The Captivating Case for an AED Captive Health Insurance PlanBy Kim Phelan
Article Date: 11-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.
A Q&A conversation with Veritas Risk Services executives Bob Walsh, executive vice president and partner, and Joe Zamzow, account executive, to explore the "Veritas Insurance Captive for Equipment Dealers," which they’re rolling out for AED members.
Editor's Note: Many dealers already use captive insurance programs in the form of workman's comp plans – besides answering our questions about how a captive program works on the health insurance side, it merits noting that Veritas sources also pointed out that the federal health care reform package, regardless of what form it takes, should not deter employers from proactively shifting to a long-term, cost-cutting captive arrangement.
Explain the health insurance captive you're putting together for AED members and how it differs from current health insurance plans.
Joe Zamzow: The AED Health Insurance Captive provides member companies the opportunity to reduce costs associated with health insurance, while creating stability, increased profits, and healthier employees. This is done by allowing AED member companies to work together and create their own insurance "company."
Annual savings under the captive should be 5 to 15 percent depending on the claims for the participants in the captive. These savings are achieved by retaining carrier profits, removing state mandated benefits that are rarely or never used, and by implementing a disease management program that will improve the health of the employee population.
Most AED members are currently under a fully insured plan. With a fully insured plan most employers have significant rate increases every year, little to no meaningful information, limited plan options, and minimal options for controlling costs.
For self-funded employers, they can expect lower administrative costs, the ability to recoup a portion of stop loss premium, less volatility, and better loss control.
What drives the savings to a dealer's bottom line?
Bob Walsh: The biggest advantage of the captive arrangement is that the participant in the captive will retain profits normally kept by the carrier.
Let's be honest, if you pay insurance companies $100,000 a year, for worker comp as an example, and you don't have a claim, you don't get money back. They pat you on the back and say, "Great year! Let's hope you have another great year next year."
Granted, I understand, they're taking the risk, I know how it works; but if you take this captive on the health insurance side, you can quickly realize the potential for serious savings: A company that spends $1 million a year, and has an 8 percent increase per year, (or realistically closer to 10 percent) that $1 million spent this year will be a $1,080,000 next year. If we can somehow flatten or decrease that 8 percent even incrementally, that's huge. The numbers are real for the captive health insurance plan. We're looking at about 3 percent –
and for a company with a million dollar spend, that's $60,000 a year. That's real money. And that's just done by removing the inefficiencies and retaining the profitability over time.
So the idea is: The dealer keeps the money instead of the insurance company.
Walsh: Right – we know what our caps are; we know what is the most we can ever spend; and we know what our expected claims will be. We're just banking on the fact that we're going to have good years and we're going to have bad years. The difference is, in the good years, you're going to keep that money – it's coming back to the captive rather than just sitting in some insurance company's coffer, and they're congratulating themselves on what a good year they had. The health insurance companies are making a killing.
But you have to understand, the captive arrangement is a long-term play. Is it going to be great every year? No, because illnesses and accidents happen, and that's why you have to have the insurance. The whole point of these deals is that you can take advantage of the good years.
Who are the insurance carriers for the health captive – anyone we've ever heard of?
Walsh: Absolutely – we're talking about major national firms; in fact most are part of the menu of carriers we shop for to bring the health insurance services the employer wants.
Can employees visit their current doctor?
Zamzow: Employees have an identical plan design. Additional employer-selected program benefits typically include a strong emphasis placed on meaningful financial incentives for medical management, prevention, and wellness. The potential benefits to employees include: Lower plan costs, lower employee contributions, improved service, and a greater commitment to improved health. In most cases, employees will be able to use their current doctors, although with any health insurance program, there will be instances where an employee is not able to continue to use a doctor.
Walsh added: This has to be transparent to the end user – that's another big question people ask all the time. It doesn't do anyone any good if the ones who like it are the president and CFO because it's cheaper. That would never work. We know this. No one would ever sign onto this if it was just a good decision economically – if something makes good sense on the money but you just don't like it, it's not worth it.
Who's the right fit for the AED captive?
Zamzow: We're targeting companies that are smaller, which is defined as under 500 employees.
Best candidates for the AED captive are employers with 50 or more employees who are seeking a long-term solution to rising medical insurance costs.
You've been calling lots of AED dealers – how are they responding to the idea of a captive plan for health insurance?
Zamzow: I've probably spoken to about 300 AED members, and if there's one thing I've noticed it's a lack of attention by business owners to such a high-cost item. Many say, "Well, we just renew, period; or they say there's only one game in town and they don't have any options. It's been evident to me that if the health insurance plan were shown the proper attention, most groups would be able to improve the health of their employees and also save a lot of cash.
Walsh added: We've been trying to get these guys to change the paradigm, to have them think about this the way they think about any other facet of their business.
Unfortunately the insurance companies have done such a nice job of making people believe this is just a one-year deal – just look at this for one year then forget about it; then look at it 10 months later and then forget about it, rather than say, "Do we have any kind of strategic play here? What kind of five-year strategy can we put on top of our benefits?" Very infrequently will you hear someone say, "Yeah, there's a way to do that."
Well, this is one of those ways! We have an alternative that demands a look – it's not going to be for everyone; some people are not willing to change, it might be too much for them. We totally understand that. But it is frustrating when dealers say, "No, no, I'm just going to stick with what we've got," especially when they are leaving such a huge amount of money on the table.
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