Standing Beside Alaska's Non-Profits

The Stockdale Paradox and Thoughts on The Foraker Group Benefits Plan

On October 1, 2008, The Foraker Group and Premera Blue Cross/Blue Shield implemented an innovative health insurance plan for Foraker Partners. As you know, we have been working on a solution for this complex problem for many years. When we announced the possibility of such a plan at our Leadership Summit last January, the reaction was overwhelming. Our Partners encouraged us to move ahead and complete development. We then visited 11 communities last spring with the plan specifics, we found more than enough interest to reach the goal of 1,500 lives covered — the number needed for Premera to accept our group as an association plan.

In July we received additional encouragement from the Rasmuson Foundation. They committed to underwriting implementation costs for two core strategies we believe are critical to the plan’s success: (1) to enhance health through health risk management and (2) to provide incentives to employees to become better consumers by matching contributions to their health savings accounts. The more we can help people become healthy, the more we control costs.

We recently completed a second tour around the state, after which we better defined the components needed for the plan’s success. Now we will wait to see if enough nonprofits accept our strategies to reach the goal of 1,500 employee lives covered – sooner rather than later. When we reach that goal, we will have achieved a workable private sector model for other associations that are looking for a new way to provide health benefits for their members. It has been a very long road. We have done our best to help nonprofit employers provide the benefits they need to attract and retain the best employees.

In Jim Collin’s book, Good to Great, he describes one of the disciplines needed by organizations that strive to be great, the ability to practice 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 were in 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.

The “brutal facts” today about The Foraker Group Benefits Plan are that while we have continued faith about eventual success, we are concerned that nonprofit executives and boards may not be with us. We’re not sure they have internalized the key fact that while many of them can find a better deal (lower cost insurance) this year, their only hope for the future affordability of health benefits is to think long-term and partner with Foraker to create the right long-term solution. We hear far too many friends who seem more interested in a one-year savings, than a strategic, systems change. They are waiting for Christmas – then Easter – then affordable insurance.

In an effort to once again encourage the right decision, I want to provide a few facts:

  • For the past 20 years, health insurance premiums have been averaging an increase of 15% a year.
  • Nonprofits are particularly hard-hit since funding has not kept pace with increased costs. Fewer organizations can offer health benefits, and if they still do, they are less comprehensive because of increased costs.
  • Since our founding, The Foraker Group has listened to the sector and has heard that providing health benefits continues to be the most pressing need for us, or someone to address.
  • Because of high health costs in Alaska, and the fact that nonprofit employees are at higher than normal risk, the path to this solution is only viable if we address the need to improve the group’s health and encourage better consumer behavior. That’s how we ensure future affordability.
  • Research has shown that when employee groups are engaged in a comprehensive health risk management program including health assessment, coaching, and activities in the workplace promoting health, the traditional 15% annual premium increase can be significantly reduced.
    • When we do nothing, we can predict a 100% increase in premiums in five years and over 300% increase in ten years.
    • If we can encourage 90% of our employees to participate in a comprehensive health risk program, the five-year increase will be less than 15% and the ten-year increase would be around 25%.
    • To further emphasize what I am saying, if a premium is $500 today, in five years the normal trend shows the premium will be $1,000, in ten years it would be over $2000! If we can achieve a 90% participation rate in health risk management, that same $500 premium today would be approximately $650 in five years ($350 a month less than the other option) and would be $750 in ten years (at least $1,250 less than the other option).

Which option can you afford in the future? I would argue the only way for your organization to continue providing health benefits is to join The Foraker Group Benefits Plan today, or as soon as is feasible when your current plan is up for renewal.

I know some have said, “We can pay less now by doing it ourselves, so we’ll just join in a few years when the plan is functioning.” We hope that’s a minority sentiment because if most of those who gave us initial encouragement now back away, they are jeopardizing not only the group’s capacity for the right solution, they are impacting their own ability to afford future costs. Unless an organization has a premium rate of 20% less than our plan, statistics show that their rate will exceed our rate within 12-18 months. Is it really the right decision to save a little today?

In our recent presentations, we have been clear that once we reach the 1,500 lives and become a true association plan, we will introduce new restrictions on Partners joining the plan in order to avoid suffering the consequence that has destroyed many association plans – negative selection. That occurs when healthy groups leave the association plan for lower rates and only groups that have poor claims histories will stay enrolled or want to join. Negative selection has killed many association plans. When we have an association, we will implement additional restrictions so negative selection does not become a factor for us.

Those future restrictions have not been determined. But examples could be:

  • Requiring any new Partner to wait one year before becoming eligible to join the health plan
  • Requiring even existing Partners to engage in the health risk program months before they would be eligible to join the plan
  • Instituting a two-tiered premium rate – one rate at cost for the Partners who were strategic and worked with us on the initial risk, and a second rate for latecomers

Regardless of these potential restriction, the very generous incentives provided by the Rasmuson Foundation will be used to assist those organizations that join first. We have clearly stated that if a current Partner needs to wait for a renewal date, but they inform us now that they will move to our plan in the next year, we will count them as part of the first 2,000 employee lives so they can benefit from the Rasmuson grant.

Our plan has high expectations on employers – it has requirements for employers to encourage new behavior in their workforce – and it has only two design options. All of those characteristics are necessary to create a plan that will work in the future. That is what we are trying to do. It is time for nonprofits to stop doing what they have always done about health insurance and expecting a different result. That is the definition of insanity and does not appreciate the wisdom of the Stockdale Paradox.

Remember the trend of 15% increased premiums? I went into our files to review comparable plans from 2005 when we last attempted a solution. While we cannot exactly compare apples to apples-rates to rates, I was amazed to see that the rates we can now offer are 50% higher than the rates from comparable plans in 2005. Guess what? That’s 15% more each year since 2005. At the same increase, those rates would be 100% more by 2010. The facts are the facts. Join us now in a solution or risk paying more than you need in a few years.