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Taking Control of our Nonprofit Employee

Health Insurance Costs & Benefits

Phil Collyer John CassellPresident Senior PartnerNational Assembly Spring Consulting Group LLCBusiness Services, Inc.

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

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Introductions

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National Human Services Assembly

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

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Introductions

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Spring Consulting Group LLC

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

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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

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Recent progress

Members asked National Assembly to try again

American Society of Association Executives (ASAE) Joined with National Assembly

IS NOW THE TIME?

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Healthcare Costs: Still Out of Control

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Percentage Increase in Health Insurance PremiumsCompared to Inflation

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

The prevalence of chronic disease and overall declining health of the population has

a significant impact of lost days, and therefore productivity

10 1 Newsweek Web Exclusive.

Average Annual Days Lost by Workers with Chronic Conditions 2

2 U.S. Chamber of Commerce and Partnership for Prevention.

55% of the American workforce 1

None23%

One22%

Two16%

Three12%

Four8%

Five or more19%

Chronic Disease Prevalence Among American Workers, 2007 1

0

4

8

12

2.33.9

6.8

2.34.8

10.5

Ages 20-39

Ages 40-64

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

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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

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Employee Worries Related to Health Care

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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

Increased government oversight and penalties levied against health insurers pharma and medical device companies

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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

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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

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For employers the health insurance environment will become even more complex

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

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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

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As healthcare costs continue to growthe imperative is to take control

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

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So what is a captive?

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

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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

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The program is designed to be a long term solution to a long term cost issue

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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

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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

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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

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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

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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

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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

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

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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

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1 Payments made in advance to Nat’l Assembly/ASAE or Captive once formed; cost as incurred2 Implementation costs will depend on numbers of final participants. Initial feasibility, captive design and product

development have already been funded3 Capitalization is $500,000 and remains in the captive as an investment owned by its members4 Typically 3 months of estimated working rates are deposited into the Captive in advance

Timetable: Completion Dates

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 201129

Timetable: Completion Dates (with Phases)

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 201130

PRE-DECISION

DECISION

IMPLEMENTATION

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Why Now and Next Steps

Summary

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

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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

Overhead resources can be freed up– A central administration point will be created for all program

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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 ratesClaims 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

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Timetable: Completion Dates (with Phases)

Recruit members for the program May 2010

Update financial analysis July

YES, We want to take the next step

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PRE-DECISION

Phil and John are available to:– Answer questions– Talk to your team/set up a discussion with your stakeholder

group

Taking it Forward: Next Steps

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Philip L. CollyerPresident & CEONational Assembly Business Services, Inc.pcollyer@nassembly.com202-347-2080 x17

John D. P. CassellSenior PartnerSpring Consulting GroupJohn.Cassell@springgroup.com617-589-0930 x103