Speaker 1: 0:00

Plan design has evolved beyond things like reference-based pricing and other first-generation alternatives. What's new, what's coming down the pike, and how has a personal experience informed one of our industry's foremost disruptors? We'll find out on this episode of Shift Shapers.

Speaker 2: 0:18

Change either energizes or paralyzes. The choice is yours. 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 shifts. And now here's your host, David Saltzman.

Speaker 1: 0:40

And to help us answer that question, we've invited David Contarno, president and founder of ePower Benefits. Welcome, david. Hi, david, thanks for having me. Oh, it's our pleasure. Thanks for being on the podcast. You are an anomaly. You are a third-time guest, so you must be doing something right.

Speaker 3: 0:56

I'm honored. Thanks for having me.

Speaker 1: 0:58

Oh, it's our pleasure.

Speaker 3: 1:08

So let's start out with a little bit about your background because, as hard as it is to believe at our vintage in the industry, there are still some people who don't know how we got to be doing what we're doing. For me, I started in the insurance industry when I was 12 years old, believe it or not Now. That was telemarketing life insurance for an agent of Prudential, but I was quite successful at it. But it was actually at 17 that I found myself in the benefits space. I had graduated high school a little early, went to college for a year in photography nothing to do with insurance and then went to work for my father in an unrelated industry.

Speaker 3: 1:32

The family dynamics didn't work out so well pretty quickly and my best friend and roommate at the time he worked for his dad and him and his dad had a small little group benefit shop on Long Island. It was just the two of them and an assistant and I basically quit the job with my dad on a Friday, showed up with my best friend Monday morning unbeknownst to his dad, and his dad sort of took me under his wing. His dad was more the salesman type, whereas his son was kind of more the in-office account manager type, and so there was this kind of instant bond between he and I and I started running to the very ends of Long Island for two life plumber groups with fully insured health plans. And that's how I started in the health insurance and employee benefits game. Very simple, humble beginnings and I fought my way tooth and nail to grow in the sort of traditional world and was quite successful. For many years I grew a couple of agencies, bought some, sold some, but you know, eventually I had an epiphany.

Speaker 1: 2:37

And we'll talk more about that. I mean, you know it's interesting in today's parlance. For most people they know the phrase creative disruption from Clayton Christensen and his books. I would say that you are more of an OG type. You're back with Alfred Schumpeter who, back at the turn of the century, created the phrase creative destruction, because I think one of the things that you realized early on was that what was there wasn't working and it couldn't be fixed. It needed to be replaced or broken. Tell us a little bit about how that epiphany came about.

Speaker 3: 3:03

Well, actually it occurred when I was at a open enrollment meeting for a renewal for a client and it was a year in which, unsurprisingly, the rates had gone up more than the employer could stomach. And this actually happened to be a physician's practice. They were ophthalmological surgeons and, of course, most of the employees were staff members, making far less than the four or five surgeons that own the practice. They were ophthalmological surgeons and, of course, most of the employees were staff members, making far less than the four or five surgeons that own the practice. And in order to offset some of that premium increase, the practice administrator had decided to go with a higher deductible and higher out-of-pocket. And this was back when deductibles were like a thousand bucks, which seems low by today's standards, but it was a thousand dollar deductible and, if I remember right, it was a three thousand dollar total out of pocket. And I remember looking around at these people and saying, other than the doctors, not a single one of these people probably has three thousand dollars laying around, let alone three thousand dollars extra year after year if they're dealing with chronic conditions. And this was before HSAs even existed. So the deductibles were applicable in a much more limited fashion than they are in many people's plans today. But even so, when I mentioned what the out-of-pocket was going up to, I saw this look of fear in some of their eyes. Saw this look of fear in some of their eyes and I think part of it was because they were in a medical practice and they specifically were in a surgeon's office, where a lot of people were more being exposed to the deductible than primary care physicians offices, for example. And so they recognize that there's a real possibility, and maybe even a known possibility, if they were dealing with some chronic conditions that they were going to be exposed to this out of pocket, were dealing with some chronic conditions, that they were going to be exposed to this out-of-pocket. And at a similar time, I remembered something that many years prior to that because this was 15, 16, 17 years into my now 32-year career when I studied for my insurance exam up in New York State, part of that exam was the history of insurance.

Speaker 3: 5:03

Why did humans invent insurance? When did it first come about? And my recollection is that it was communities coming together because, you know, someone in the community had a house fire and the house burned down and they didn't have the money to rebuild, and so they pooled their money together as a community, they all put in a little bit of money and then they shared those resources in the event that somebody had a catastrophic event. And I was reminded that insurance was developed by humans and, to this day, in all instances, with one notable exception is meant to do one thing and only one thing, and that is to protect us from catastrophic financial loss. That's what life insurance does, that's what homeowners insurance does, that's what life insurance does, that's what homeowner's insurance does, that's what auto insurance does, that's what workers' comp insurance does and liability insurance.

Speaker 3: 5:50

But I started to see statistics like health insurance not doing that, bankruptcy being the number one, or medical bills being the number one cause of bankruptcy, with a lot of those people having had health insurance. And I said to myself there's a couple of things that are different about health insurance as we know it than every other type of insurance. Number one, it's not protecting us from catastrophic financial loss. Number two, we are expecting it to cover things that we expect other insurance to cover, which I would describe as severe events that are unlikely to occur the heart attacks in healthcare, the hurricanes and the tornadoes. But we've also come to expect it, and I think this was born out of the HMO model in the 70s and 80s that became popular to cover the very frequent not severe events.

Speaker 3: 6:40

And if you think about it from just purely an insurance financial perspective, take all your health care, health insurance knowledge out of the equation. Insurance doesn't function long term when it's trying to cover the infrequent severe and the very frequent not severe. It's just not. Insurance is not a vehicle that is designed or adequate for doing that.

Speaker 3: 7:04

And so these realizations really started to get me to ask a lot of questions, and I really didn't get a lot of answers as a matter of fact, because I had a large agency at the time. I had access to carrier execs and hospital execs and some of the large broker firms, execs, and when I asked them why do we continue to get worse clinical outcomes every year in the healthcare system and pay more for it? The answer among them was remarkably similar it's not our fault, it's their fault, and who they pointed to might have been different, but it was in that moment that I said to myself what is my contribution to this and, more importantly, what control do I possess over changing that? And it was that realization that was really the catalyst for the change in how I approached what it is that I do.

Speaker 1: 7:55

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Speaker 1: 8:41

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Speaker 3: 9:59

Reference-based pricing is an extremely powerful tool. I again went to one year of college for photography, so I don't have an MBA, I didn't go to school for business. But when that epiphany that I just mentioned occurred to me, I realized that while I knew a lot about insurance in other words, I knew a lot about the money going into the plan whether it's realized that the money we have to put into the plan in our world, collectively between the employer and the employee, slash patient is a direct result of the vacuum left by the money coming out of the plan. And if I don't get to understand that and I don't get to fundamentally change that, then I'm never going to change the direction that we're going with the money going into the plan, then I'm never going to change the direction that we're going with the money going into the plan. And reference-based pricing is a really powerful tool from a financial perspective for not only changing the amount of money going out of the plan but, far more importantly, to create a much more logical and sensible way of pricing, something in which the price is not determined until post-rendering of services. That in and of itself is relatively unique to healthcare. There's very few things we buy or consume, where not just the consumer but the provider of that good or service doesn't know the price of what it's going to be until after services are rendered. So it creates an inherently dysfunctional dynamic that is very difficult to overcome, and reference-based pricing, at at its core, is at least a more sensible and, I believe, fair although a lot of providers would disagree way to determine what the price of care should be, considering the care has already been rendered, but it comes with a lot of problems.

Speaker 3: 11:52

The first issue is the initial bold and I give a lot of credit to the very first reference-based pricing vendors, brokers and TPAs. They took a very aggressive stance in terms of how they priced it, and the part of the reason they did that was because, hey, there was no precedent, so why not? But by paying a lower amount to a provider, it allowed them to retain more of the savings for themselves, which was necessary for them to then defend this payment model. That not only had providers never heard of, but once they realized what it was felt was unfair. Once they realized what it was felt was unfair, and so I give a lot of credit to those trailblazers. However, it's created a legacy that exists today, where there are many providers that are still very resistant to any pricing known as reference-based pricing, especially when Medicare is the metric by which we use to find some sort of multiple. Medicare has a very negative connotation from a financial perspective when you speak to people in financial positions at health care providers and health systems in particular. There are ways to ease that, there are ways to overcome it.

Speaker 3: 13:08

Our philosophy with reference-based pricing has always been pay the providers more. Pay the people that are repricing it less, because you don't need them as much. When you're paying the providers more, it's more accepted. But again, even in that model, there are still multiple issues and, more importantly, that model in no way is addressing improving clinical outcomes. So when I started to feel these pains and frankly, we've lost business over the friction that comes with pure reference-based pricing the very next thing I said is what if I created agreements with providers, essentially creating my own quote network and I use my air quotes just because to me a network is akin to a four-letter word. But what if I could find some providers that I could speak to and bring some benefits to them in exchange for some benefits to us and to my clients? Now, their biggest fear at first was not so much how much they were going to get paid, but if that amount were a lesser amount than they were getting paid from the traditional PPO networks, would those PPO networks find out and then want lower pricing? And at first I bought into that philosophy. Right, if someone's paying a lower price, why wouldn't someone else want to also pay that lower price? Now I've learned more that both carriers and providers benefit from escalating and inflating pricing, so that dynamic doesn't actually exist. But that was the thinking at the time, and so at the beginning of these conversations I had to sign a lot of non disclosures. I had to make them exclusive to one particular employer. A lot of times some providers wouldn't do it unless I had massive scale behind me, and some wouldn't do it unless I had a very small group of patients behind me, and so much.

Speaker 3: 15:05

Like we see in many areas of the healthcare system, there's a lot of inconsistencies, but we were able to do things for providers that over the years, and even more so today, is of great benefit to the providers, which is waving out of pockets as deductibles and out of pockets have gone up. Hospitals write off on average 75% of patient out of pocket. But think about this dynamic for a minute the more out of pocket they write off, the more pressure they put for higher reimbursements from the providers. The higher the reimbursements go, the higher the premiums in the market go. The higher the premiums go, the higher the deductibles go, the more they write off. And we just have been on this circling the drain. And so I said to myself like how do we, how do we get past this? And we've been. We've been really successful 18 or 19,000 direct contracts with providers around the country. Now, admittedly, a lot of them are with ASCs, smaller hospitals. We've actually developed some with some larger hospital systems in some parts of the country, but to far less of a success than with the smaller ones.

Speaker 3: 16:17

Now that brings me to one other philosophy, and many of you know my partner in many ways, emma, and Emma has helped me see a more empathetic side to this. Employers have developed this notion that when it comes to health insurance, they must allow their employees to go wherever they want, whenever they want, for whatever they want, and I find that very interesting, in particular in light of someone who is similarly injured. But on the job Workers' comp have been embracing things like reference-based pricing and narrow networks and limited providers for years, and for some reason, employers think that if they're hurt on the job it's okay for them to make more fiduciary decisions than when they're sick or injured not on the job, and I don't understand that there is no. If any employer is listening to this, not only do you not have an obligation to give your employees the ability to go wherever they want to go, but, I would argue, in doing so, you're actually breaching your fiduciary responsibility, because it gives them the opportunity to go to a high-cost and or low-quality place, which doesn't just harm that patient, it harms the company, it harms all the other participants on the plan. So this notion that people should be able to go wherever, whenever is something that I struggle with. But I will tell you, if I take that hardline approach and I've tried it's very unlikely to get an employer to say yes and or stick with it long term, and so we had to come up with a solution. No-transcript, hypocritical.

Speaker 3: 18:33

If I had a Blue Cross and Blue Shield ID card in my wallet, I don't, and I haven't for years. What I do have is a direct primary care membership for me and my family. We pay for it, for our employees as well. And then I have a in my case, a non-faith-based sharing program behind it which is not health insurance. It doesn't work like health insurance, it doesn't have regulations and mandated coverages like health insurance, and so there's a lot of theoretical financial risk, or more theoretical financial risk, but, remember, people are going bankrupt with health insurance. So I question whether or not that risk is greater or not. But what this allowed me to do was present myself as cash pay.

Speaker 3: 19:14

So last year, in 2024, in January, give or take, I developed a really bad shooting pain down the right side of my leg, the outside of my right leg, and I pretty much knew right away it was sciatic leg pain, but it was pretty bad. And just from what I do, I knew that if I went to a back surgeon, they were going to recommend back surgery. I know there's a lot of unnecessary back surgeries and I know the most likely outcome of back surgery in the United States is additional back surgery. I know there's a lot of unnecessary back surgeries and I know the most likely outcome of back surgery in the United States is additional back surgeries, and so I did everything I could to avoid that, and so I tried physical therapy, I tried stretching exercises, I went to a chiropractor, I mean, I did all those things but it wasn't working, or at least it was only providing mild and temporary relief. I had an MRI. It showed that I had a bulging disc between L4 and L5. And luckily, I know a bunch of doctors and one of the things that a doctor, a very good doctor friend of mine, said to me is David, you have symptoms in which the MRI matches the symptoms you have. That means, and after trying everything else, that means that you might be a candidate for surgery.

Speaker 3: 20:39

Now, as a side note, while I was trying to manage all this pain, I was taking over-the-counter ibuprofen, and a lot of people think prescription drugs are somewhat innocuous, let alone over-the-counter. But I want to let you people know that the ibuprofen, combined with a stomach bug that I got, caused me to become very dehydrated, unbeknownst to me. I just knew that I was feeling worse and worse, and worse and, prior to actually consulting with a surgeon, I decided to get an epidural to try and just get some relief from this pain. And when I went to this orthopedic urgent care center to get the epidural, they took my blood pressure just as a matter of course. And it was 71 over 44. And for anyone knows blood pressure, the doctor was kind of shocked that I was able to even stand upright, which I was barely able to do. I wound up being rushed to the hospital and I was in acute kidney failure. I had 100% reduction in one kidney and 90% reduction in the other kidney, all due to dehydration. All due to dehydration. Again.

Speaker 3: 21:43

Another word of caution for people is when I was in the hospital here I am in massive kidney failure and of course the doctors, that's their number one concern. But they asked me what my number one concern was and I said it's my sciatic leg pain. Well, they wind up giving me opioids, oxycodone, in the hospital. You know they dosed it out to me at whatever the recommended doses was, a few times a day. They wound up giving me massive fluids over the course of several days and I went home with a script for oxycodone. I took it less than prescribed. It had some moderate relief, but I finally resigned myself to exploring surgery.

Speaker 3: 22:27

You know, again, knowing the health system a little better than most, I had a resource to reach out to a nationally recognized orthopedic surgeon and I said this is what's going on. If you were in the Charlotte, north Carolina area, who would you send your family to? And she gave me a name, so I call that up. They're part of an independent orthopedic practice that happens to be pretty well respected in the area. I call them up for an appointment and they're like great, we have an opening in six weeks. And I was devastated. I was like I've been in kidney failure, I've been in pain. I didn't know what to do. I humped the phone. I'm not happy. Well, that wasn't good enough for Emma. So Emma called them back and she said looking for an appointment. Here's the situation. By the way and this was on a Friday, by the way, we're cash pay. And they said oh, we can see you Tuesday. So I get in to see this provider Tuesday.

Speaker 3: 23:22

I brought my MRI results that I had done a couple months ago. I brought it in on CD. I wasn't going to let them deduplicate Again. I'm cash pay. Why pay for another MRI? Why have your health plan pay for another MRI when I just had one? So they looked up the MRI, asked me a bunch of questions.

Speaker 3: 23:40

This doctor was known for minimally invasive surgeries and he said I recommend a microdiscectomy. And that, to me, was music to my ears because, knowing the different types of surgery out there, that is a 45 minute procedure. It's outpatient, it's not fusing anything, it's not inserting anything, it's literally. They make a tiny incision in your back and they slice off the part of the bulging disc that's hitting the nerve that's causing the pain. So I said, great, let's do it. And he said, okay, it's going to take us about six to eight weeks to get all the paperwork done, get you scheduled. And I said I'm cash pay. And he said, oh well, how's Tuesday? So within a nine day period I went from calling the doctor's office to waking up in recovery with my leg pain gone for the first time in nine months. Now.

Speaker 3: 24:33

He gave me more opioids by the way, as a quick side note, took it less as prescribed. A couple days after the surgery I realized small incision, I don't need it. I went through the only and worst withdrawal symptoms of my life, again, less than prescribed, threw them away early. Just a word of caution, people. I can better understand the opioid epidemic now and how it starts with doing what you're told to do by your doctor and how it starts with doing what you're told to do by your doctor. So anyway, what I realized from this experience was the power of cash pay.

Speaker 3: 25:12

Now let's get to the finances of things for a quick moment. The surgeon bill, right off the bat, was $1,200. That seemed extremely reasonable to me. Then I get the hospital bill Outpatient 45-minute procedure $59,000 was the bill. So now I have that sharing program, although I don't expect them, nor do I want them, to pay $59,000. So I call them up, I also use the negotiators of their service, and that $59,000 bill was reduced to $1,500. So for $2,900, which is less substantially than most people's out-of-pocket under their health plan, I went within nine days from consult to pain-free and I just don't see how that could exist in any other circumstance.

Speaker 1: 26:07

And the magic words were cash, pay.

Speaker 3: 26:10

Cash pay. That was magic from an access perspective and that was magic from a financial perspective. One of the things that providers are feeling a lot of pain from is the carriers are floating reimbursements. I mean, they're paying out hundreds of millions to even billions of dollars a month collectively, nationally, especially the large national carriers, and so the longer they float that, even more so in these high interest rate environments that we have today. They're making a ton of money on that float. Today they're making a ton of money on that float, and so to pay them either same day or immediately, or even within 30 days, brought a lot of power for both access and finance.

Speaker 1: 26:52

The question, though, is how do you take that paintbrush and turn it into the roller that we need?

Speaker 3: 26:59

So there are a few solutions that have attempted to do that, but we've actually worked on one specifically where we are making.

Speaker 3: 27:08

We've done some cash pay models and I know a lot of advisors that are probably listening to this have done cash pay add-ons, cash pay bolt-ons. The challenge is you are getting table scraps at best If you're working with a PPO network navigating around. That is sometimes contractually prohibited at best and very difficult from both a provider and from a patient perspective Once that patient self-refers them to an orthopedic surgeon. That's part of a large health system. They're in this flow that they don't even realize is in the best interest of part of a large health system. They're in this flow that they don't even realize is in the best interest of the doctor in the health system, but they think it's in their best interest and changing that flow is really difficult. So we started to explore solutions of how do we make these solutions first and really the magic to resolving not just the challenges with reference-based pricing and not just the challenges of getting people to take advantage of cash-based situations, but changing the entire dynamic of the dysfunction of health insurance that I mentioned a few minutes ago, which was having it try to also cover the very frequent not severe events has been direct primary care. The way that we embed direct primary care is and we typically offer this as a plan option because employers are very hesitant to offer a plan in which these rules that I'm about to share exist but we offer a DPC option in which it is a richer plan than the employee has probably ever had in their lifetime and if there are payroll contributions between the two plan options the second one being one where they can kind of go anywhere using reference-based pricing and direct contracting the DPC plan option is much richer and less money out of their paycheck. The caveat is is we're going to curate a relatively small selection of direct primary care providers and that is going to be your primary care home. Now we bring these DPC providers to the employee meetings because we think it's very strange in retrospect and I did it for many years, but it seems very strange to have a healthcare meeting and not have a healthcare provider at the healthcare meeting, which is what we've done for years.

Speaker 3: 29:25

I liken it to teaching your kid to drive by, sitting them at the coffee table and going through all the provisions of the Geico insurance policy and then handing them the keys and saying go be a good driver. That's what we do at Open Enrollment. We go through all the provisions of the drug formulary and when the deductible applies, and then we hand them an unlimited ID card and say go be a good patient. It's nonsensical when you really think about it, even though I myself, admittedly, embraced it for many years. So I know a lot of people are becoming more accustomed and familiar with direct primary care. But I'm not even going to go over the basics because I think most people know people get more access to care, they get better clinical outcomes.

Speaker 3: 30:03

But I want to talk about it from a financial perspective for a minute.

Speaker 3: 30:07

When a health plan embeds direct primary care and pays the monthly membership fee, which is the way we build our plans and, most importantly, requires the patient to consult with the direct primary care provider before they can go to a specialist, which inherently gives that DPC the patient to consult with the direct primary care provider before they can go to a specialist, which inherently gives that DPC the ability to potentially treat that problem without a claim ever occurring, right, because we have that monthly membership fee. But what this does is it corrects the dysfunctional dynamic in insurance, because now we are allowing the DPC to handle all the very frequent, not severe events. The employer is paying a fixed monthly fee for that. You don't need to insure a known fixed cost, you need to insure an unknown, unfixed cost. And so from a plan perspective not from the employee perspective, I'm talking about from the plan perspective we no longer need to ensure those very frequent, not severe events and the employer because it's a self-funded plan model combined with their stop loss is now only paying for the infrequent severe events.

Speaker 1: 31:22

That's all they're paying for, and that is an awesome place to leave our conversation for today. David Conterno, old friend, president and founder of ePower Benefits. David, thank you for your insight and for sharing your personal stories with us.

Speaker 3: 31:35

It was my pleasure, and anyone that wants to reach out, even on a personal level, it's easy to find me out.

Speaker 1: 31:48

Even on a personal level, it's easy to find me. I want to give a quick shout out to our sponsor and our producer, hatcher Media. Hey, if you need podcast production or professional graphic design, josh Hatcher is the expert to contact. For more information, visit him at hatchermedianet. That's H-A-T-C-H-E-R Media dot net.

Speaker 2: 32:04

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