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Group takes health insurance costs captive

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With risk, you have three options: Pay someone else to take responsibility for it (also known as insurance), keep it yourself or find some middle ground between the two.

Several years ago, four midstate companies looked at their health care risks and decided to keep most of it themselves — together.

The organization they formed is Keystone Benefits Partners LLC. Its structure is complicated, but the results are not: Annual medical and drug-plan cost increases average only 4.5 to 5.5 percent. In contrast, a national 2011 Kaiser Family Foundation survey indicated the cost of employer-sponsored health premiums increased by 3 percent in 2010 and 8 percent in 2011, with a total 113 percent increase between 2001 and 2011, or about 11 percent per year.

"I've had comments (from executives) that this has even saved their years financially," said Frank Ebner, who helped develop KBP. Some companies even saw their health care costs decrease in the last 12 months, he added.

Today, KBP has more than 35 member companies and covers more than 12,000 people. Ebner described the founding companies' decisions to participate as "a leap of faith," but as its model continues to be tested and succeed, it represents a growing option for companies of a certain size willing to make a serious commitment to controlling their health care costs.

Furthermore, Ebner said, it does not appear that the dictates of health care reform will substantially alter KBP. As long as the coverage member companies provide their employees meets the requirements, the program should be able to continue unchanged.

Structure

Ebner started work on KBP with the actuarial team at The Benecon Group in Lititz, then continued it with colleagues at McConkey Insurance & Benefits in York, where he is a senior benefits consultant.

The simplest way to describe KBP is that, instead of working with an insurance company, which factors its own profits into the equation, these companies set up their own insurance company.

However, Ebner is careful to say that KBP is not actually an insurance company, because it does not take on the risk; instead, it transfers the risk in a controlled way. Although KBP consolidated billing and enrollment, it does not have a physical building or employees and it does not hold assets.

Main components of the KBP model are collective purchasing power, individual control and limited risk, and member ownership of the company.

The structure is based partially on the captive insurance model that has long been in existence for property and casualty insurance and — partially, with much modification — on the consortium model that allows municipal governments to band together for health care.

"The risk model is really focused on the 100- to 1,000-employee market," Ebner said, although the average size of the KBP companies is closer to 400 or 500 employees. Member companies range from white-collar engineering to trucking and hauling to recreation and energy.

What makes KBP different, Ebner said, is that each member company has a seat on the board, controls its own benefits and has an individual trust from which its claims are paid.

Hal McClure is CFO of PACE Resources Inc. of York — one of the original four members — and president of KBP. He said contingent liability among members is one of the biggest questions new companies have.

"We have a group buying program, but each company has a separate individual trust account set up and every policy stands on its own," McClure said. "If you have losses, they would not directly impact any other member, other than buying stop-loss coverage. There's no contingent liabilities between members."

Controlling risk

KBP has two main risk controls.

First, members must pass an initial and then annual financial screening and be approved by the board. Originally, Ebner said, members had to be participating already in property and casualty captive insurance programs, to ensure they understood and were truly committed to a long-term strategy to manage risks and reduce costs.

The screening ensures the group consists of trustworthy partners who form a stable pool, Ebner said.

"The larger your pool, the more control you have over it, the more predictable it becomes," he explained.

Second, members meet regularly and engage in a variety of initiatives to reduce health care costs — everything from best HR practices to wellness and preventative care.

In the fully insured world, he said, when a company performs well, it's subsidizing the community. In the KBP world, "They're investing the time and the resources to drive down their costs. They all win."

The predictability of KBP's pool means it can negotiate longer-term contracts with providers, Ebner said. Also important is that it allows companies to plan much further ahead than the standard two-month renewals in the fully insured industry. KBP renewals come at minimum three and a half months before the renewal effective date.

Health care reform

Because of their size, Ebner said, members of KBP are above the 100-employee line of companies who will initially be able to participate in health insurance exchanges beginning in 2014. However, he said, other provisions do apply, such as the one requiring coverage for adult dependents up to age 26.

KBP plans to be in full compliance with all applicable provisions, Ebner said, and as such does not anticipate major structural changes to its program.

Ebner said this model is a change for the insurance companies, but they are seeing the benefits of the stability the KBP structure brings them: "They're getting fair compensation and a stable pool of employers" who are less likely to change insurance providers every year.

Members

McClure said PACE Resources, with about 450 employees, is pleased with KBP. It invested much time into KBP, and in return, "We've saved $1.5 million over what we would have spent on the standard market.

"You can't think about it like you do a regular fully indemnified plan, where you meet with people once a year and done with it," he said. "We meet throughout the year — risk-control workshops, wellness programs, benefit levels, incentives for people to be more cognizant of the costs of this program. We also have financial workshops for the controllers or the CFOs."

PACE employees had no changes in providers or benefits because of the change to KBP, McClure said, and they now have some wellness incentive programs such as Weight Watchers and walking groups.

For the leaders of the company, he said, the change is drastic and positive. Before KBP, "We didn't have any consistency in the pricing that was given to us or any real transparency on how the rates developed," he said. "We had no idea how our claims were impacting our rates and no control over the administrative costs of the program."

Scott Romberger is president of York-based Snow Time Inc., another founding member of KBP, which runs Roundtop Mountain Resort in Warrington Township, York County. Snow Time has about 150 full-time employees and about 3,000 part-time ones.

Romberger said he appreciates having the experience of other similarly placed companies to draw on when making decisions.

"It's been a real positive for us," he said. "We get a fair quote every year and don't have to look at bidding out the insurance between different providers each year."

Other KBP offerings

Norm Basso, who is COO of York County-based McConkey Insurance & Benefits and was on the team that came up with the Keystone Benefits Partners concept, noted that KBP isn't just about health care.

It's more like "offering a company unto itself that has buying power," he said.

"Dental, group life and disability, flexible spending accounts, employee assistance programs," he said. "As we grow this thing, we've been able to deliver those services."

The same bulk purchasing power principle applies, Basso said: "Where we can aggregate thousands of lives, we can get it at a discount and sometimes drive more services."

Heather Stauffer

Heather Stauffer

Heather Stauffer covers Lancaster County, nonprofits, education and health care. Have a tip or question for her? Email her at heathers@cpbj.com. Follow her on Twitter, @StaufferCPBJ.

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