Taking Control of our Nonprofit Employee
Health Insurance Costs & Benefits
1
Phil Collyer
John Cassell
President
National Assembly
Business Services, Inc.
Senior Partner
Spring Consulting Group LLC
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
National Human Services Assembly
3

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
Introductions
4
Introductions
Spring Consulting Group LLC
5

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 2006 16 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
Percentage Increase in Health Insurance Premiums
Compared to Inflation
9
1
15th Annual National Business Group on Health/Towers Watson Employer Survey on
Purchasing Value in Health Care 2010.
Healthcare Costs: Not Just Health Insurance
Chronic Disease Prevalence Among American
Workers, 2007 1
Average Annual Days Lost by Workers with
Chronic Conditions 2
12
None
23%
One
22%
10.5
10
8
Five or more
19%
6.8
6
4.8
Ages 20-39
3.9
4
Ages 40-64
2.3 2.3
Four
8%
Two
16%
Three
12%
2
0
No Chronic
Condition
One Chronic
Condition
More Than One
Chronic
Condition
55% of the American
workforce 1
10
1
Newsweek Web Exclusive.
2
U.S. Chamber of Commerce and Partnership for Prevention.
The prevalence of chronic disease and
overall declining health of the population has
a significant impact of lost days, and
therefore productivity
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
14
Increased government oversight and penalties levied against health insurers
pharma and medical device companies
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 2016
For employers the health insurance environment
will become even more complex
16
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
As healthcare costs continue to grow
the imperative is to take control
18
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
So what is a captive?
19
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 organization’s 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
The program is designed to be
a long term solution to a long term cost issue
21
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
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
24
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
25
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
26
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 Analysis1
– $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/EE2
– Capitalization: ~$500,000 (entire Captive)3
– Claims pre-funding: ~3 months’ premiums4
 Launch
– Premium payments monthly
1 Payments
made in advance to Nat’l Assembly/ASAE or Captive once formed; cost as incurred
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
2
28
Timetable: Completion Dates
29
 Recruit members for the program
May 2010
 Update financial analysis
July
 Approve implementation of the captive
August
 Establish management entity and Board
August
 Finalize participants and numbers
August – September
 Approve legal documentation
September
 Confirm 2011 rates and contract with administrator
September
 Draft captive submission
September
 Obtain approval
September – October
 Employee communication
September – December
 Launch program
Jan 1st 2011
Timetable: Completion Dates (with Phases)
 Recruit members for the program
 Update financial analysis
PRE-DECISION
May 2010
July
 Approve implementation of the captive DECISION August
 Establish management entity and Board
August
 Finalize participants and numbers
August – September
 Approve legal documentation
September
 Confirm 2011 rates and contract with administrator
September
IMPLEMENTATION
30
 Draft captive submission
September
 Obtain approval
September – October
 Employee communication
September – December
 Launch program
Jan 1st 2011
Summary
Why Now and Next Steps
31
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
33
 Overhead resources can be freed up
– A central administration point will be created for all program
participants
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 organization’s 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 program
 Update financial analysis

35
PRE-DECISION
May 2010
July
YES, We want to take the next step
Taking it Forward: Next Steps
 Phil and John are available to:
– Answer questions
– Talk to your team/set up a discussion with your stakeholder
group
Philip L. Collyer
President & CEO
National Assembly Business Services, Inc.
pcollyer@nassembly.com
202-347-2080 x17
36
John D. P. Cassell
Senior Partner
Spring Consulting Group
John.Cassell@springgroup.com
617-589-0930 x103