I know it’s 90% of the claim. It might be 100% of the claims and all of these other things. Let’s get back to the term consumer for a second. When you think about consumers in any other aspect of the economy, other than healthcare, the consumer has data. They have information to make informed decisions. You and I both know the data is plentiful. Most people and advisors don’t know it exists. Their focus is still on the insurance cost because it’s simple. You get a package delivered to you. It’s all nice and bundled with a bow tie. Do not open it because you’re not going to like what’s in there when you start having a conversation with Chris or Lou. How have you changed your dialogue to open up these conversations? I would imagine you have experienced what I’ve experienced, which is a lot to take in for a benefit decision-maker who’s been doing it for 25 years and we’re saying it’s all been smoke and mirrors. We can do better together. How do you go about that? It’s a constantly evolving process. What I have learned is trying to explain how all of the moving parts to the intricacy that you and I understand to an employer, create fear and indecision. I also get a frequent piece of feedback from a lot of employers that we work with, that my employees aren’t going to understand how this works and they won’t remember to use it when they need it. There are two things that we have done that we’ve had great success with to make it so that employees don’t have to remember. It’s a seamless, easy process and decision for them to make. You mentioned the pre-cert process. We have to own the pre-cert process. For those that are reading this, the pre-cert process is simply where your doctor needs to get approval to do a procedure or a test. It’s super common in the industry. For anything expensive, that’s going to be done in a hospital, doctors know if I’m going to operate on Blue, I need to get that approved by the insurance company. For the healthcare and insurance industries to improve, we have to own the pre-cert process. Click To Tweet When the insurance company receives that, that’s the pre-certification or pre-authorization that gets the check of approval for the doctor to do his procedure on Lou. What we do is take ownership of that process. We have vendors that we work with that will take care of that. The second piece of that is they become the navigator for our employees. To explain this simply, I’m going through this myself. Employees will have access to a national network. Every doctor in the hospital’s going to recognize it. It’s one of the big four probably. If they want to use that ID card wherever they go, they’re welcome to but they’re going to be subject to their normal deductibles and out-of-pocket. For mid-size employers, deductibles may range from $2,000 to $5,000 and be out of pocket. If an employee’s going to have major surgery done or expensive medication, it’s going to be subject to a $5,000 cost. Let’s use that math. At the time of that pre-certification, this is my example, I have to have a procedure done in a hospital. I have to have surgery to fix something. That pre-certification process is going to happen. The nurses are going to see that this procedure needs to be done and approved. They’re going to pick up the phone, call me and say, “Chris, we see that you need to have a procedure done. We want to let you know how your benefits are going to work. When you show up on the day of the surgery, you’re going to be responsible for your $5,000 out of pocket because likely the procedures are $20,000 or $30,000 cost.” “If you’re willing to let us coordinate your care, it’s likely going to require me to get a second opinion from another surgeon but if you use our pre-certified highest quality doctors for this procedure, we can waive your out-of-pocket calls.” The surgery becomes “free,” as a consumer or the employee of the member. My health insurance plan is going to save a tremendous amount of money because it’s likely we can source that surgery for 70% less. In my particular example, which I’m going to share openly on LinkedIn, I’ve already selected a doctor. The doctor I was seeing had a 91 quality score. It’s using CMS and other claims, paying data, how many rates of infections and all that stuff. The doctor through my care navigation program is a 95 or 96. It’s one of the highest-level providers in this particular surgical specialty. I’m going to see a better doctor than I normally would’ve seen and the cost is going to be waived for me. To sum that whole thing up, from a consumerism standpoint, this is what I would say to HR owners and CFOs, we can align the interest of your employees in the health plan to help them become good stewards. The way you do that is to give them a choice. Use your normal benefits as you would or you can get your healthcare for free going through this other channel. The interests of employees should be aligned to their health plan to help them become good stewards. This way, they have an actual choice. Click To Tweet Particularly in our economy with gasoline, food, mortgage, rent and all these other costs exceedingly increasing, employees want a lower-cost alternative. In many cases, it’s a financial lifesaver for them. It’s a win for the employee. It makes the employer look good that they’re even offering a free option and the employer wins at the same time. It’s the best of both worlds. It solves for making it simple and affordable. This is why I knew I had to have you on this show because we speak similarly. You explained that so my daughter could understand it. Here’s my takeaway from that. What you talked about was a choice-planned design. It’s an appropriate plan design. There’s nothing complex here. You’re not asking an employee to bear or their employer. You’re not asking for an HR team, CEO or CFO to get involved with the benefit decision or the healthcare decision-making process. I agree with you. The majority of the time when we talk to benefit decision-makers, they like to hide behind and the fact is my employees won’t understand that. That’s a cop-out. To me, I hear, “I don’t want to learn. I’m going to throw that right out there.” That’s what I hear a lot of the time. They buy other things. Americans are the best consumers in the world. We can buy anything. I can find the best price for about any product you tell me in ten minutes and I’ll be able to make a choice and buy it from where I’m going to get it the quickest, cheapest or a seller that had the highest rating and I can make that choice as a consumer. What you said was you’re having a procedure. You don’t have to do anything and you could because you’re a forward-thinking advisor but you don’t have to because you have the tools in place within the plan design to give you the option. You could go to Dr. A if you wanted to. You could choose to pay the $5,000. Some people might. Ninety-one is not a bad rating but you were given the choice to see another doctor as high or better quality and that’s the doctor. The hospitals are even separate. I’m sure that’s part of it too. The doctors have to admit privileges to multiple hospitals. The cost of the hospital, anesthesia, cleanliness and infection rates are all taken into consideration when you’re talking about using a clinical case manager. They gave you the choice. They even made the appointment for you if you said, “I’d like to use Dr. B.” You’ve saved money, which is not the point. The point is you had a way finally, which doesn’t exist for most people, to locate and access the highest quality doctor and to reiterate. Where does that come from? It’s not someone saying, “We have good doctors.” These doctors don’t work for your clinical case management company. I am sure they’re using data. There are billions of claims every year that are released from all the commercial insurance companies, Medicare, Medicaid, VA, everything and they’re shared. Technology companies have figured out a way of analyzing that data. It’s done slightly differently but I’m sure a lot of the assumptions or data points that they’re using are very similar. You want to use a doctor who doesn’t overprescribe opioids and medication and doesn’t do 1,000 surgeries for the sake of doing surgery. A doctor that did 200 surgeries with the best outcomes is better than a doctor who did 1,000 surgeries because there wasn’t 1 patient that walked into his office that didn’t get surgery. Unnecessary care is another thing. I’m sure that goes into the calculation but you’re talking about quality and being able to make an informed decision. Let’s say the doctor that you saw first was a lousy doctor with a 40 rating, not 91. If you go to that doctor, your chances of getting an infection or having a horrible recovery, lengthy hospital stay, rehab, which we didn’t talk about what it is and we don’t have to, but all of these things that happen after the procedure, because you went to the wrong doctor, add up and cost money. I’m sure you and I would rather pay more money to get to the best doctor. We’re not eliminating that choice. We want you to know who the best doctor is and the best doctor was one that cost you $5,000 but you went to the best doctor and you felt good about that decision. I haven’t experienced the need but I know if it’s one of my loved ones, this is crucial. To think that over the past many years, people have made this decision based on Google searches and word of mouth is mind-boggling. What we found is the most common way people find a provider is to ask a friend. There’s not very much quantitative analysis. It’s qualitative. “Lou, I knew you had to have this procedure here. Did you like your doctor? Great. Give me his contact info.” There were a couple of things that you said that resonated with me. When we start talking about costs and consumerism, the ability to buy something and you can research it, the data is available. If you search Bureau of Labor Statistics inflation data, there are numerous charts out there that show various items in our economy over the last several years. Most of those charts, healthcare services or hospital services specifically, are the most inflationary thing in our economy that the BLS tracks. The trajectory is straight upwards. It’s a 45 to 60-degree upward trend. When you compare that and overlay the data with other things in our economy, like televisions software, computers, cars and those other things, it’s a stark difference. When you think about the dynamics of those industries, they are so different. Let’s take television as an example. That’s deflationary. Do you remember what the first plasma television cost when it came out into the marketplace? It’s $20,000 and you can’t get a plasma television anymore. You can get an LCD, LED TV or a massive one for a few hundred bucks. What’s interesting about that particular market from a consumerism standpoint? There are multiple outlets of distribution. I can get it in person or online. I can buy it on Amazon. I know I can re-quality ratings. I can see how it’s priced at various places and I have multiple ways I can pay for it whether it’s cash or credit card. There are various ways I can pay for it. Those are the dynamics that create a competitive marketplace that doesn’t exist in healthcare. The government people, bone government involvement in various industries, I believe healthcare and health insurance is one that there needs to be some intervention because people have talked about it. We’ve tried the private free market system in healthcare and it doesn’t work. Let’s back up a second. It’s not a truly competitive market. It’s an anti-competitive market. There are very few people that control most of the power. When you start talking about pricing and quality and ways to pay for things, there are not very many ways to do it. The question that we had to grapple with over the last several years is whether there is a way to insert dynamics of competition and consumerism into healthcare to drive prices lower. The answer is yes. I described how we do that. We give those in the marketplace that want to compete. There are doctors in hospitals that truly do want to be part of the solution and offer better terms in pricing for procedures. We incentivize people to go to those providers and facilities by passing on the savings to the employees and giving them free healthcare. One of the ways is it become very popular in the health insurance space for carriers to address this issue. This is what benefit buyers or decision makers, as you describe them, have an issue with. It’s by narrowing the network and removing out-of-network benefits. It’s coming down to narrowing the pathway for employees to access healthcare. There are a lot of people that don’t want to limit the options that their employees have. The approach that we’ve taken and had great success with is saying, “We’re not going to limit the choices that people have. We’re going to give them more choices and we’re going to incentivize them with a carrot-and-stick to make the decision that we think is the most financially prudent. The member and the employer both win in that scenario. It’s telling the story of how we’re going to give people more options. By not limiting the healthcare plan people can choose from, both member and employer are incentivized. Click To Tweet When you look at a network, think of any of the big insurance companies that you can name. They compete on having a big network. Lou, you and I both know that inside of a big network if I contract with all of the doctors in a big city. Let’s take Dallas and Fort Worth. If all of the doctors are in my network, which that’s the case, it’s a 98% network rate, I have the best doctors in my network but I also have some poor doctors as well. What if there was a way to make sure that your employees sought care from the best doctors at the lowest possible price? They get a benefit for doing so, meaning we waive their cost of care, which the most forward-leaning employers are leaning in that direction because they realize it wins for them financially, it wins for the employees and it sets them apart from their competition when trying to attract top talent. If there was a way for employers to make sure their team was taken care of by the best doctors at the lowest possible cost, top talent would be attracted to their company. Click To Tweet I’ll tell you this. We work with mid-size employers that are trying to attract talent from Fortune 500 competitors, whether it’s a CPA firm that wants to pull somebody from one of the big accounting firms or an oil and gas company that wants to attract talent from one of the big Halliburton slumber-type companies. They always used to say to us, “Our benefits are our Achilles heel.” We have to pay our employees more to get them because our benefits are not competitive. I go to those employers and say, “What if we made your benefits a competitive advantage and lowered your cost at the same time?” Most people would think I was speaking Mandarin. It’s impossible. That’s one of the other flaws and it’s a habit. In my book, there are the things we’re talking about. If you wrote a book and I wrote a book, you’d be done first for sure. Here’s the sequence of events. Managed Care came out. They were more competitive than indemnity plans. Much so that the employer, the consumer and the insurance consumer said, “We know this is going to take work and involve education. We don’t know what a copay is but we know what less money is and our employees are going to like a $5 copay,” because that’s what they were in year one, even a zero copay back then. They did it and put all the indemnity companies out of business. I used to walk around New York City with ten directories sweating. They were printed. Nothing was online back in the day. If your doctor wasn’t in the book, that plan was terrible. If the owner thumbed through the book before we had any say, the owner, CEO, COO and CFO all thumb through first. Once they gave the okay signal, you’re like, “This is a good plan. My doctors are in it.” The consumer has told the insurance companies for many years, “We buy networks.” That doesn’t mean some people don’t buy skinny networks because they’re cheaper. There’s only a certain budget you can do but then copays started going up and deductibles started getting reintroduced. There weren’t deductibles in the early HMO-style plans. They got reintroduced because they had hit the peak of what copays could be. They had to figure out a way, “How do we water it down again a little bit to offset the increases we need because they want to make more money by charging more premium. They then introduced consumerism. That’s very different from being a consumer because consumerism in health insurance was the stick. The narrative was premiums are going out of control because utilization is too high. Out-of-pocket costs are too low and people are going to the doctor too much. It couldn’t be that they were charging more and building in all these artificial premiums. We couldn’t see that so this made sense. “I do go to the doctor more than I did before.” Consumerism is a negative reinforcement. Deductibles and copays became higher. The pocket maximum increased. That’s the only tool that most advisors and employers have or at least think they have to offset the next year’s increase. You and I know all of the data and differences and I call it an alternative universe of healthcare and health insurance like providers that want to work with people and employers directly outside of the health insurance systems and the networks. All these other solution partners can get people to the best doctors. They want to be able to say, “If you go to these doctors, they’re the best. The best doctors, even if they’re more expensive, are less expensive over time because they treat and cure people.” It just so happens that when you deal directly without the insurance company, they’re also usually less costly for the most part. We’re talking about a new form of consumerism and that’s what you and I are trying to get past. Forget about consumerism and all of these flawed strategies and misconstrued solutions that you’ve been fed. The data tells the truth. Data doesn’t lie. The data is enhancing the cost and quality of the benefits you provide and getting your people healthier and happier and making you that employer of choice. If you take a traditional high-deductible health plan, which might be the base insurance plan that you were describing for you, a $5,000 pocket, you have option B alongside it. That’s better than any employer that just has option A. What you’re saying is, “We want to take care of our employees and get them to the best doctors. We want to lower the cost.” We lower the insurance cost or the total cost to provide healthcare. I hate calling it insurance because when you’re self-insured, it’s not all insurance. We want to lower the cost to finance the healthcare risk of your employees. We can do it by putting positive reinforcement and consumers back into it. Educate your employees. When you show someone the price once, the next time they need care, they’re going to ask. You’re not going to wait until your insurance company calls you the next time you need surgery. You’re going to be like, “What’s taken them so long? I’m going to pick up the phone. I want to know where I can go and have the best call quality care at a fair price.” You’re going to change habits. You didn’t have to go that much longer to do it. Since we’re on the topic of consumerism and you mentioned high-deductible health plans, I wanted to share with you and I don’t think we’ve ever talked about this but HSA high deductible plans. As you start talking about zero deductible plans with lower to no copay through the original managed care, they had to water the benefits down. Think about the early 2000s when insurance costs were continuing to escalate. What was the next iteration of that? We’re going to give people plans with no copays and higher deductibles. We’re going to allow them to save money on a tax-deferred basis and become consumers of healthcare. They’re going to start looking at what things cost, which in theory sounds great. Initially, when I got into the health insurance business, I thought HSAs were awesome. They are a good tool for the right buyer and consumer. What we have found and I’ve become an anti-HSA type person and I debate this with some of our clients because I’ve noticed the people that are buying HSAs are typically low earners that do not contribute to HSA bank accounts. It tells me they’re buying the HSA for the wrong reason. It’s a low premium. Ultimately what we end up seeing is the data has played this out because a lot of our clients are self-funded. We have access to see who are people that are at higher risk and what are their consumption patterns of healthcare. I can see what are called gaps in care and I can determine whether are people missing doctor’s visits. Are they foregoing prescription drugs? If I know that person A is diabetic and they’re taking 2 or 3 specific medications, I can see if they are filling these prescriptions in a repetitive pattern or if there are gaps in their fills. Sometimes you’ll see people that instead of filling their prescription every 40 or 30 days, it’s maybe 45 to 60 days between fills, which is not healthy. It’s because they’re having to pay for the cost out of pocket. They’re sacrificing because they don’t have the money to pay for healthcare. This is something I’ve changed my mind on. I believe HSAs are a good tool for the right buyer if educated properly. People are willing to put the money into an HSA account, they can be a good vehicle. For the majority of the average employer that we work with, it’s not a good fit. They’d be better served by having a higher deductible copay plan priced similarly to an HSA where we give them options to waive their out-of-pocket expenses by going through a direct channel. You give them a choice. There’s no right or wrong. There’s no silver bullet for this or holy grail plan. People profess to that. There are a lot of ways of addressing this. At the core of it, people need the ability to get to the best doctors. You talked about care avoidance. We have fully insured plans and so do you. It’s not right for everybody. Even if it were right for everybody, not every client’s ready for it. We have to appreciate that. Self-insurance comes with a lot of stigmas. People tried self-insurance years ago with the BUCAs and got destroyed because they didn’t address it. The biggest problem was they were paying those artificial costs and all those hidden profits still. We’re asking them for a second chance and to trust us with companies that aren’t the big five insurance companies. That takes the case studies and we have the case studies that are off the charts but there’s some convincing to do. What I realized and I’m sure you did too from our conversation is that we didn’t want to leave our fully insured groups in the dark. We don’t want them to be at the mercy of these healthcare systems. We might not be able to eliminate the artificial cause and prices but we still can give them the tools so that they can see outside of the insurance company using a plaid supplement or add-on so we can give them this guidance. It’s all of the things that fully insured carriers should and would do if all their incentives weren’t misaligned. This is what insurance and healthcare should be. Talking about healthcare and we talked about insurance but going back to the early ‘90s, most hospitals were independent and there were true discounts. These Managed Care plans were paying less per provider. You were getting discounts. Those hospital facilities initially and some savvy doctors realized, “We need to merge. We need some leverage.” It’s about leverage. The insurance cares have all the leverage on behalf of their members. Oxford, United Healthcare, Aetna and Blue Cross and all of these companies have millions of members. We can’t do it without them so we have to accept these contracts. Hospitals merged with other hospitals. You have some states like California that has one hospital system that might have 40 or 50 hospitals in it. I don’t remember. There’s the largest employer in New York state. It has 30-something hospitals. They did something very interesting but that wasn’t enough. You can’t sell insurance if you don’t have that hospital system. You’re not going to get much business because the network is king. Consumers still focus on the network in many cases. They merged vertically and realized, “We’re going to take over the facilities, labs, radiologists, urgent care centers down to the primary care doctors,” which was the key because that’s the gatekeeper. They use the primary care doctors that work for the healthcare systems to upsell everything. Chances are the doctors are probably prescribing more but I’m not going to go there because doctors are good people. I refused to bash doctors because they’re working within the same game that we all are. It’s not our rules. The rules have been written for them and they made their decisions based on how they were being treated by Managed Care. They don’t know that MRI they’re sending someone to is going to be $3,000 when there’s a $600 option down the block and neither does the patient. That’s the whole point. If you have a company with 200 people and you have 30 MRIs and you’re paying $3,000 on average a pop, this $90,000, if my math is right, I might be wrong but it’s a lot of money, instead of the $600 equal quality. That’s one type of test. We’re talking about surgeries and all this other stuff. Even fully insured employers must realize that they will never gain control. It will get worse and the reason why it will get worse is because of the data, the healthcare systems and the insurance companies know that their days are numbered. The American healthcare consumer is going to be reawakened. It might be very slow because they’re going to resist it as much as possible but the numbers are going to get out there. They’re going to get the tools. The consumers are going to be savvy and they’re going to see what these two monopolies did to them. They’re going to start taking away current profit centers. PBM, for example. There’s a huge Department of Justice investigation going on about the business practices of pharmacy benefit managers. Some of this hidden profit in artificial prices is going to dry up but we’re talking about companies that are all publicly traded. They have to invent new profit centers. They have to create new layers in the supply chain where they can hide money because they’re smarter and their data is much better. The data’s not new. The data’s plentiful. It’s that the people that can use it the most, the consumer haven’t had access to it. They know exactly what’s happening. The insurance companies can tell us exactly how much business they’re losing and if it’s 1%, that’s going to get their attention. I know it’s getting their attention because their language is changing. They’re starting to use the language of true American consumers, even though it’s not their intention to change the way they’re doing their business. What are your thoughts about that? You hit on a bunch of valid points particularly with them creating new profit centers. One of the things that we see carriers doing and I hit on this all the time, is educating employers on the healthcare supply chain. You are seeing health insurers get into and they’re vertically integrating into the provider side. I mentioned Optum, the largest provider of physicians and medical practices nationally. You look at how they’re getting into primary care. Not just Optum but also others. Each of them has some variations of getting into primary care. They all own their pharmacy contract. In the case of Aetna, they were purchased by one of the largest PBMs and that has to be due to distribution. The way I look at insurance is simply the platform to be monetized. From that standpoint, when loss ratios are high, if I take in $100 in premiums and I pay out $99 in claims, the profitability of health insurance is low. It’s 1% in that case so premiums have to rise. What I don’t show you is of the $99 spent, the companies that I own retain 40 or 30 of it. Said another way. I always use all analogies. If you consider healthcare as a custom home project and you hire me, Lou, to be your home builder, I’ll tell you, “It’s a cost-plus project. I’m going to make 15%.” I initially tell you that I budget the house is going to cost about $1 million. Nine months into the project, I come back and say, “Lou, I’m sorry. The price of the house has gone up 30% because concrete, steel, lumber and roofing materials, plumbing and all those prices have gone up.” I have to raise the price of the house by 30%. What I fail to tell you is that I own the lumber supplier, plumbing company, foundation company and roofing supplier. I’ve overpaid all of those subcontractors myself by the tune of 30% to 50% more than I should have paid. I’m not going to show you the invoices either. It’s the cost. I’m going to show you my general contractor invoice and that’s exactly how health insurance works. It does happen in a home building because you can’t do it yourself. Most people can’t do it themselves. I’m handy but I can’t build a house. The shame of it is that in that situation, at least, that home buyer knows they’re the consumer. The healthcare consumer and insurance consumer don’t feel like a consumer. They feel like they have no choice. “This is the way it is and we’re going to have to deal with it.” A 200-person group could spend $3 to $4 million on insurance depending on the quality of their insurance plan. That’s a lot of money. It’s almost always their number one negotiable operating expense. They have given up any chance of negotiating but it is negotiable. They think they only can negotiate the way they’ve been negotiating it. “With a 15% increase, I can get it down to 10%. I can make some plan changes.” What they failed to realize and what you brought up, which was great, is that you get that financial analysis with your renewal. What we like to ask the insurance carriers and the underwriters is, “Let’s see a couple of other reports. How much of the million dollars in medical claims spend that they made was your insurance carrier-owned facilities? What are the rebates on the medications for that $600,000 medication spent? Send me the rebate report. I want to know how much you earned on that because you’re not showing me the real loss ratio.” I talked to an underwriter for one of the largest insurance companies. He’s at a TPA. I had a great conversation with him and he had mind-boggling insights. The things that we know, he knows to the depth of what they’re doing. In the worst cases, the cases with the biggest loss ratio are often the biggest money-makers for the insurance company because of all of the backdoor deals. As an advisor, that’s my job. You can’t just accept strategies that haven’t worked for so long. My goal is to create a 3 to 5-year plan to meet an employer where they are, educate them and inform them subliminally if necessary. We appreciate how busy they are but they will never get this under control unless they are better equipped to set their expectations properly. They need enough lingo to make their benefits partners uncomfortable. The conversations that you and I are having is your customers. You can’t talk this talk unless you’re walking the walk. You have to be able to back it up and if they’re fully insured, great but we’re not going to give us your best offer. You can’t do that anymore. We reconstruct the renewal. We plug our pooling charges and credibility waiting for all of these things. We don’t just accept the numbers that they give us because they’re made up. I know that for a fact. None of these numbers are real. It’s to build the narrative that’s going to allow them to present a renewal of X amount. That X amount also is continuing upon who the advisor is. You have a history with that carrier. They know that Chris is a guy that can get 10% off when everybody else can get 6% off but they’re starting you at 4% more. It’s constantly evolving, constantly educating, keeping a pulse on the healthcare world and the health insurance world, seeing what’s happening behind the scenes and so much has happened. We could talk on and on. We’re at the hour mark. I don’t know how much more time you go but usually, this is where we have our final thoughts. You’ve been a great guest. I guess the final thought that I would share with your audience is there is a path forward that truly does generate lower costs, better benefits and more choices for employers and employees. It requires somebody to have an open mind to work with an advisor that knows how to do it. I truly don’t believe the path that we’re on is sustainable. I don’t know how many more 15%, 20% or 30% increases employers are going to be able to take. I believe that healthcare is a vital part of our society, the healthcare piece. Our society benefits when we have access to affordable healthcare. It’s going to be reliant on people in our community, which is the benefits brokerage community, to be able to be forward-thinking enough to see these options and to deliver them to employers. If we don’t, the outcome to our society is going to be detrimental, in my opinion. It’s going to be horrendous and it’s going to escalate. As more employers do become savvier, they take advantage of the things. People left with these ancient plans. These traditional plans are going to pay their share of it. The insurance companies are not rolling over. Wall Street won’t stand for it. They have a fiduciary responsibility to maintain their earnings at the end of the day. That’s something you have to be conscious of. I’ll share two things with you fast. When people are looking for the source of the solution, they can’t look to the people that help create the problem and who profit from the current state of the problem. I always try to educate employers to understand everybody’s financial interest in their deal. If you understand how people make money, you understand how their deals are going to be structured and how to navigate the landmines, if you will. One thing I would leave everybody with and I love using this analogy is, do you remember the first time you saw an iPhone? When looking for the solution, you can’t look to the people who help create the problem or profits from it. Click To Tweet Back in the day, everybody used to have a flip phone like the Moto Razr X. When this was shown to everybody, about 20% or 25% of the population knew exactly what it was. That’s my life in my pocket. It’s my social media, text, email, web browsing, video camera and picture library. It’s everything all in one right in my hand. There’s about another 50% that didn’t quite understand it but with some convincing, they’ve come along to understand it. There’s another 25% that was like, “It doesn’t have keys. I’m not ever going to use it.” Walk around and see what phone everybody has in their hand. It’s one of these without keys or an Android that doesn’t have keys either. My point is, I truly believe in the next years, everybody’s going to have some variation of the plans that we’re talking about. The question is going to be, who are the early adopters that can set themselves apart and also save a decade’s worth of money that’s not overspent? Think about the treasure chest that can be built or the war chest of savings. 100 to 200 life groups over 5 years can save $1.5 million. That’s feasible, if not more. How impactful is that being reinvested into your employees and your business over the 5 years? I’ll leave you with that. That’s a great way to end it. It’s all about leverage. For the past many years, the American healthcare consumer has been the leverage that the insurance carriers and the healthcare systems have used against each other. It’s time for the American healthcare consumer to take the leverage back. They have the leverage. They can change this market as the phone market changes. Blockbuster’s not here because the consumer decided on the first cable vision taping thing. It’s a call where you can tape it and get the movies online, essentially like Netflix but there was an earlier brand of it. The consumer decided that. It wasn’t Blockbuster’s to decide, “Let’s shut our doors.” Where the consumer takes their business is where business is done. If the consumer wants to deal with this, they have to understand their role in it. They have 2 or 4 choices. Keep doing what you’re doing now and see how that is. Your prices will double in 5 to 7 years, your premiums. Do you have a problem with that? They can spend 8 hours a day for the next 3 years educating themselves to learn everything that it’s taken me close to 5 years. Every single day, I learn something more. They can hire someone to help them do it. The important thing is they have to understand why they’re doing it and they have to elevate their expectations so that the partners that they’re working with are meeting them, set your expectations higher, otherwise you will continue to get 10%, 15% or 20%. We have a prospect, unfortunately, another 30% increase and they’re going to renew. They’re going to go down the same way after four years of talking with them. It’s so unfortunate because they’re busy but they’re not too busy to understand it. I’ve had calls with them but their mindset is not right. Next year will be the right year. It has to be. Their employees and their business cannot absorb more and there’s nowhere for them to go. They’ve hit the plateau of where their plans can take them already. I won’t stop asking them because it’s about their people. Not only is it about their people. I feel bad for companies in that situation. I genuinely do. Even if the company absorbs that entire 30% increase and employees don’t pay any more than they already are, it puts the company at a competitive disadvantage over its peers. If you’re a contractor bidding out your work, when you’re having to allocate your cost to determine what you bid for a job, the insurance is going to get baked into that cost. You’re putting yourself at a competitive disadvantage, which is ultimately going to impact the company and the employees. Maybe there’s a job that they don’t get because of it down the road, which is going to force them to lay people. I genuinely feel bad for companies that are in that situation. We’re in the same boat. I’m glad we got this done. This has been great. Thank you so much.
- Hotchkiss Insurance
- LinkedIn – Chris Hamilton
- United Healthcare
- United Health Group
- Bureau of Labor Statistics