Foraker Benefits Plan revisited
Now that health care reform is back on the Congressional agenda, it’s doubtful that any bill that passes will contain sweeping changes to significantly alter how we provide health care in our country. In America, we just don’t seem to be at a point yet where we will support minimum health coverage for all citizens, as is the case in Canada and most other economically advanced countries. Nor, does it seem, that our elected leaders are willing to address the issue now – it may be another decade before they take that risk again.
However, the fact remains that as employers we continue to be tasked with finding the best benefits for our employees so we can attract and retain the right people. We are still working on this issue at Foraker. In an article from our September 2009 newsletter, I referenced the Stockdale Paradox. In my opinion, Foraker along with many of our Partners now understand that our elected officials are not practicing this paradox when they address health care reform.
In that article we describe the Stockdale Paradox:
Admiral Jim Stockdale was the highest-ranking military officer held in the Hanoi Hilton during the Vietnam War. From 1965 to 1973, he was tortured over 20 times, had no rights, no set release date, and had no certainty that he would ever see his family again. As the highest-ranking officer, he also had the responsibility to help as many of his fellow prisoners survive while fighting their captor’s attempts to use them for propaganda. Admiral Stockdale developed strategies to help other prisoners resist attempts to be broken along with a code for communication among themselves. Since prisoners saw each other very few times, and they were under total control of their captors at this time, this code was essential to keep them going.
The paradox was this: even with these bleak realities, Admiral Stockdale maintained a firm faith that he would survive his ordeal and once again see his family, while he was stoically realistic about the ongoing sacrifice, discipline, and patience he needed to achieve that goal. Other prisoners in the Hanoi Hilton also hoped they would survive, but they did not look at, nor accept the realities that confronted them on each day. Stockdale called these prisoners the “optimists.” Optimists had faith they would get out by Christmas – then Christmas would come and they would not get out, so then they would believe they would get out by Easter – then Easter would come, and so on. Many of those optimists never got out – before long, they lost all hope, then life.
Stockdale said, “This is a very important lesson. You must never confuse faith that you will prevail in the end, which you can never afford to lose, with the discipline to confront the most brutal facts of your current reality, whatever they might be.” Admiral Stockdale did prevail in the end and returned to his family, along with many other prisoners.
It seems Americans are united in a vision that a more effective, affordable, accessible, sustainable health care system is needed. However, none of us – the public, our elected officials, or the health care industry – are facing the “brutal facts,” so a long-term solution seems far away. For most people, the facts are too complex – the average citizen just doesn’t want to take the time nor apply the effort to learn about the issue.
Therefore, I am making this effort to provide the “brutal facts” about health care. After almost 30 years of indoctrination into the non-intuitive world of the health care system, these are, in my opinion, the most important “brutal facts” that Alaskans and the nation must face to solve this problem:
- A recent Division of Insurance study showed that Alaskans, on average, pay 50-100% more for most health services compared to consumers in the state of Washington. The study also points out that some specialized services can cost as much as three times more in Alaska. Why, you may ask? Well, the causes are many but a few primary culprits are our sparse population and large geographic area, causing our medical providers to overbuild infrastructure based on population. Another reason tied to the first is that we demand medical care here as good as we can get anywhere, so we push the providers to overbuild. Next, Alaska is one of the few states that never embraced managed care, resulting in little attempt for cost containment outside the Native medical system or insurance providers. The last cause lays in the fact that Alaskans rank at the top in bad health statistics. We drink, eat and smoke too much. We do not exercise enough. When we do exercise, we engage in some of the riskiest forms of activity resulting in serious physical harm. Regardless of cause, what we pay for health care directly affects what we pay for health access through employer-sponsored insurance.
- Rates for health insurance are based on the costs of health care and the health of your employees. Insurance companies determine your employee’s health and set their rates based on two criteria. First, if the company has no experience with your employees, they use scientific guesstimates based on age and gender mix of your employee group to determine the rate they will charge. That rate is typically higher the first year since they have no experience with claims from your group. The second way they determine employee health is on actual claims filed during the year. This method is used if they already provide your insurance. In this case, when your employees have no major claims, the insurance rates will not increase very much. However, if you have large claims, your rates will increase accordingly.
- Large groups, like the one we are trying to create with the The Foraker Group association plan, do not guarantee lower rates. Large groups, like small groups, will have rates based on experience, or the amount of and severity of claims the employees in that group experience during the year. Healthy groups have lower rate increases – unhealthy groups have higher rate increases. However, the larger the group the more easily it can absorb a significant claim. For a small group, one large claim can cause rates to increase significantly. If the small group joins a larger one – like the one we’re creating with the Foraker plan – a single incident would in theory cause less damage to rates because the cost is spread among a larger number of employees.
- Employees should be expected to pay part of their health insurance costs. Many Alaska employers, especially nonprofits, have paid 100% of employee insurance costs. That benefit is rarely provided outside our state. While this certainly is generous, it often duplicates coverage for many employees. This is because when an employer pays 100% for coverage, then all eligible employees are required to take the coverage, whether or not they have other options for insurance. Some of those employees would rather use their spouse’s coverage as their primary insurance because it may be better, but they don’t have that choice if the employer pays 100% of those costs – they must use their employer’s insurance first. On the other hand, when employees are expected to pay just 20% of their premiums, many will choose to opt out of the plan and go with a spouse’s plan. That could save you money and may even make your employees happy.
- Most of us with insurance have no idea what our medical care costs. What we probably know is the cost we pay as our share of employer sponsored insurance, and we usually know our deductible amount and our co-pay. What we do not know, especially if we have good coverage, is the cost of medicine, or an office visit, or a medical procedure. Guess what? Most of our health care providers don’t know these costs either. So who is it that worries about what all this costs? It’s the insurance companies, the government, or whoever is actually paying the bills. Therefore, unless we exceed our coverage, we rarely ask what anything costs. However, those costs eventually come to us because we will have to either choose less coverage or endure a big rate increase on what we pay for insurance. Then we get mad at the only part of the system that we as consumers monitor – the insurance companies. If we truly want to reduce what medical care costs, we have to begin to know what it costs, regardless of who’s paying. We must become better consumers.
- Perhaps the most troublesome fact related to the cost issue is that when employers experience a large rate increase, they look for alternatives. One option is to cut benefits or have employees pay more of the costs. The other option is to move from the current insurance provider to another that offers lower rates. Since the first option affects employees, employers are reluctant to use it. So most often they try option two, and look for a better deal. When they shop around for that deal, they may find a new provider who rides in on a white horse and offers lower rates. The employer thinks, “Aren’t we smart consumers.” Or they portray the old insurance provider as greedy and the new one as a savior. In reality, all they did is ask a new provider, who will base rates on the employee demographics (since the claims experience is not known), to give a quote. If the mix of age and gender is good, the provider may be willing to offer lower rates for now. But as soon as they see the real claims experience – when they see how sick and unhealthy the employees are or aren’t – their rates will go up or down. Remember, rates are based on claims. The more claims your employees have, the higher the rates.
The Foraker Group Benefit Plan is no panacea. Unfortunately, no perfect solution yet exists for health care coverage. However, we have the first association plan in the country designed from the beginning to address the reality that insurance costs are based on claims.
- All our plans cover routine primary care at 100% to encourage people to practice preventive care.
- Each plan has a high deductible – two with accompanying Health Savings Accounts to help offset out-of-pocket expenses. What high deductible plans accomplish is to force consumers to ask what something costs. Becoming better consumers will eventually lead to lower costs for all.
- We require employers in our pool to support employee health programs in the workplace. Research shows that when this occurs, employee health improves. When employee health improves, claims go down. When claims go down, the cost of health insurance is controlled.
That is our plan as simply as it can be stated. However, we continue to be amazed that so many in the sector that pleaded with us to find a solution are unwilling to be strategic and help us address this problem. Last fall we conducted research on why so many of our Partners who looked into our program did not join. We looked at our own “brutal facts.” What we learned was:
- Almost all the groups that were quoted rates and did not join said they thought our plans cost too much. They found some other insurance that was maybe not as good, or was as good but cost less (for now), and chose that option. They did not confront one of the “brutal facts” about health reform I mentioned earlier. They saw they could save a bit of money today and that was good enough to not join our plan. They did not base their decision on the long-term strategy of improving health to lower costs. They are doing the same thing they have always done and expecting different results. My experience has shown me that while they may pay less now, they will find that in a year or two or three, they will be back in the market trying to find a new provider because their rates will have gone up too much to afford. They will again spend a lot of time and effort with brokers trying to find the next best low bidder – or they will cut employee benefits or increase what their employees pay as their contribution. That is the fact. I have seen this at work now for over 30 years.
- We also found that many organizations did not join our plan based on their broker’s advice. Unfortunately, it seems that Alaska has a plethora of not very strategic-minded brokers. We have heard many instances where a group did not come into our plan because their broker gave them inaccurate information. Some brokers did not provide apples-to-apples comparisons – some even provided false information about our plan. Some brokers encouraged organizations to go with the lower cost options, which as we have tried to explain could be a penny-wise/pound-foolish decision. Fortunately, we have identified a few of the most ethical, hard working and strategic brokers in the state and will be glad to share their names with you if you call.
Regardless, we persevere. We will hold onto the vision that together, we can help the sector provide this benefit. We know we must prevail – but we are aware of our “brutal facts.” We recently announced a bold, new initiative in partnership with the Alaska State Chamber of Commerce. Starting immediately, their members like our Partners, will be eligible to join our association plan. This new opportunity should help us get to critical mass even sooner so we can become a true association plan. Thanks to the leadership of Chamber President Wayne Stevens, their members will be able to join us to provide the only real option for lower health insurance costs over time – and that’s healthy employees.
Our original Partners who joined the plan a year ago have been through their first year renewals. Unfortunately, because of high claims a few of the organizations had higher than normal increases in rates. Thanks to Rasmuson Foundation, we have been able to provide assistance for those groups to minimize those increases. Most of the original enrollees, however, have had rates increase below the statewide average of 15%. At Foraker, our increase was only 10%. A few organizations even saw rates decrease because their claims were less than expected.
One of those organizations is Food Bank of Alaska. Susannah Morgan remembers calling over a year ago because when they got their original rate quotes based on the demographics of their group (not prior claims), our plan was going to cost them much more. They had to make a hard decision – increase what they paid today for health insurance and have faith in our collective power to reduce rates in the future, or take the cheaper plan for today. She and her board, who are enlightened leaders, decided to be strategic. They had faith our effort would work. Her letter summarizes what this is about.
February 4, 2010
I wanted to share with you some thrilling news – for which you and The Foraker Group are responsible.
As you know, Food Bank of Alaska joined the Foraker insurance initiative in February 2009. Our management team and Board agonized over the decision, as our insurance premiums would rise by $18,000 that first year. We ultimately decided that faith in collaboration and long-term savings were worth this significant investment.
Our faith was justified! We recently signed up for the second year of insurance through the Foraker initiative and were delighted to find that our health insurance costs would be significantly lower. The monthly premium per person has decreased from $1,180 to $702, a 40% reduction. With 15 staff members currently enrolled, our estimated savings for the year will be nearly $36,000 – twice our initial investment.
In my nine years at helm of Food Bank of Alaska, our health insurance costs have never once decreased. There was stunned silence at our Board meeting when we heard this news – then the cheers erupted.
Thank you for your perseverance over nearly a decade that led to the Foraker health initiative – and for the hard work of the Foraker team that made your vision a reality. It has been a blessing for Food Bank of Alaska.
There is still time for your organization to join our plan. If you have questions, please call Rebecca Savidis at 907-743-1200.