A Costly Default For Small Groups

SPEAKER_02 0:00

What if the health plan most small employers automatically reach for is actually the option costing them and their employees the most money? And what if the smarter answer isn't one replacement product, but a carefully engineered combination of HRAs, individual market subsidies, preventive care plans, and alternative coverage? We'll find out on this episode of Shift Shapers.

Announcer 0:24

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 shift. And now, here's your host, David Saltzman.

SPEAKER_02 0:44

For employers with fewer than 50 employees, the familiar group health playbook can create high costs, limited choices, and frustration on both sides of the benefit equation. Dan Cosgrove is CEO of Better Benefits USA, and he's been focusing on helping advisors rethink that playbook using the individual market, HRAs, prefunded structures, and other alternatives to build benefits around the actual economics of each individual workforce. Welcome,

Dan’s Wake Up Moment On Costs

SPEAKER_02 1:13

Dan.

SPEAKER_04 1:13

David, thanks so much for having me. How are you doing, my friend?

SPEAKER_02 1:16

I am doing well, and it's our pleasure to have you here on the podcast. So everybody has a shift shapers moment, the moment that something happened that permanently changed how they see the world. What was yours?

SPEAKER_04 1:27

Mine was being a business owner of a mental health company and getting absolutely destroyed by our employee benefits costs. Like I cared about my employees. I wanted to take care of them, but I also knew our revenue wasn't keeping up with our expenses. And our second biggest line item expense was employee benefits, aka health insurance costs and other fun supplemental benefits like that. So that was my wake-up moment, you could say, when I started recognizing, like, man, if I don't do something about my second biggest line item, I'm going to run this company into the ground. Fortunately for me, I did figure it out. I ended up saving about $3,000 a year per employee while simultaneously giving my employees better benefits, which ultimately then led to the creation of my new nonprofit, Better Benefits USA, so that I could then take this knowledge and help those other small, medium-sized businesses out there and the respective brokers that are supporting it to know that there's a different way of doing things.

Why The Group Plan Model Breaks

SPEAKER_02 2:32

What's broken about the conventional approach?

SPEAKER_04 2:36

Well, our industry has really misaligned incentive structures, and I'm sure brokers listening to it say, yeah, I can see that. Because we've all had that conflict of interest where, you know, you might get paid a 5% commission on how much people are paying in premiums. That doesn't really help drive the right behavior and trying to help your employer or your client save money on their health insurance costs and general employee benefits costs in its nature. So we try to flip the model upside down. We take a percentage of what we save clients so that we're sitting on the same side of the table and ultimately driving better value for the employer and the employee and the brokers that are servicing those clients.

SPEAKER_02 3:16

Are there situations in which a traditional small group plan is still the right answer?

SPEAKER_04 3:22

In very rare situations, I would say yes. But you know, if you're sub-50, there's a whole reason why there's no tax penalty A and tax penalty B for sub-50 groups. Take advantage of the subsidies out there. For instance, like my prior company I just was chatting with before I hopped on this one, it's a doctor's group. It's a medical office. They're sub-50 and they have a lot of doctors, and the doctors are like, well, we're not going to qualify for subsidies. Great. But their support staff does. 50% of their workforce, when we looked at it, will qualify for major subsidies. And I'm talking about $300, $400 a month on health insurance premiums that they're going to save now by going to the marketplace. Why would you be on a group plan? Just because the doctors weren't getting a subsidy in the marketplace doesn't mean that the collective group practice isn't saving a much wider portion by doing individual marketplace plans or even more alternative things like a lot of doctors are actually really healthy people. They don't really need quote-unquote health insurance. They could use the health shares that have really emerged since the Affordable Care Act creation in 2010. So yeah, there's so many different alternatives these small groups out there can do.

SPEAKER_02 4:29

So advisors who are listening might want to recommend an alternative.

SPEAKER_04 4:33

Yeah.

SPEAKER_02 4:34

What facts do they need to collect about the employer and its workforce before they go down that road?

SPEAKER_04 4:39

Yeah. Um truthfully what you would really need high-level census. We don't need to know their street address that they live on, but you definitely need to know the zip code. You know their date of birth. Uh, you need to know their projected 12 months gross wages, things like that. Because ultimately that oh, and then of course, if they're married, uh, have any kids, like the dependents, because all of those things then dictate what types of subsidies somebody might qualify for in the individual marketplace. On top of that, that would also give us an idea of okay, if they don't qualify for subsidies in the marketplace, what are then alternative strategies we could utilize? Whether that is medical expense reimbursement plans where you just put the healthy employees that don't qualify for subsidies on a group plan in it, or the more alternative route using HealthShare. So again, there's a ton of different tools in the toolbox toolbox for brokers once they have that basic level data to then use the analysis and figure out the best solution for the client.

How Subsidies Change The Math

SPEAKER_02 5:37

So let's dig in a little bit. Walk us through the math behind that, we'll call it an individual subsidy pivot. How can employer change its benefit strategy in a way that may allow eligible employees to access some of those federal premium subsidies?

SPEAKER_04 5:51

Yeah. The first part is don't offer group health insurance. By offering group health insurance, you are disqualifying every single employee from qualifying for benefits. Like we actually had a big shift with this uh on a grocery store. They thought they were being very generous, which they were, or they and they were intending to be generous. Um, so we know historically a lot of people working at grocery stores to not make a ton of money. And they were providing great coverage for the employee, but they are also providing coverage for plus ones. Little did they know by offering even one dollar of support on the plus ones, they were disqualifying people from getting free health insurance in the marketplace. Because on employers, if they're over 50, you have to provide health insurance for the individual employee. You do not have to do it on plus ones. That's where the tax glitch kicks in. And so they figured this out, or we showed them how they can do this, and by default, they remove coverage for the plus ones, and it's all about messaging. The employees now understand, oh, I actually just got free health insurance now for my kids. Great. So again, it's we're gonna understand based on the details that are provided to us, and it's never a one-size-fits-all. It's gonna be very custom basis to give the right recommendation to the client and their respective employees.

SPEAKER_02 7:12

So where does an ICRA, let's say, or another HRA structure fit into that calculation?

SPEAKER_04 7:17

Yep. 100%. ICRAs are becoming ever more popular. Uh one, because put people like customization and curation. Everybody is thinking like this plan's for me and this plan's for me. And you know, when you have a group plan where you're just United Healthcare, you're just kind of stuck with it. Um so the ICRA can be great regardless of whether you qualify for subsidies. I really just say, hey, go after the ICRA if you're all in on the subsidies. If not, I think the the better solution might be the sister of the ICRA, the HRA, or the medical expense reimbursement plans. Those have just been around since 1950s tax law. And it just provides a little bit more flexibility than what an ICRA might do. But I would just tell broker, if you're already going down the ICR route, that is a strong route. And truthfully, we put clients in ICRAs as well. But know that there's additional measures you could consider, like the MERPS that I was mentioning.

SPEAKER_02 8:10

So you've touched on a couple little edges of the compliance tax and enrollment expertise that needs to be brought into the process.

Compliance And The Section 125 Unlock

SPEAKER_02 8:17

Let's do a little bit deeper dive. Explain kind of we've already talked about the fact that if you're over 50, this is not a strategy for you, at least for your employees, perhaps for dependents. But what are the other compliance tax and enrollment things that folks need to know about?

SPEAKER_04 8:33

The first thing I would do is actually I would truthful try to audit their entire benefits strategy, because oftentimes what groups are doing is they're overlooking some of the lowest hanging fruit. So for instance, everybody knows the section 125, right? Like everybody's familiar with the HSA and FSA. It's been around since the early 2000s. But a lot of people don't know that there's an optimized section 125 out there as well, and provides really strong benefits. Think about like a safety net, think like there's gap coverages out there for people, plus what I always say, like virtual healthcare prescription coverage or anything like that. Well, it's a really nice benefit enhancer that provides, and again, you have to structure this in the a compliant fashion. It provides a net pay increase, typically thinking about 2% to 4% for the employee. It simultaneously saves money for the employer, say about $500 a year on FICA. But more importantly, it also reduces the taxable income. In directional math, it reduces somebody's taxable income, even though they're getting a net pay increase by about $14,000 a year. Well, what does that do in terms of unlocking subsidies now? By subtracting out $14,000, if you had somebody, let's make it up, was originally earning $65,000 a year, they are now above the subsidy cliff, and thus they can't qualify for any subsidies in the marketplace. They're paying market rates, and most likely they, if they're in a state where they don't have to have health insurance, they just might forego it because it's too expensive for them. That same person, that's $65,000, comes down to $51,000 because healthcare subsidies are based on not gross salary, but modified adjusted gross income. That's why we always say invest in 401ks on a pre-tax and HSAs, et cetera, reduce your taxable income so you can qualify for subsidies. Well, if you look at it, depending upon the zip codes, if you take your taxable income down by 14,000, that person that was originally not getting a subsidy can get up to like 300, 400 bucks a month, depending upon where they're living in terms of subsidies on the health insurance marketplace. So again, we we start actually in a phase one of what are people missing as a low-hanging fruit to then set up phase two of how can we now with that knowledge buy their health insurance or health care plans for a fraction of the cost?

SPEAKER_02 10:43

So when you are a broker and you're going to a client and you're advising them on a completely new strategy that they hadn't thought about before, is one of the questions that might come up is comparing employer savings versus the employees' total cost and quality of coverage. How do you go about doing that as a broker when you're asking a client to switch into this new strategy?

SPEAKER_04 11:04

Yeah. Well, so oftentimes we'll say, hey, you don't even need to change up your network of providers. So like, for example, I've got a hospitality group and a restaurant group up in uh Minnesota. And they were on a group blue cross and blue shield plan, and people were fine with that. We looked at it though, their group plan was charging like $600 a month. And in the individual marketplace, even without subsidies, we could get it for $350 a month. So why would we keep them on a group plan? Because remember, insurance is underwriting risk based on the most risky employee at that company. And then they're gonna inflate the premiums on everybody else. That's how they control their risk pool. Well, when you enter into the state marketplace, you have a larger volume of people. So in theory, the risk pool's a lower margin. So as a result, we're just like, all right, just slide everybody over to the individual marketplace, buy for 350 instead of 600, you're gonna save money immediately. So again, it it be we always start with the audit just to evaluate what's going on, because it's never going to be the same based on the client, the employee demographics, all those fun things.

Marketplace Pricing And Risk Pools

SPEAKER_02 12:10

So I know one framework that you use combines a preventive care plan with marketplace coverage or a health sharing arrangement. Yep. What does each one of those layers do, and how do you layer those?

SPEAKER_04 12:20

Yeah, yeah. So it's it's almost like a one or two layer strategy. So layer one, preventative health care. Focus on that because hey, the Affordable Care Act is well-intentioned. I it was called the Affordable Care Act. Now, truthfully, it's probably mislabeled. It should have been called the Accessible Care Act because I don't think anybody had their health care become more affordable as a result of it. So a few years after the Affordable Care Act was created, there was an amendment to it in 2016. They

Preventive Care As The First Layer

SPEAKER_04 12:50

started incentivizing people focusing on proactive and preventative health care management. Why? Because we're trying to reduce chronic care conditions in America, which is $4.5 trillion a year. You know, we can compare that with other developed nations. It's about 2x higher. Like there's a lot of room for improvement. But we we all know that the only way you're gonna incentivize behavior is if you give people money. So that's where it started getting involved in the tax codes. You have Section 125, you've got Section 105B, a lot of different tax um uh codes that you're gonna leverage in order to utilize the benefit in a compliant fashion. So that's your layer one is focus on preventative health care, give it to the employee plus their family members, kids up the age of 26, regardless of whether they're actually on the company's health insurance plan or not. Now, by doing that, you've given them the first line of defense, like I call it the sword. So if somebody has a cough, a cold, instead of sitting in traffic to go to the doctor's office to get hit with another medical bill, why not just pick up the phone and talk to a doctor on demand 247-365? Because what we're doing is we're providing the Netflix model to the healthcare space. Meaning, whether you watch one show on Netflix or 100 shows on Netflix, you're still paying the same amount each month, right? Like that's what it is. We're doing the same thing here with healthcare now. We believe, our core belief, is that you shouldn't make money off of people being sick or injured here. But yet our medical system is set up as a fee-based system so that they can drive up their medical loss ratios, which we'll save that for another time. So ultimately, if we do value-based care, aka what one medical is, which was acquired for a couple billion dollars by Amazon, well, whether you see one doctor, 100 doctors, it's still the same amount each month. So that way, when somebody has a little symptom, they can address it when it's still a little symptom and not waiting for it to turn into a major medical issue, which is then a chronic condition, which then hurts the American economy.

Avoiding Confusion With Clear Education

SPEAKER_02 14:38

Again, as an advisor, if you're going to employ one of these strategies, how do you avoid duplication, gaps, or maybe most importantly, employee confusion?

SPEAKER_04 14:47

The biggest one is employee confusion, really, to address. And oftentimes, again, the biggest confusion for employees is like, wait a second, how is my pay going up when I have this massive deduction going on? So like we spend a ton of time. And don't worry, like for the brokers that might be listening to it, you are not expected to be the subject matter expert. Like, there's a niche team and account managers that explain these benefits to the employees and the respective employers. But yeah, the biggest uh hurdle is helping the employees understand that, yes, we are in fact actually giving you, we'll just say, an accident plan or a hospital plan or critical illness, like some safety net features, along with virtual healthcare benefits and prescription like coverage, somewhere like Mark Cuban's company of Cost Plus Drugs. Yeah, we're actually giving that to you. It's not free, it's self-funded. So we're we're getting paid based on the savings generated, and the savings generated come from less taxes being paid by the employer and employee. So like that is where we spend the most amount of time in the biggest hurdle helping people understand it. But that's when it comes into like a visual, like we show them side by sides, like this is how it is before, this is how it is after. Not everybody's gonna grasp it on day one. Truthfully, about 10 to 15% of employees will never grasp it, and that's fine. We we never expect 100% participation in any program, even if it is for their own

Health Shares Pros And Key Limits

SPEAKER_04 16:05

good.

SPEAKER_02 16:05

Especially where health shares involved, are there distinctions and limitations that an advisor should explain?

SPEAKER_04 16:11

Yeah, yeah. And so if people are not familiar with health shares, I'm gonna take a quick step back and just kind of explain the difference between health shares and health insurance. I personally love them. I think they are great, but they are not great for everyone. So a health share by default is not health insurance. And the core reason why is health shares can deny people from joining their program if they have pre-existing conditions. So essentially, health shares are what health insurance was before the Affordable Care Act. Now, what does that then do to the risk pool of a health share? It is only really healthy people. So don't get me wrong, like if somebody has diabetes, they're allowed in the program. Hell, you have people that have cancer so long as they haven't had cancer in the last 36 months that can join the program as well. So it's not just saying, like, oh, you're never allowed in if you had one bad situation. But by having really only healthy people in the program, truthfully, health share costs are about 50% less than health insurance. So, what I always advocate for people is like, if you have a healthy group of employees or if you're just individuals, go with the health share and take advantage of the fact that you're going to pay 50% less, with oftentimes just as good as coverage. Now, they can't legally call it a deductible, but I was just showing another client this for the cost of getting these two high-earning individuals a high deductible plan. So like a $10,000 deductible in their respective marketplace was $1,100 a month. Those same two individuals I went and looked at in HealthShare, I could get them the equivalent of a $2,500 deductible, which they call an unshareable amount in health shares, but a $2,500 deductible for I think it was $444 a month. Significant drop. And again, it's just helping people understand the difference of it. So like I love health shares. You could be somebody that is living in one of the five states like I am, where it's technically illegal to not have health insurance. I would always say yes and no. In Massachusetts, I get hit with a $2,800 a year penalty to because I don't have health insurance. Now, realistically, I've I've actually never had to pay that penalty because when they really come to look at and I show them that I have this, they're just like, oh, okay, you do have coverage. But at the end of the day, if you just do the math on it, if I was originally paying $2,200 a month for a family of four on a high deductible plan in the marketplace, and now I can get it for about $700 a month, that's $1,500 I save. So even if I pay a penalty of $2,800 a year by March of that year or by the third month of that year, I've already broken even. I'm saving $18,000 on health insurance for the rest of the year. So again, it we lead with math as our objective feedback instead of the emotional thing of like, oh my gosh, health insurance need this so badly.

Advisor Mistakes And Bad Information

SPEAKER_02 19:06

So what are the most common mistakes you see advisors making when they first go down this strategy road?

SPEAKER_04 19:13

Not getting a great understanding of it. Because it's really not hard to get confused based on just Googling things or even using good old AI to learn things. Because truthfully the AI models, how do they pull information? They're pulling it from the most reported resources online. Like that's how they're collecting all the data. And so even on like the 125 plans, which truthfully is the unlock to a lot of these other things that we'll talk about. The 125 plans, truthfully, if you Googled it right now, the first things you're gonna see is the IRS's memos that they put out in 2016, 2017, 2023, even, saying, no, these things should be taxable benefits. But funny enough, it's amazing how you can suppress information, right? Funny enough, you have to look really, really hard for the triagency agreement of 2024, in which the IRS Department of Labor and Health and Human Services actually said, hey, you know what, we don't really like these things, but uh, I guess we kind of have to accept them so long as people clearly state that these preventative care plans are not a replacement to health insurance. Why isn't something that's as recent as 2024 popping up before 2016, 2017? Again, AI is searching based on things that are most shared, most feedback, and most promoted. So it's really for brokers, you have to find uh knowledgeable groups. I would claim our group is knowledgeable. There's other good groups out there as well to talk to and really trust, uh, to be able to guide your clients in the right direction, knowing again that the brokers, hey, you are the broker of record. Our group as an advisory nonprofit is not to take your clients. Our goal is to help people close the gap on care, cost, and coverage for hardworking Americans. My guess is most brokers have that same goal too. So by no means do I want to tell people, hey, we're coming to take your business. We're not, we really don't want that. We don't have the capacity for that. Our goal is to really help awesome brokers, awesome companies help their people better understand how things are currently written in the tax code to take advantage

Service Model And Advisor Compensation

SPEAKER_04 21:10

of that.

SPEAKER_02 21:10

You know, I know one of the things that all advisors are always concerned about is ongoing service. What kind of ongoing service obligations should advisors expect in this kind of a scheme?

SPEAKER_04 21:22

Yeah, for sure. Truthfully for the brokers of record and those things, your responsibility is to keep your clients happy. That's your responsibility. Our responsibility is answering the questions that the clients and the respective employees might have. In terms of dedicated account managers, that's not going to fall on the broker's responsibility because we all know they don't have enough capacity in the day. And it'd be like asking a dentist to do a heart transplant. Sure, they went to medical school, but doesn't mean that they're qualified for that. So we don't want to put people in an uncomfortable situation of trying to pretend as if they know the information. That's just not in the best interest of the client and not in the best interest of Broker either. So they just they should just know that really for us, our objective is to help them and help their clients, and we can do joint conversations with them just to better understand of how to take advantage of the benefit. And if they ever wanted to talk to brokers on like how we've done this effectively and to prove that we're not taking their business, I'm happy to send them some sources to talk to about it. But yeah, I just want them to understand that we're not here to add work for them. We're not here to take their business for them. Our goal is really to actually help them become more ingrained with their business partners or clients. Because if you can help your clients now save our trailing 12 months, we're saving clients about 2,000, 3,000 bucks a year per employee. So if you can find a way to all of a sudden flip that script of, hey, employer, got another 20 to 30% increase coming for you to now like, hey, I think we might have found like $2,000 per employee. I think you found a client for life.

SPEAKER_02 22:53

Well, it's way better than taking the least worst renewal.

SPEAKER_04 22:56

Yeah, exactly.

SPEAKER_02 22:57

What does advisor comp look like on these kinds of strategies?

SPEAKER_04 23:00

All over the place. What we always try and do with groups is we just say, hey, we'll give you a percentage of the profit margins. And so directionally speaking, we say, hey, it's 30, 33% roughly of the profit margins. Keep in mind, they're still going to get their comp from the insurance companies. Like, so so like this is just an additional revenue stream. It is not a replacement. It's supplemental income.

SPEAKER_02 23:23

I think that's really important for folks to understand. So is there anything that changes operationally inside an agency that wants to make this a repeatable specialty?

SPEAKER_04 23:35

Honestly, no, you just add it as an additional talking point when reaching out to clients or when you're assessing their current benefit strategy. Like the first thing I would see is like, hey, what's the current employee benefits book look like? And if you can tell immediately they're not offering a preventative healthcare program, start there. By all means, start there. It is less of a savings. Again, it's about 500 bucks a year per employee, the employer would save, but it opens up the opportunity to then buy the health insurance for less and get those subsidies, which is then that's the major unlock. That's the additional $2,000 a year the average client's going to save per employee. That's what I'd say. It's just like add one additional question. Are you guys currently doing this for your employees? And if they say no, great. You have an in to give them like the lowest hanging fruit.

SPEAKER_02 24:27

With the advisors that you guys work with, do you find that this creates even better retention?

SPEAKER_04 24:32

Yes.

SPEAKER_02 24:34

That was a quick answer.

SPEAKER_04 24:36

Yes, is the answer. It's a major unlock. Uh and and hell, some groups use it as their competitive pitch to steal business away from other brokers that uh let's just say are stuck in more antiquated ways.

SPEAKER_02 24:49

So if an advisor listening today wants to master this sub-50 market, what should that person do first?

What To Gather First And Partner Support

SPEAKER_02 24:56

And what results should they be able to demonstrate to an employer?

SPEAKER_04 24:59

Yeah. So the very first thing that they're gonna want to do you want to get into the details. The very first thing, you actually want a census. Like you want a census, you want to understand what their most recent health insurance bill looks like. Just based on looking at those two things, you can find about 80% of the information on where you would want to directionally take that client. Because that's where you can then plug and play various strategies. But yeah, the lowest thing hanging fruit is understand the census, get the most recent health insurance bill, and then of course, we know renewal time is coming up. If they now have their most recent increase projection, that always helps them as well. Understand what the reality is and what we're doing. When you say partners, are you talking about partnership in terms of us or partners with the the clients that we're assuming that they already have?

SPEAKER_02 25:55

Aaron Powell Actually, partners with you, and then do they need any maybe they don't have a vendor for or an administrator for HSAs or HRAs or for or or uh cafeteria plans.

SPEAKER_04 26:06

Aaron Powell Yeah. So oftentimes like our group manages all those things. Like that's part of our management fee that we have to do. Again, we want to manage those things because it is very important to do these things in a compliant fashion. So that's why we we tell the groups yes, we have our referral partnerships and we have all those contracts. And if of course, if a group wants to work with us, they can certainly reach out to us at betterbenefitsusa.org and we can get them contracted so that they have the comfort of knowing that again, they will have their compensation, but they'll also have their book of business protected. Uh so yeah, I'd say the first thing they'd want to do in a partnership with us, reach out to us. We'll show them in more detail, because I know this is just high level. We we didn't do any visuals here. Like we will give them the full breakdown that that will give them a lot of aas on just like, oh wow, I didn't even think about it this way. And then it's up to them on if they want us to show this to their client or if they want to bring it to their client.

SPEAKER_03 27:01

Either way.

Reframing Benefits Savings As Growth

SPEAKER_04 27:26

That certainly sums it up. If I had seven seconds with the business owner, I'd say this is the biggest sales opportunity you actually have. And I say that because we can't control tariffs. We can't control any of these external things that business owners are worried about, but we can control what's going on in our own backyard. And our own backyard is what's going on with our employee benefits costs or health insurance costs. And if you can all of a sudden, let's just assume the average business has a 10% profit margin. If you can save now, we'll make it up, it's a 30-person company. If you can save $3,000 a year per employee, that's $90,000. Well, on a 10% profit margin, that's the equivalent of finding a $900,000 sales opportunity. How many $900,000 sales opportunities are sitting around there for a business owner? So again, it's all about reframing it to make healthcare a sexy topic because especially for these poor, small, small business owners, they're getting crushed. And I know the brokers out there are trying their best to help them, but they're getting crushed. So a lot of them just bury their heads in the sand. We have to give them a reason to believe. We have to get them excited. And getting them excited is flipping it, flipping the script and making it sound like a sales opportunity for those businesses.

SPEAKER_02 28:39

Dan Cosgrove, CEO of Better Benefits USA. Dan, thanks so much for sharing your expertise with us.

SPEAKER_04 28:45

Hey, David, thank you so much for having me. And hopefully we can help a few of these groups out there.

SPEAKER_02 28:50

And thank you for listening. Until next time, keep challenging the status quo and keep shaping what comes next.

Announcer 28:55

The Shift Shapers Podcast is a production of Shift Shaper strategies and may not be reproduced or quoted in whole or in part without our express written permission. Copyright 2020, all rights reserved.