Ep #491 Exploring Innovations in Stop Loss Self Funding - Daniel Cobb | ShiftShapers

Speaker 1: 0:00

What's new in stop-loss self-funding and all of the tech and data solutions that support it? We'll find out on this episode of Shift Shapers.

Speaker 2: 0:10

Change either energizes or paralyzes. The choice is yours. This is the Shift Shapers podcast, bringing the employee benefits industry interviews with individuals and companies who are shaping the industry's shifts. And now here's your host, david Saltzman.

Speaker 1: 0:32

And to help us answer that question, we've invited Daniel Cobb. Daniel is Vice President of Sales and Strategy at Strategic Benefit Resources. Welcome, Daniel.

Speaker 3: 0:40

Hey, thanks for having me, David.

Speaker 1: 0:42

It's our pleasure A little bit about your background, because in this business nobody ever started out to end up being where they are. So how do you get to be doing what you're doing?

Speaker 3: 0:50

Well, all roads lead to insurance, right? That's what one of my mentors told me when I got into the business in 2008. I actually spent the first five years after college in the mortgage business, which, from 03 to 08 was. It was a great time until it wasn't and in 2008, I joked that looking to make a career change in 08 out of the mortgage business was like having a scarlet letter on your head, because people knew you did well and you probably didn't work as hard as they did. And I was lucky enough to have a couple of close friends that worked in the business saw some at least some go get it in me and gave me an opportunity. So in 08, I got in the business with UnitedHealthcare and then started to make my way through the carrier side and then the administrative side, doing loss, which led me to SBR in 2020. It was the April 1st 2020, so about three weeks after COVID, so it was an awkward start, to say the least.

Speaker 1: 2:20

It's like they say in every business, timing is everything right.

Speaker 3: 2:23

Yeah, I joke that I went from one catastrophe to the next in 2008 because the mortgage business was getting stood on its head and there I was feeling like I had done everything I was supposed to do to make the phone ring.

Speaker 3: 2:38

I had great real estate referral partners. I had great builder partners, I had great clients that were calling for, you know, referrals or, I'm sorry, refinancing or buying new homes, and when that got stood on its head I was ready to go. But in 08, obviously the Affordable Care Act had just taken its stance and little did we know back then all of the unintended consequences that it would yield over the coming years and decades, to which we are still managing today from all sides of the employee benefits spectrum.

Speaker 1: 3:14

Yeah, it has been an interesting ride. If it didn't do anything else and it did a bunch of stuff it certainly shook up an industry that needed to be shaken up and there's lots of interesting and new opportunities going on and whatever. And one of the things that you said to me in our pre-interview. When you said it, I thought it was an oxymoron, and then I went back and reread it and I went well, gee, that's really true. You talked about the expansion of self-funded plans from 400 down to 10. We usually talk about an expansion that's 10 to 400. How low are people going these days?

Speaker 3: 3:43

Because when I was running a TPA, we wouldn't self-fund a group under three or 400. Right, I mean, in our book of business we're reinsuring groups as little as 25 employees, and now that doesn't mean that that's a large percentage, but I would say that 50 plus is a very ordinary and regular thing. On a weekly basis with my partners across the country, the market starts to shrink in terms of who has an appetite for a 28 life group, that 25 to 50,. The market shrinks and so you have a little bit less of a spread of risk opportunity, but it's definitely still exists. And then now I mean even as recent as last week, I'm, I'm, I'm beginning to learn and starting to vet some, some opportunities where folks are self-funding down to a few lives. I mean there's a there is a two to 25 market out there.

Speaker 3: 4:39

So, how successful that is, how viable, that is how within the how successful that is, how viable, that is how within the lines that is is yet to be determined. Again, I just kind of came across it, but it's not what it used to be the old days of hey, you really don't look at this until you're a couple hundred lives.

Speaker 1: 5:00

That is a thing of the past, and we're not necessarily talking to these smaller groups about level funding. We're talking about full-blown, full-tilt, boogie self-funding right.

Speaker 3: 5:08

The smaller groups still in my opportunity. They still gravitate towards level funding, at least in the beginning, because it looks, feels, acts and walks a little bit like a self-funded plan. And then they transition to more of a true self-funded arrangement when they feel like they have a good understanding and they have the right types of whether it's point solutions or understanding of how their plan operates, so that they can make that transition.

Speaker 1: 5:41

In groups that small, they don't generally have access to their data from their fully insured carrier when they're making the switch. How do you price stop loss?

Speaker 3: 5:50

Well, the good news is that we don't have to price it.

Speaker 3: 5:53

Our stop loss carriers have to price it, and so the carriers have really become more and more adept and comfortable with pricing that risk, based off of some of the tools that are in the marketplace that have really come to the forefront of enabling this expansion into smaller groups.

Speaker 3: 6:15

Being able to take a census-based or a member-based census and just a member-based census in lieu of two years of aggregate claim reporting and two years of large claim reporting and two years of detailed, high-cost claim reports and things like that has really opened that market up. But with these risk scores and with the ability to pull that data behind the scenes, people call it artificial intelligence. That's above my pay grade to understand it, but all I know is that they're mining data from somewhere, they're in an aggregated place and they're able to, you know, write their own parameters for what they want to see a risk score within and then, from there, be able to produce a quote for both individual and aggregate as well as aggregate stop loss, as well as the factors and of course, in these small groups the competition is the fully insured renewal right.

Speaker 3: 7:14

I mean we need an aggregate attachment point that meets or beats the fully insured renewal. Every once in a while, if it bisects it, we still see a sale. I call those philosophical opportunities where an owner is just fed up with it. But the markets that are comfortable doing that have grown, and not over a long period of time, I mean really in the last 24 months, and I continue to see more and more markets that get more and more comfortable with this kind of risk scoring approach provided by two, three, four different vendors that are in the marketplace today.

Speaker 1: 7:48

So that's the supply side. Let's talk a little bit about the demand side. What's changing there?

Speaker 3: 7:54

I think part of what's changing is the advisor community becoming more understanding of what the opportunity is and explaining that to their customers and or prospects. And the world looks a lot bigger from 50 to 200 than it does from 200 to 1,000. I mean, just ask ADP, totalsource and Paychex and every payroll company out there and look at their sales force in that segment versus the larger segment. So the same is applicable to the opportunity for self-funding the smaller you go, the greater opportunity there is. And if the savings opportunity is there, along with greater transparency for understanding what's happening within your plan and then the flexibility to make those changes and see the fruits of those changes in the claim experience and potentially the quality, then that's a recipe for success that will continue to drive the opportunity both at the employer level and at the advisor level.

Speaker 1: 9:05

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Speaker 1: 9:41

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Speaker 3: 10:42

I think you get what you pay for right. There's the Chevy, and then there's the Ferrari, and every consultant has, you know, a little bit different flavor as to what needs to be used. But for the most part we want access to first dollar claims data On a 65 life group. We don't need necessarily predictive analytics on a population to figure out who the nine people that may become a real diabetic risk. You pay for that type of forecasting from these type of analytical tools. More so, what we see on a 65 or 35 life group is access to first dollar claims data and financial reporting so that you can accurately have a financial conversation with the owner or the CFO if they have one. And that also makes managing the group for the advisor a lot more efficient because it's in their system. They're not relying on a TPA, they're not relying on a PBM for their reports. When they have the reports they own it or SBR is the one building and managing that for them. It creates some autonomy from an advisor perspective and I don't think I'm saying anything that's off the cuff here. But not all TPAs are the same. Not all PBMs are the same.

Speaker 3: 12:05

I think from our stance, with the number of advisors that we work with across the country. I think the biggest frustration we see is hey, we were using this vendor and they were great, but then there was a change in leadership, they were acquired. Our key person that we did business there with for 10 years is left, and then all of a sudden everything gets stood on its head, and owning that first-dollar claims, data, access to the reporting and understanding the ins and outs of the actual plan in those circumstances is where the value is derived from an agency perspective. But from a plan perspective, everything from hey, why is this orthopedic office charging 500% of Medicare when we should really be closer in this network? Deal to you know 300. That's a conversation that you can pick up a phone and start having with a provider. So that's the type of enabling that that type of technology can do.

Speaker 1: 13:03

Having similar kinds of conversations on the PBM side. I mean, that's really hot now, especially with, you know, the J&J lawsuit and a bunch of other stuff coming down the pike.

Speaker 3: 13:18

We are and it's very interesting. Every advisor that we work with thinks they have the absolute best PBM contract. I get it, but the reality is that these things are very difficult to understand. I say everybody, most PBMs are whether they're transparent or claim to be transparent or pass-through or claim to be pass-through like it really kind of feels like the Wild West out there with respect to PBM. Now, as it relates to risk, you know that's changing a little bit. Stop-loss carriers and kind of this. You know that's changing a little bit. Stop-loss carriers and kind of this.

Speaker 3: 13:54

The way that they view the PBMs and the specialty RX and gene therapy and international sourcing, that is a moving target and everybody is moving a little bit differently, from direct riders to MGUs. And again, not all direct riders are created equal, not every MGU is created equal, and so trying to understand that I think is a selfish plug. I think that's part of where our value proposition is. To some of our advisors partners is like, hey, which wave do we need to be riding when, on what type of group, based on their strategy? Pbm is, I think, is as hot and as fluid a topic as there is in the marketplace, especially when you start to weave in the gene therapy piece.

Speaker 1: 14:37

Yeah, I mean, there's an awful lot of money floating around in a lot of pockets and sometimes it's done like three-card Monty, so that you can't figure out where what hand is in what pocket and what part of your cost it's driving. So let's go back to more fundamentals. Working with these smaller groups, I suspect that you more than occasionally run into an advisor who maybe hasn't done self-funded plans before or isn't really savvy in the ways of them. How do you help educate them so that they can take advantage of this solution for their clients?

Speaker 3: 15:11

so that they can take advantage of this solution for their clients. So time is money right, education takes time. The first thing for me is, if it's a new relationship and it's new to an advisor, I need to see that they have a philosophical buy-in that this is the path to go. Everybody says they don't need practice quoting, and same is that's the same for us as well. And you know, if it's an advisor that's new to self-funding level funding and they want to go that path. And you know, here we are 25, 30 opportunities later and we haven't even gotten a finalist meeting or, you know, gotten to a firm and final. Gotten to a firm and final.

Speaker 3: 15:55

That makes us feel like hey, we're being leveraged against the fully insured renewal only just for their purposes. Now, if that's not the case and we really do feel like, hey, there's buy-in here, philosophically they understand that this is the pathway to go. There's no teacher-like experience, and I think that's what we help newer advisors with is setting up an efficient, repeatable process that is buttoned up from a compliance perspective and is buttoned up from a perspective of under-promising and over-delivering.

Speaker 3: 16:31

I think the hardest thing that we see with new advisors and sometimes with experienced advisors, is that they go out, they start talking about the merits of self-funding with a fully insured group. Everybody gets excited about it. It's almost sold before we ever even have firm rates. And then, when we are unable to firm rates based on a myriad of factors, sometimes you almost have to go on and, with your tail between your legs, crawl back to the fully insured renewal and unwind everything that you've almost done to get them to a place of pushing it across the goal line. And so I think we talk about saying yes fast, but no faster. Again, time is money. If you're an advisor, we don't want to waste time creating a pie in the sky, rainbows and sherbet and then all of a sudden we can't go do that, and I think that's a big part of what some of the technology and some of these member-based census tools that we're able to use it saves time, but it also, because it allows us to say yes fast and no faster, we don't want to waste time makes it feel like not everybody's deserving, but the truth of the matter is not every group should be self-funded or level-funded, and I think that's a reality.

Speaker 3: 17:49

There are groups that need to be in a fully insured environment because they either have too much risk on the plan that's beyond the threshold or the palette of the owner, and that's okay not be this year, but it's important, obviously, it's important to explore. But we look for that percentage of the marketplace that's in that fully insured environment or level funded with ABUCA, that has limited access. We're looking for that upper third that probably shouldn't be fully insured and would like to be in a more transparent environment. Right, that is the lowest hanging fruit. The other third of it is probably so much risk on the plan that it will be well beyond the owners or whoever the risk bearer is financially within the employer. It's going to be beyond their threshold. They need to be in a fully insured or some sort of carrier environment where they're laying off the risk.

Speaker 3: 18:53

And then there's that middle ground, which there is opportunity there. Right, there may be one or two things happening within the plan. They may be in a small group environment where you know you can kind of figure out who's who with respect to the risk, but you can. If you can, then you can move them into that top third or, you know, cross the goal line with getting them into a self-funded or fully insured environment, and it's really up to the advisor as to where they want to spend the majority of their time. You know, because it does take time, energy, effort to move them out of that middle third and into that top third. And not all advisors are created equal. Some are more experienced and want to spend time doing that. Some are less experienced and say, hey, let's focus on the wins that we can get where they're ready for it. And so we see it across all parts.

Speaker 1: 19:46

I mean, I think for a lot of groups, especially those in the smaller segment, if you're talking to a CFO or a business owner, if they don't have a CFO, if they're wearing all those hats, intellectually self-funding makes a mountain of sense. How do advisors get them over that emotional part where, oh my God, I'm going to be responsible for this, and what if that doesn't work? And what if the rates are wrong and all those what-ifs? Is there a magic sauce to help somebody have that conversation, to help their employer get over the heebie-jeebies about going self-funded?

Speaker 3: 20:22

I don't know if there's a magic conversation. I think it's understanding. I think a lot of it is reading the room and understanding who you're talking about. I was at a conference a couple of weeks ago and sitting with some newer producers and you have to understand your audience. Are you talking to a buyer that is, a savings buyer or a quality buyer? Because a savings buyer conversation to get them to sell funding looks very different than a quality buyer.

Speaker 3: 20:53

Early on in my career I remember I was on the retail side having a conversation with a president, ceo of a newer startup, but they had a couple of hundred employees. They were fully insured. They're in the metro Atlanta area. They're in the technology sector, talking about self-funding, transparency, you know, getting out of a network deal, et cetera, et cetera. He stopped me. He said Daniel, listen, he goes. I understand everything that you're telling me he's like, but we're hiring data jockeys you know these guys out. We're hiring them out of Georgia Tech. We're hiring them out of you know some of the best schools and we're competing with Amazon and Microsoft. These kids are making a quarter million dollars a year coming out of college.

Speaker 3: 21:40

He goes, while I understand everything that you're saying, he goes our model and our average revenue per employee is at a point where if I don't have Anthem United, cigna, aetna on that offer letter, it becomes a discussion point and I can't have that be a discussion point. And that was one of the first times and this is probably five years ago now the light bulb went off in my head. I was like, wow, I never thought about it, like that.

Speaker 3: 22:07

Everybody pounds the table about saving, saving, savings, and that's a big part of it. But guess what? There's another side to the coin where it's like some people are just looking to get more value out of the dollar, not just save every penny. And so when we're looking at advisors and what advice you give, A number one is reading the room and understanding who your buyer is and what's important. I used to look at it as trying to understand the macroeconomics of an organization. What's the average revenue per employee? Is that a grocery store where we're operating on 5%, or is it something that's more professional?

Speaker 3: 22:45

or in an industry with higher margins, like technology and things of that nature, but I do believe that the fundamentals of self-funding, which, with respect to creating transparency, having access to your data and the flexibility to change the benefits to benefit your population, to increase quality and lower costs, that resonates across either one of the buyers. The analogy that I've used and I've had other partners or advisors that I partner with that uses, you know, fully insured is like only seeing the first page of your credit card bill, but having to pay your credit card bill right and getting into that level-funded environment or self-funded environment, with a first-dollar claims data or claims platform, that's like being able to turn the page.

Speaker 1: 23:37

That's a great analogy.

Speaker 3: 23:38

And start to look at all 15 pages of your credit card bill and figure out wait a second. Why am I spending money here and there and everywhere? And what can we do? What we can do about it, right, and if you don't have that data, you can't manage it.

Speaker 1: 23:55

That's a great analogy and I will probably R&D it, rob and duplicate All right, absolutely. So, as we wrap up here, what do you see over the next four or five years? What's that future looking like to you when you look in your crystal ball? What's that future looking?

Speaker 3: 24:08

like to you when you look in your crystal ball. So it's interesting because I think it's almost regionalized. I'm fortunate enough to have a book of business personally that about half of it is in the southeast and the other half is kind of stretches through the Midwestern corridor. I don't do a lot in the northeast. I don't do a lot in the Northeast, I don't do a lot in California. And when it comes to plan management and risk management and stop loss carriers in the future, when I talk to my partners who are across the entire country, it looks very different based on where you are. But I think the future will continue to progress towards greater access to data and understanding that data. I think we have to expect that the BUCAs are going to try to position themselves to be tougher and tougher to break away from and tougher to break away from?

Speaker 3: 25:07

I don't know that. I think there is plenty of opportunity for these fully unbundled high-performance health plan initiatives. And then there is plenty of room for Bucca, aso administered groups that are unbundling pharmacy and stop-loss, and then kind of that middle ground where you know whether it's a carrier-owned TPA or leasing it into a network. I mean, I see growth in all three facets and more so. It's movement along that risk continuum for employers as well as advisors, where it's okay. Every couple of years it seems to kind of get one part one step further down that continuum. And you know, for us it's working with those advisors to make sure that they're not getting out ahead of themselves and that they're doing it the right way. You know, I think the hardest part that we see with some of the most highly evolved high performance health plan initiatives it's very hard to scale. And we have a couple of phenomenal community-based health plans that are absolute case studies across the country, but getting that many folks and decision makers in the room nodding their head ready to leap in and do it all together, and it's just hard to scale. And if we could scale and anybody else could scale it, it would have been done by now.

Speaker 3: 26:45

But the thing that I try to emphasize with all of my partners and advisors is that we're here for the long game and we want you and your clients to understand that it's not just a one and two year strategy that we're going to be evaluating and analyzing and understanding, and on the bleeding edge of what's coming down the road, so that you don't have to be evaluating and analyzing and understanding, and on the bleeding edge of what's coming down the road so that you don't have to be, and, once we see it, begin to get to the point where, hey, this is safe, this is something that we can recommend.

Speaker 3: 27:20

That's when it's time to start presenting to clients as a potential opportunity. But I continue to think that these opportunities in the small group, self-funded environment, it's here to stay and I think these coalition approaches and captive approaches and things like that will own and not just heterogeneous, more homogeneous captive arrangements will continue to evolve. Not that it's the end-all, be-all for everybody, because we see plenty of success in both the captive arrangement and then standing on your own and having your risk evaluated on an annual basis on your own merit among multiple carriers. So it's like you said we talked about at the beginning. It's a very interesting time to be in this business and we're grateful for all our partners that have turned to us to help lead the charge.

Speaker 1: 28:21

And that's a great place to end our conversation for today. Daniel Cobb, Vice President of Sales and Strategy at Strategic Benefit Resources. Daniel, thanks so much for sharing your expertise with the audience.

Speaker 3: 28:31

Great, thank you.

Speaker 2: 28:33

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