Doug Houser:
From Rea & Associates remote studio in Newark, Ohio, this is unsuitable, a management and financial services podcast for entrepreneurs, tenured business leaders and others who are ready to look beyond the suit and tie culture for meaningful, measurable results. I'm Doug Houser. on this weekly podcast, thought leaders and business professionals break down complicated and mundane topics and give you the tips and insight you actually need to grow as a leader while helping your organization grow and thrive. If you haven't already, hit the subscribe button so you don't miss future episodes. And if you want access to even more information, show notes and exclusive content, visit our website at www.raecpa.com/podcast, and sign up for updates.
Employers have always grappled with the rising cost of employee healthcare, but ever since COVID-19 reared its ugly head, employers have raised a ton of questions and concerns related to healthcare's future costs and what they can do to protect their employees as well as their bottom lines. Michael Clark, an employee benefits consultant and Todd Lancaster, a sales executive specializing in property and casualty with Oswald Companies in Cleveland are here to talk about the impact the coronavirus crisis will have on healthcare costs and how businesses can better manage their spend.
Welcome to unsuitable, Michael and Todd.
Michael Clark:
Thank you, Doug. We appreciate you having us. You used the word mundane...
Doug:
Yes.
Michael:
And mundane is a direct correlation.
Doug:
Ah, well, good to know. Good to know. So, much going on. Obviously everybody's world got thrown upside down three months or so ago, and I'm curious to see, from both of your perspectives, certainly Michael, I want to hear your perspective on healthcare impact for businesses and then Todd, perhaps you can give us some property and casualty insight as well. So what's been happening? What's been the impact?
Michael:
Yeah, absolutely. I think that when you take a look at, I think when we look back on this and the numerous case studies that are going to be created, not just on the insurance, but the financial aspect, it really took a lot of us by storm. When I say us, I think the health insurance carriers. Obviously, elective surgeries were postponed for multiple months, which caused insurance carriers to run significantly lower on their medical loss ratios. And when you look at a medical loss ratio, it's on the fully insured side of the house where the amount of premium paid versus the claims that are paid out.
Doug:
Right.
Michael:
So insurance carriers typically look at an 80 to 90 percent medical loss ratio is what would be consistent for groups and we're seeing significantly lower because all of those high cost hip replacements, knee replacements...
Doug:
Sure.
Michael:
...were postponed.
Doug:
Yeah.
Michael:
What we've seen as a significant dip in claims from, I would say March into now starting to ramp back up as we get into June and we expect the end of Q2 to really get the first piece of that.
Doug:
Okay.
Michael:
A lot of studies that I've seen, we're doing some direct contracting with local hospital systems and they're sending out questionnaires and surveys requesting for when would you like to schedule this elective surgery that was postponed...
Doug:
Yeah.
Michael:
...and 92 percent of the patients are saying as soon as possible.
Doug:
Yeah.
Michael:
So we expect to see a large spike in Q3, Q4, and this is also going to raise the question of what about all of the preventative cases...
Doug:
Right.
Michael:
The preventative exams that were postponed.
Doug:
Yeah.
Michael:
What wasn't caught that should have been caught? So again, I've seen a number of reports when it comes to COVID-19, the impact from a cost perspective. We're seeing between 350 billion to 1.5 trillion, which is large gap.
Doug:
Wow.
Michael:
I don't think that hospital systems really have an [inaudible 00:04:51] the long-term impact is going to be. Obviously, we're waiting for a virus.
Doug:
Yeah.
Michael:
I'm sorry ... Not a virus, a vaccine, there's going to be a cost associated with that vaccine. And I think it's going to be determined how insurance companies are going to handle that. When you look at the cost of an inpatient stay, it's really averaging between 25,000 for a lower level, lower critical level case, all the way up to 60,000 in critical scenarios. When you get into ventilators, there's been a number of scenarios where we've seen patients that have been on ventilators for 20 plus days. You're getting well into the hundred thousand dollar range. And when you look at the demographics of those patients, it's significantly higher percentage of individuals that end up in that critical scenario are over the age of 60.
Doug:
Yeah, absolutely.
Michael:
Yeah. So when we talk about, I think we'll get into the second segment of this, of how do we better manage these costs with the expectations and the data that we have. Making sure you have the right people on the plan is one of them.
Doug:
Yeah.
Michael:
That's [inaudible 00:05:56] eligibility and communicating what else is out there outside of employer based plans can help, I guess, shield yourself a little bit from those costs?
Doug:
Yeah. And we're not even thinking about, as I [inaudible 00:06:12], there's a lot of follow on to that too. What about okay, if you've had COVID-19 and perhaps did they cause any type of permanent lung damage, that type of thing. Then you're dealing with preexisting condition, which the current administration is trying to no longer cover. So, there's lot of issues down the line that can be impacted there as well. But, let's shift gears a little bit. Todd, what about property and casualty impact? What have you seen there? I know there's been a lot of consternation about business interruption insurance, and obviously COVID-19 not a part of that. What's some of the scuttlebutt in the P&C side?
Todd Lancaster:
Scuttlebutt might be a good word right now, actually. And you brought up the key point is the business interruption. When we have a lot of companies that are experiencing significant losses at this time, some are not, but the restaurant hospitality business in particular seeing huge losses of revenue.
Doug:
Yeah.
Todd:
We're looking at hopeful recovery from a business interruption standpoint, but the key trigger, and I know a lot of people listening in, the key trigger of the coverage is property damage. So with the whole COVID-19 situation, it's hard for organizations to prove that there's any kind of physical damage to a property. It's all viral and health-related so that's the biggest issue right now. We have a lot of frustrated clients and customers that we're hoping to receive some recovery from the business interruption standpoint. And I think a lot of that's going to be determined down the road. Every scenario is different...
Doug:
Yeah.
Todd:
...whether or not you had somebody at your facility that tested positive for the virus, but in order to really make sure you're [inaudible 00:08:13] any claim scenario the right way is key.
Doug:
Right.
Todd:
Because even if there's some recourse from the government or there's a look back of BI coverage, you got to make sure that you have all your I's dotted, T's crossed and you approach the claim scenario the right way.
Doug:
Yeah. It'll be interesting. Now, obviously that's starting to wind its way through the court system, correct? Because there's a lot of, I know there were a lot of lawsuits filed that, "Hey, this should be part of business interruption coverage." I mean, obviously this is just your personal opinion. Doesn't mean it's anything to take to the bank by any means, but where do you think some of this will fall, if you had to take a guess?
Todd:
Yeah. It's hard to tell, but I know the insurance industry and the carriers have been pretty stick together. They're sticking together. There's no …
Doug:
Yeah.
Todd:
...for business interruption for this, whether or not the government [inaudible 00:09:11] develops a plan to help out, who knows. But we're seeing of all of the claims that we've seen put in, we've seen 99.9% of them denied …
Doug:
Yeah.
Todd:
Again, the cost from an insurance standpoint, in the insurance industry, even though these claims aren't going to be covered, there's going to be a lot of litigation.
Doug:
Sure.
Todd:
The already hardening market that we were starting to see in the property casualty side of the business, the impact of this is just going to add that.
Doug:
Yeah.
Todd:
So the rates are going to continue to increase as we've seen over the last four to eight quarters across multiple lines.
Doug:
Gotcha. Gotcha.
Michael:
You bring up a good point about, it's interesting how the carriers have reacted on the health insurance side. There's almost been a domino effect. It was the first one to say, "Well, we're going to offer premium delays or premium holiday." And then as soon as you see one carrier offer it, start to get the reports that the rest of them are going to follow suit. So I'll be interested to see as some of these business interruption cases come to fruition, if carriers get aboard.
Todd:
Yeah. One other thing I want to add is that some of the property casualty carriers are also doing those same payment deferments [inaudible 00:10:32] because of the shutdowns of these businesses. A lot of the risks that these companies have, whether it's auto or other folks with people not working, that these carriers are looking at that, and they're taking midterm changes in exposure. So we've seen certain cases where companies have gotten premium back because they know that a large fleet of autos that are typically on the road every day …
Michael:
Sure.
Todd:
So there's been some cases where companies have seen some relief, but it's going to be a long time to determine the business interruption and how that all plays out.
Doug:
Right. So, Michael, from your perspective, and given what's happened, where do you see healthcare premiums and healthcare costs in the near term, say for 2021? I know largely they've been fairly flat the last couple of years, at least relative to time for that in terms of increases. So what's your projection going forward?
Michael:
I think there's going to be a significant change in the healthcare landscape. Really, I don't know that either administration is going to defer that from happening. I think [inaudible 00:11:48] it's Democratic or Republican. There's going to be some change on the healthcare side. Now, does that mean universal coverage or Medicare for all? No. I don't think that we're going to see anything near that. I think that there could be some extensions on maybe Medicare or different types of public option plans.
Doug:
Gotcha.
Michael:
I expect more and more companies to continue to self-fund because when you take a look at, and just give a quick overview, fully insured is you really have a fixed premium. So every month, you're paying X amount of dollars. It's consistent throughout the 12 month contract. On a self-funded arrangement, you are paying your claims up to a certain … up to a certain stop loss.
Doug:
Gotcha.
Michael:
You have better control as to where your money goes. Whereas the insurance companies are the ones that are benefiting when you have a lower medical loss ratios, as I mentioned earlier. So I think we'll see more and more groups start to self-fund all the way down into the 60 to 70 life employee basis.
Doug:
Okay.
Michael:
I think then on top of that, it'll give them a better opportunity to manage their spend through a lot of the innovations that we're seeing that even I know Rea & Associates is taking a part in.
Doug:
Yeah. So is that, as you currently see, the break even for those self-insured type of setups, like 60 to 70 employee, roughly range?
Michael:
If you were to ask me that five or six years ago, it would be asinine for somebody to say, "Oh, life group, I'll fund it." That's crazy.
Doug:
Yeah.
Michael:
For perspective, it's not feasible and we're seeing more and more. I mean, the threshold has gone from 150 down to 100, now all the way groups that are 70 employees enrolled that are self-funded, that are against the insurance carriers. I mean, if you were to do a fully assured analysis over three year spectrum, they've saved hundreds of thousands of dollars by taking that plunge into a self-funded environment and carriers are starting to become more agnostic with that as well. So they're creating these platforms that are contingent premium or level funded that are really hybrid stepping stones into a self-funded model.
Doug:
Okay. That's great to know. And certainly for our business owner listeners out there, that's incumbent upon them to talk to a professional like yourself to examine some of those options if they haven't in the past, a great time to do that. Right? So Todd, just getting back to the property and casualty side, what else, I mean, we continue to hear a lot about the distracted driving and I know there was, as you talked about this hardening market that we had seen. What else is impacting the property and casualty side in terms of costs or things that businesses can do to help control those costs?
Todd:
I mean, it's going back historically, right? The last six to eight years, it's been a really flat market rates [inaudible 00:14:58] really remaining pretty even, and it's been easy for those CFOs and business owners to budget for what those costs are going to be. And for the first time, really in the last two years, as I mentioned before, it's started to see a little bit more of a change where rates and increases are going up. I can go into the details of what's driving that, but in order to really gain control of those rising costs, similar Michael said, we have a lot of clients that have taken on retentions, looking at captive alternatives so they can gain control of that.
And as long as they have the right risk management procedures in place, that's going to be important., Even if you're [inaudible 00:15:41] fully insured option without the higher deductibles, [inaudible 00:15:48] they're going to start paying closer and closer attention to your risk management strategies because they're not going to take on risks and offer limits that they used to without knowing what you guys are doing to prevent and control your risk.
Doug:
Yeah.
Todd:
So it's important in the future to manage those risks proactively.
Doug:
Gotcha. Gotcha. Now, one of the things we, I know we at Rea & Associates, we have a cyber-risk group here, and that's something that certainly is a hot topic as well. Now, the cyber risk policy for business owners, that's separate from your traditional P&C type of coverage, right?
Todd:
Yeah, something that we roll into our property casualty program. So we have an expert in a group that just does cyber liability as well, but it is an ever growing concern. And even with COVID and the impact that it's having the businesses and folks working remotely. A lot more of these Zoom type meetings, the cyber risk is very, very important and...
Doug:
Sure.
Todd:
...much more important now. So yeah, it's important for people to control and understand what those risks are. And these attackers that are coming after businesses through the system, through computers and ransomware and different things, they're getting smarter, more creative and now more than ever, they have an opportunity to get access.
Doug:
Yeah. Yeah. We don't want them getting access to and hacking our Unsuitable podcast here. That'd be a Greek tragedy.
Todd:
I've heard some [inaudible 00:17:36] stories about that.
Doug:
Sure.
Michael:
Even from an HR perspective, when more and more companies are transitioning to this virtual environment and the work from home and the work from anywhere [inaudible 00:17:48] are continuing grow, I know we've had a number of conversations with [Sean 00:17:53] Richardson, who is fantastic. I mean, when it comes to cyber, he is one of the best. What we're doing on the risk management side, we've done a little bit of collaboration with Sean and we look forward to working more with him in the future.
Todd:
And what a lot of people don't realize as part of if you do buy that cyber insurance, there's so many things that come with the policy that can be useful to a business.
Doug:
Yeah.
Todd:
Whether it's a coaching from the specialists on the carrier side, to understand how to best mitigate the risks. If you do have an incident, then you have somebody that can help you respond to that incident as well. And a lot of people don't understand what's there for you as a policy holder. It's key.
Doug:
So, Michael back to the healthcare side too, a little bit, so for business owners as they rethink their physical footprint and how they connect and how they work, does that impact the health coverage at all in terms of companies thinking through that part of it? Or is that really a separate issue? I'm curious if that has impact on that side of things.
Michael:
Well, it has impact to a certain extent. I think that company owners, I think executives, I think that when you look at leadership teams across all organizations, healthcare is, in most cases, the number two spend for every company, which is crazy to think, because I can't tell you how many organizations we've met with that it is a one meeting a year type transactional approach. And it just can't be that way. I think historically there's been the sense that it is what it is, but it's not anymore. You can enact change. There are so many different innovations out there where you can cut your costs 25, 30, 40%, and actually enhance your benefits.
Doug:
Wow.
Michael:
Look, you're in Franklin County right now. If you were to look in Franklin County, you're going to find an MRI for $600 and you're going to find one for $3,200.
Doug:
Wow.
Michael:
That's crazy to think, right?
Doug:
It is.
Michael:
Every single employee at Oswald, at Rea & Associates, when they go to buy a vehicle, they're looking to find the best deal and they're willing to drive. If they're anything like me, I'm willing to drive. I always set my marker for 300 miles.
Doug:
Yeah.
Michael:
If I can find the best deal within 300 miles, I'm going to drive. I'm going to make the change. I'm going to go there and I'm going to save the money and feel good about it. It should be no different with healthcare.
Doug:
Yeah.
Michael:
[inaudible 00:20:38] get into hip replacements and knee replacements, you're talking 40, 50, $60,000 for going to a higher quality facility. I mean, that's the biggest part of that. People think that there's a direct correlation between cost and quality. When it comes to healthcare, there's not.
Doug:
Interesting.
Michael:
Yeah. When you look at some of the top orthopedic facilities in the state of Ohio, they're the ones that are the lowest costs.
Doug:
Really?
Michael:
[inaudible 00:21:04] doing more and more of these surgeries. Yes.
Doug:
Gotcha. So they get more efficient at it, in other words.
Michael:
Exactly.
Doug:
They specialize. Okay. Yeah.
Michael:
Exactly.
Doug:
Okay. Now I know the hospital systems, they've all been anxious obviously to get back to doing a lot of those more "elective" type procedures, because that's where the benefits are for them. So do you think because of what's happened, will there be some shake out with regard to providers and things like that? What are your thoughts there?
Michael:
I don't want to sound bias, but I think that hospital systems are going to be looking to recruit a lot of profit that they lost.
Doug:
Yeah.
Michael:
The Cleveland Clinic announced that it lost millions and millions of dollars on the first quarter. Hospital systems are going to look for ways to recoup that.
Doug:
Yeah.
Michael:
Is it through elective surgeries? Is it through a number of different types of procedures that can be done? That is their business. At the end of the day, a hospital system is a business. They have to drive a certain number of patients at a certain cost in order to break even. So I expect there to be a lot of outreach from the hospital side to get these elective surgeries back scheduled.
Doug:
Yeah. And as you say, I mean, given their model, they're obviously heavy fixed costs, so they need to do that.
Michael:
It's a fee for service model. You're right.
Doug:
Yeah. Interesting. So, Todd, any last thoughts from you? What do you see in terms of the insurance industry overall, in terms of P&C side, will we see additional shakeout, mergers, things like that? What are your thoughts?
Todd:
One more thing to follow up on the whole impact of COVID, as you can imagine, as these companies have gone through some furloughs or layoffs, now they're bringing folks back. Maybe they're not bringing everybody back. It's bringing on a whole different type of from a HR and ownership side of things. So employment practices, mismanagement of the COVID situation. Maybe they didn't have other protocols in place. So that right now is a big issue and concern. We see a big uptick in that type of claim scenario that can greatly impact the business.
Doug:
Great point.
Todd:
[crosstalk 00:23:32] overall from the insurance market. I think it's maybe too early to tell what the direct impact of COVID is going to be, but I know as I stated before, the market was already starting to change a little bit and they expect, whether or not it's BI claims, worker's comp, the. Claims that I just mentioned with employment practices and stuff that could be a hundred billion dollar impact to the insurance carriers.
Doug:
Wow.
Todd:
So if you think about that, that's going to affect those business owners going through renewals for this year, years to come.
Doug:
Yeah.
Todd:
Got to be ready to get ahead of it. It's not going to be the [inaudible 00:24:14] renewal process you're used to. If you're proactively putting together a strategy to approach the renewal, then you're going to be, and for different [inaudible 00:24:26] rate increase that you haven't seen over the last three to five years.
Doug:
Yeah. The key is, I think, as you suggested there, get ahead of the game, get with your professionals like you and Michael now. Let's start having those conversations, right?
Todd:
Yeah.
Doug:
Don't wait.
Todd:
It used to be 60, 90 days before renewal and it's a transactional process, but now more than ever, you have to get way out in front of it, develop a plan and stick to that plan and see what you can do to give you the best. We want to put you up on that pedestal. So those carriers want your business. If you're not proactively doing that ahead of time, then you're going to be behind the eight ball.
Doug:
Yeah, that's very sage advice. Very much appreciate it. So thank you, Michael and Todd both. Really appreciate having you on today and very, very good stuff. I learned a lot. So hopefully everybody enjoyed it. And if you want more business tips and insight, or to hear previous episodes of unsuitable, visit our podcast page at www.reacpa.com/podcast. And while you're there, sign up for exclusive content and show notes. Thanks for listening to this week's show. Be sure to subscribe to unsuitable on Apple Podcasts, Google Podcasts, or wherever you're listening to us right now, including YouTube. I'm Doug Houser. Join us next week for another unsuitable interview from an industry professional.
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