As we in the insurance industry watch our employee benefit world being “reformed” and reshaped and as we see our own future within this industry being questioned, I am reminded of the old joke about the three kinds of people there are in the world: Those who make things happen, those that watch things happen and those who wonder, “What happened?!”
If I have learned anything in my 30+ years in this business, it is that the following two things are true:
- We, as Insurance Agents, have served our clients to the highest professional standards in many areas of expertise going back to the founding of the concept of insurance in Genoa, Italy in the 1400’s! This dedication to the public good has been consistent even in the face of attacks by politicians and others who, for their own selfish interests and motives, would blame us for problems and issues outside our direct control or influence. Our primary goal as insurance agents has been and must always be to help our clients assess all risks to their assets, analyze all options and insurance products available to address these risks and to advise on the total protection portfolio that will meet their needs in the most cost-effective means available. Our actions and recommendations have the potential to affect a company’s or a family’s financial security and survival for generations and this is a responsibility that none of us take lightly!
- When viewed as a unified profession to include Insurance Companies, Insurance Agents and Brokers, Customer Service Specialists, Claims Processors and other industry support specialists, there is no more creative and entrepreneurial group to be found, regardless of the industry or profession being scrutinized! I am proud to be part of the group who take pride in being “Those who make things happen”!
Healthcare reform has the potential to change the business world in which we live! The purpose of this article is to generate ideas and discussions as to how we in the insurance industry can “make things happen” by adapting to our changing world and how we can help develop the products that will be needed by all our clients in the coming years. This article will focus on three key areas that are either emerging as new fields or they are existing coverages that are finding new life as our employee benefit world changes. This is certainly not an exhaustive list and the discussions will be brief due to space constraints.
At its most basic, Medical Tourism is simply the use of non-domestic healthcare providers for treatment rather than use the patient’s home country providers. While the concept is currently experiencing explosive growth world-wide, it is certainly not a new concept considering the number of people traveling to other countries for care. The reason for these treatment choices are many and can include travel to the patients country of origin, quality of care concerns, types of care available, and economic considerations, just to name a few.
While a detailed analysis of Medical Tourism and its many benefits are outside the scope of this short article, the following is a short summary that will give insight as to why this concept of international delivery of healthcare is quickly becoming a key part of group and individual health plans worldwide. Some key factors are:
- Quality of Care- Many U.S. Citizens are surprised to discover that healthcare facilities outside the United States are very often superior to our U.S. facilities when measured by many recognized factors such as Infection Rates, Survival Rates and many other measures. A major contribution of the Medical Tourism Association has been to work internationally to develop common measures of quality of care and measures of outcomes so that consumers can make informed choices as to the best treatment strategy for themselves.
- Treatments Available- It is not unusual for medical treatments to be available outside the United States that have not been approved within the United States due to our cumbersome, bureaucratic review process. One example is the Hip Resurfacing procedure often found to be much superior to Hip Replacement. This procedure was routinely done around the world for 10 years before its acceptance in the United States 2 years ago. This forced hundreds of patients to go to India for the procedure and has resulted in India still being the source of the most experienced surgeons available.
- Cultural Factors- Many patients would prefer to have care in culturally familiar surroundings. Your author has worked extensively with groups having high Mexico/Central/South American employee content as well as with groups having high Pacific Rim populations. The development of a Voluntary Medical Tourism option to their home country of origin is a welcome and highly utilized employee benefit option.
- Economic Factors- It is not unusual for charges in top-rated overseas facilities to be 30% of United States treatment costs. Many self insured health plans do not charge deductible and coinsurance plan provisions to employees and dependents using Medical Tourism and will pay transportation charges incurred to receive treatment.
In summary, as the rules of our employee benefit world change on a daily basis it becomes even more evident that the implementation of a voluntary Medical Tourism Program within a group can have the dual advantage of satisfying the patients and offering significant claims dollar savings to the benefit plan.
Self Insurance Programs Overview
(NOTE: This portion of the article is an extract from a series by the author entitled: New Life For An Old Friend-Self Funding. The link for the entire article is at the end of this piece.)
While self funding of employee benefit plans has been around for large employers since the inception of the benefits themselves, the passing of the Employee Retirement Income Security Act of 1974 (ERISA) provided many additional incentives for both large and smaller companies to consider the advantages self-funding and partially self-funding their benefit plans.
The current turmoil in Washington is similar to the chaos created in 1974 when many people in the insurance industry were convinced that ERISA actually stood for Every Rotten Idea Since Adam and that the end of our industry was just over the horizon! Fortunately, we all survived and our free enterprise system and Yankee ingenuity actually opened up new opportunities for those who focused on market opportunity and evolving market needs.
With the many rules and regulations now being promulgated daily in the name of Healthcare Reform, many industry experts are predicting a significant shift to self insurance for small to medium size employers.
Self insured and partially self insured programs are designed to provide employee medical and other benefit plans to firms having 50+ employees. (This number can vary based on a number of factors to be discussed a bit later in this article.) Under this concept the employer self funds the claims under the plan and purchases Excess Risk Insurance (also called Stop Loss Insurance, this is the self insurance piece of the puzzle) to protect the Plan from two undesirable events:
1. An extremely large claim by one individual(s) under the plan
2. Several moderately large claims incurred under the plan which causes actual claims paid to significantly exceed the calculated expected claims level for the year
The insurance to protect the plan in the first instance is called Specific or Individual Excess Risk coverage. Protection in the second situation is called Aggregate Excess Risk Insurance.
In the case of Specific Excess Risk Insurance, the employer selects a Specific Deductible for which the plan will assume all claims liabilities for claims up to that limit (perhaps $50,000, for example). Individual claims in excess of this deductible limit will be reimbursed by the insuring company under the provisions of an Excess Risk Insurance Policy.
Aggregate Excess Risk covers claims for the self-funded plan which are in excess of the Aggregate Deductible. The calculation of this Deductible is a bit more complicated due to changing liability exposures with changes in employee populations during the plan year and is beyond the scope of this article.
Why Alternatives to Proven Fully-Insured Plans?
During most of the last 30 years the inflationary spiral within the employee benefit insurance world has outpaced the inflation rate in almost every measurable commodity. With apparently no end in sight and with employers being forced to re-evaluate benefit levels and benefit cost-shifting measures, many in Congress with little knowledge of or respect for basic business principles decided that the only solution was for the government to take over control of this situation.
It is beyond the scope of this article to discuss the ramifications of this market take-over, however, the steps being put into place must be judged by the business needs of the employers that previously lead many of them to consider, on their own, what funding methodologies make the most sense for their situation.
These needs include:
1. Lowest cost factor relative to an adequate benefit program
2. Improved cash flow and reduced per-employee cost factors
3. Lower monthly premiums
4. Ability to benefit from good administrative and claims management
5. Exemption from state and federal mandated benefits
6. Ability to make sound business decisions rather than have ill-informed and uninformed policies mandated by politicians
The above needs caused many employers to self fund their benefit programs successfully. Because the self funded employer becomes more involved in the payment and administration of the program, there is a heightened sensitivity and sense of ownership that has a favorable impact on employee satisfaction with the plan, claims utilization and control, cash flow and efficient administration of the plan.
The Basic Principle of Self Funding
All insurance products are made up of two different areas of exposure to risk:
- Predictable Claims- these are claims that are predictable due to the size of the group, past claims experience, age, sex, plan of benefits and other Actuarial factors. For predictable claims, the fully insured policyholder can seen as merely trading dollars with the insurance carrier. Premium is paid and the carrier pays claims with a substantial charge for the handling of those claims!
- Unpredictable Claims- These are claims due to a catastrophe or when claims exceed the amount predicted for a given year. These are the claims for which insurance is necessary.
The goal of a self-funded program should be to allow the predictable claims to be funded by the employer while extreme fluctuations in unpredictable claims are covered by the presence of Specific and Aggregate Excess Risk Insurance.
Why Would An Employer Go To All Of This Additional Effort?
- Advantages- the partially self-funded program may produce cash savings over fully insured plans by reducing premium outlay and thus reducing Retention Expense, eliminating insurance company Margins, reduce Premium Taxes and Surplus Reserves. By funding at projected claims levels the claims reserves are actually put into the employer’s hands so that cash flow or investment return is improved. If Claims are funded below the Specific Excess Risk Deductible, the program transfers the front-end, high utilization portion of a typical comprehensive major medical program to the employer and employees. The acceptance of this portion of the risk promotes a degree of involvement and ownership that is not obtainable in a typical low deductible group plan.
- What kind of Employers/Groups should consider these plans? Potential self-funded groups should exhibit a financially stable, mature corporate structure, be in business a minimum of 3 years and be willing to assume responsibility for a portion of their employee medical costs. Experience has shown that the best candidates for self funding have a history of administering their premiums correctly, paying their premiums properly, accepting rate adjustments when needed and generally giving their insurance carrier a reasonable opportunity to make a profit. In all field of the insurance industry there are desirable or preferred risks, marginal risks and undesirable risks. Those of us involved with self funded programs typically work with our Excess Risk Insurers to aggressively pursue the preferred risks, underwrite the marginal risks and eliminate the undesirable risks as clients!
When viewed in the context of the takeover of employer-sponsored benefit plans by many people other than the financially responsible employer, the attraction of the plan control by the Plan Sponsor inherent in ERISA Plans is evident.
Voluntary Benefit Plans
In the not-too-distant past it was common for employer-sponsored benefit plans to include Life Insurance for 1X or 2X Annual Salary, Dental Insurance as well as Short and Long Term Disability, even in states with no state mandated disability programs! Extreme economic pressure on employers cause by spiraling major medical plan costs forced many of these critically needed ancillary coverages to either be dropped or shifted to a plan with premiums paid by the employees themselves. There are several companies who were major innovators in this market shift and they include Manhattan Insurance Group with its Central United affiliate, AFLAC, Colonial and Transamerica, just to name a few.
Your author was involved with voluntary benefits for a number of years and as a newbie quickly discovered what most veterans in the industry already knew: The single most important employee benefit is major medical insurance and when that need is met, employees will quickly look to other benefits that offer increased financial security for themselves and their families. The buzz in the voluntary benefit world today is that as employee contributory premiums for major medical coverage are reduced through Healthcare Reform, those companies having market-ready, innovative, high value voluntary programs will enter into an era of great market acceptance. The continuing advancement in electronic enrollment capabilities will help this broad market acceptance.
The following is a sample of some of the revamped products and proven performers you can expect to see in the marketplace very quickly:
1. Voluntary Group Term Life Insurance with high guarantee issue limits and high face value limits
2. Short Term and Long Term Disability Insurance
3. First Diagnosis Critical Illness Programs with high face values
4. Parental Life Insurance designed to pay for college tuition with room & board
5. Group Auto and homeowners
6. Dental Programs
7. Medical Tourism Programs
8. Mortgage Protection Insurance
This is only a short, sample list because many of the innovative programs do not exist today! Early on in this article I said that our primary goal as insurance advisers was to help our clients assess all threats and risks to their assets and the above programs should provide some insight as to how we must broaden the scope of our analysis.
Those of you expecting a detailed legal analysis of healthcare reform are probably disappointed but there are many insurance attorney-authored articles available for your reference. Your author believes what we do is important to our clients and also understands that as agents, we must adapt or die! The goal of this article was to give you something to think about as you plan for the survival of your agency.
About the Author
Jerry D. Turney has more than 30 years of diversified Major Medical Health Insurance, Special Risk Insurance, Limited Benefit Medical Plan and Medical Tourism expertise. Mr. Turney is a frequent Keynote Speaker at Medical Tourism and International Medical Benefit Plan Conferences and has authored a number of articles on these areas of expertise.
As President of The Consolidated Marketing Group, Mr. Turney’s primary consulting focus is on the implementation of Medical Tourism within the Limited Benefit Medical Plan and Self Insured Major Medical Program markets. Mr. Turney is closely affiliated with Thomas E. Mestmaker of Thomas E. Mestmaker Insurance & Associates, an International Insurance Administrator and Captive Insurance Manager in Bakersfield, California.
Mr. Turney and Mr Mestmaker developed and are implementing an innovative Medical Tourism Program within the Self-Insured Major Medical and Limited Benefit Medical Plan markets to deliver quality care through a network of healthcare facilities initially within Mexico, Central and South America. The creative use of Off-Shore Captive Insurance Company arrangements are critical provisions of these innovative programs.
Mr. Jerry Turney resides in Scottsdale, Arizona and can be reached at:
Jerry D. Turney
The Consolidated Marketing Group
8376 N. Via Rosa
Scottsdale, AZ 85258
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