EP 4 - Giving a… Darn w/ Seth Denson, of GDP Advisors & Acrisure

Why does stop-loss premium increase at a different rate than medical trend? We broke down why on this episode. It turned out there was some math involved. Hilarity ensued, but we got to the bottom of “leveraged trend” when it was all over. And with only a small number of… all the insurance terms you can possibly imagine.

Then we sat down with Seth Denson, our friend and partner, and Chief Strategist at GDP Advisors & Director of Healthcare Strategies at Acrisure, to talk about staying focused on what’s really important in a world full of shiny distractions, the supply chain crisis in healthcare, and the differences in economics when you’re talking about care versus insurance.

After that, we launched into the… curious practice that some knucklehead brokers have of comparing a best-case scenario for fully-insured plans to a worst-case scenario for self-insured ones.

Hmm. I wonder what their motivation could possibly be. Really gets the old noggin joggin’.

Connect with Seth Denson:
https://www.linkedin.com/in/sethdenson/

Learn more about ParetoHealth
https://paretohealth.com/

What is 80/20 with ParetoHealth?

Health insurance, dissected. It’s a take-no-prisoners journey into the heart of health insurance co-hosted by two of its major disruptors. The Andrews (Cavenagh and Clayton of ParetoHealth) give you fresh insights and perspectives. Join them in their conversations with guests who are also transforming an antiquated industry and reshaping the way employers select and implement healthcare benefits.

[00:00:09.010] - Andrew Cavenagh
Welcome to 80/20 with ParetoHealth. I'm Andrew Cavenagh.

[00:00:12.130] - Andrew Clayton
And I'm Andrew Clayton.

[00:00:13.460] - Andrew Cavenagh
On today's episode, we'll follow our standard format. We'll spend the first couple of minutes giving you one piece of knowledge. Today that's going to be on the topic of what's is known as leverage trend. We'll then talk with Seth Denson from GDP/Acrisure, and we'll conclude this episode as we do all episodes with our segment called, you know they're a knucklehead when.

[00:00:35.850] - Andrew Cavenagh
For today's knowledge segment, we're going to spend a little bit of time talking about leverage trend. Clayton, I know there's nothing more exciting than trend and the super version of it, leverage trend. Let's get after it. What is leverage trend for our listeners?

[00:00:50.610] - Andrew Clayton
It's the phenomenon scenario, where big claims get bigger at a much faster rate than small claims.

[00:00:56.940] - Andrew Cavenagh
Phenomenon is a very complicated word. Could you spell that?

[00:01:00.800] - Andrew Clayton
P-H enomenon. Yeah.

[00:01:03.370] - Andrew Cavenagh
Big claims get faster than smaller claims. Why is that the case?

[00:01:07.060] - Andrew Clayton
I'll give you the academic example of it. Take an employer that has a $50,000 stop loss deductible, and let's say that they have a $100,000 claim in the 2022 policy period. In that scenario, the employer pays the first $50,000, the stop loss policy pays the next $50,000 if they keep that same deductible for next year, so for their 2023 policy period, and let's assume that nothing magical happens to the claim, meaning that it doesn't become more complicated, but medical trend applies—and I'll keep a real simple medical trend of 10%—the employer still paid $50,000, but the stop loss carrier ended up paying $60,000, so it absorbed all of that $10,000 in trend. From a loss standpoint, the stop loss carrier's loss actually increased by 20%. I did the math there, as opposed to just the 10% medical trend.

[00:02:08.060] - Andrew Cavenagh
There's a lot there.

[00:02:09.050] - Andrew Clayton
Thank you.

[00:02:10.830] - Andrew Cavenagh
Let's go and break that down a little bit. Let's just start, you said medical trend 10%. First of all, that's the wrong number, but that does not surprise anybody that you use the wrong number. It's nice and round, which I appreciate. If you're going to do math, use big round numbers. So medical trend, the concept is that a broken leg today costs $100, and next year it's going to cost something more than $100, and you're saying it's $110. That 10% cost increase is what's known as medical trend, and that's on all first dollar claims, right?

[00:02:39.900] - Andrew Clayton
Correct.

[00:02:40.850] - Andrew Cavenagh
Let's just be clear on a couple of things. One, is that we actually expect medical trend to start to increase a little bit. I'm getting off on a tangent a little bit, but we're seeing inflation, obviously, in the economy today. I forget what the numbers that I saw recently, 78% inflation. At some point that's going to impact medical claims. The easy way to think about that is that about a half of the hospital's costs are related to labor. There's a shortage of nurses and doctors. They are having to pay them more to get them to continue to work. At some point you're going to see that on claim.

[00:03:11.980] - Andrew Cavenagh
Anyhow, we'll probably see a little bit of pressure on medical trend. Separate that from premium trend for me for a minute. What's the difference between medical trend and premium trend?

[00:03:21.030] - Andrew Clayton
Medical trend is obviously just the increase in cost of medical care. Premium trend is, most employers look at it as, what the average premium increase is, but it takes medical trend and it applies the administrative expenses to it. Your taxes, your true admin fees of processing and paying claims, additional fees, reinsurance charges, consultant fees, commissions, et cetera. So it's a compounding effect.

[00:03:46.980] - Andrew Cavenagh
That's almost a list. That's almost like a game of Clayton mentioned every insurance term you can. Yes, all those things go into premium trend. The other thing that I think about with premium trend is that while the broken leg goes up a year later, your team in general is going to be very similar a year later, but they're going to be a year older. It's also taking into account changes in demographics make up the change in premium. Again, medical trend we defined as the broken leg costs $110, whereas last year cost $100. Then premium trend is what the actual fully loaded premium would go up for a number of different factors.

[00:04:19.290] - Andrew Cavenagh
Now let's go back to your example. I think what you said is the employer in 2022, self-insured has a $50,000 specific stop loss, they have $100,000 claim. So they pay 50, the carrier pays 50. Then you said, "Okay. Next year let's assume that they keep the same $50,000 spec and they have that same claim." What type of claim was it, I forget?

[00:04:38.730] - Andrew Clayton
It was your lobotomy.

[00:04:41.290] - Andrew Cavenagh
We talked about my lobotomy in a previous episode. I can't have lobotomy every week. It gets so tiring. Okay, so we'll go with your-

[00:04:54.270] - Andrew Clayton
Knee replacement, double knee replacement.

[00:04:56.250] - Andrew Cavenagh
Double knee replacement. Actually, we could go with rotator cuff surgery just for fun. It shouldn't cost $100,000, but rotator cuff surgery that goes awry was $100,000 now it's a $110,000. Same spec level, 50. So the employer paid 50. The total cost is now $110. The stop loss carrier now pays 60 instead of 50. That's where the trend for the stop loss is 20%, as opposed to the underlying trend is 10%. Just breaking down your example.

[00:05:23.830] - Andrew Clayton
Is there an echo in here? Yes, correct.

[00:05:26.890] - Andrew Cavenagh
You spoke very quickly and you used lots of numbers, which you clearly had written down in front of you, so I'm just making sure that everyone can understand it. The key things that I think I would leave our listeners with is that leverage trend is, again, the phenomena, PH enomena that big claims get bigger, faster. The way to combat that is that you can change your spec level, and if you don't, you should just expect that stop loss premiums will increase faster than the underlying medical trend, because of this phenomenon. It's phenomenal.

[00:05:57.870] - Andrew Clayton
Yeah. Truly phenomenal. You're obviously a phenom.

[00:06:02.770] - Andrew Cavenagh
I was going to say I can't think of any other versions of that word, but you came up with another one. That is it, leverage trend in a nutshell. On today's episode, we are thrilled to welcome our friend, our partner, colleague probably throw a bunch of other nouns in there, Seth Denson—head of healthcare strategies at Acrisure. Seth, welcome to the podcast. Thanks for joining us.

[00:06:25.900] - Andrew Cavenagh
Insurance is one of those strange industries where everyone has a story how they got into it and would just love to hear how you ended up in the field.

[00:06:34.570] - Seth Denson
Yeah. Like many, I think it was not by design. By five years old, I was thinking I was going to be Tom Cruise and fly fighter jets until I realized I hate heights and I get [crosstalk 00:06:46].

[00:06:46.480] - Andrew Cavenagh
I thought you meant making cocktails, just to be clear.

[00:06:49.990] - Seth Denson
At that time I was running around dancing in my underwear. There's a whole lot of references we could have to some past movies there. Growing up I thought I would do anything but insurance. My father actually is a pastor of a church, so my thought of getting into the eternal insurance business crossed my mind a few times. It was actually my father who taught me out of that.

[00:07:06.980] - Seth Denson
As a matter of fact, my senior year I had declared biblical theology. I was going to go be a biblical theology major. I was going to go play baseball at... There were a couple of Christian schools that have biblical theology departments. I was going to go play ball at and do that and enter into the family business, so to speak. It was my dad that really talked me out of that. He said that, "If you don't feel called to do that, you probably shouldn't." Those are the guys that end up on TV for all the wrong reasons.

[00:07:31.110] - Seth Denson
But nonetheless, so there I was my freshman year, undeclared, didn't play baseball, trying to figure things out. I changed my major so many times. My guidance counselor in college, I was driving her insane, and she pulled me aside, I think this is like the fifth time I was in her office over the course of my freshman year changing my declared major and she said, "Seth, you're taking English 13.01. You're under no obligation to declare a major at this point." I said, "I recognize that, Ms. Reed, but if I don't have a goal in mind, if I'm not working towards something I feel like I will never accomplish anything, so I need to have an objective." You guys know me well. I'm super detail oriented on certain things and very goal driven.

[00:08:11.920] - Seth Denson
She said, "All right. What do you really want to do?" I said, "I have no idea." She said, "What do you like to do?" I said, "I really like to play golf." She said, "Okay. Are you any good?" I'm like, "Absolutely not. I'm terrible." I said, "On a good day I'm an 18 handicap, and there aren't very many good days when I go." She said, "All right, here's what you do." She said, "Wednesday", she's looking at my schedule. She goes, "Wednesday, you don't have any classes midday." I'm like, "That's right." She said, "All right. Go down to the local golf course on Wednesday afternoon, let's say 1 o'clock, and as guys are making the turn, ask them what they do for a living that allows them to play golf on Wednesday at 1 o'clock in the afternoon, and whatever that is, that's what you do."

[00:08:48.600] - Seth Denson
I took her up on her advice. I went to the golf course. I sat there waiting and to the guys I said, "Excuse me, sir. Can I ask you what you do for a living? I'm doing a research project for College." "Yeah, son. I'm in the insurance business. I'm in the financial services business." Just about everybody that was still working age was in the financial services or insurance business.

[00:09:08.420] - Andrew Cavenagh
Can we pause there just for a second? First of all, your guidance counselor, whatever the right title is, is genius. I've never heard of that.

[00:09:16.860] - Seth Denson
She's brilliant.

[00:09:17.760] - Andrew Cavenagh
A total genius. Then I would just love to have a camera on the turn.

[00:09:21.960] - Andrew Clayton
100%.

[00:09:24.670] - Andrew Cavenagh
"Excuse me, sir." "Go away." "Yes, I'll take a hot dog and a [crosstalk 00:09:27].

[00:09:29.770] - Seth Denson
There was a lot of that, yeah. They thought, "Boy the cart girls have gotten very unattractive lately." Because I was there very quickly in people's face. "Hey, can I ask you a question?" Listen, it got me to where I am.

[00:09:44.860] - Andrew Cavenagh
Nothing to do with insurance, what's the coolest thing that one of your clients does or did in terms of a product or a service?

[00:09:51.540] - Seth Denson
We actually got to represent and still do to this day, at least for now—that's my caveat on all of them—but a gaming company that developed games. In fact they're Pareto customers as well. They're in a captive. Watching the mindset of these guys that their job is to create video games, and going to their office and everything that you would think about an office full of gamers is absolutely 100% correct. I'm talking headphones on. They're literally playing video games for a living. I'd say that one was really cool. What was cool about it was that what led to another client, which was a professional gaming company. These are people that E-sports is a big thing now. I still have an Atari. I think that's the highest level of video game that I've ever achieved in my life.

[00:10:44.220] - Seth Denson
But to go into these places that they actually have people that play video games for a living and compete for prizes that are millions of dollars. You literally have finger trainers. People that make sure that they don't get arthritis in their fingers from pushing the buttons. They have these coaches that help them deal with stress to make sure that in that moment where whatever they're playing against in the video game wouldn't kill them so they can win. It's insane to see this secondary world that I didn't even know existed. It's pretty cool.

[00:11:16.070] - Andrew Clayton
You and your firm, you joke about the C plus student, but you have a tremendous amount of intellectual curiosity and drive. You guys are always pushing on what's next, what do we do next? Where does that come from and how do you organize it? Because there's so many... It can be like a loose atom. All the junk that's in the system today, or I shouldn't say junk, all the new initiatives. How do you filter through all that? How do you guys stay focused on what's really impactful as opposed to the latest shiny dangly thing?

[00:11:49.750] - Seth Denson
That's a great question. I think that probably early on we weren't great about that. We looked for those shiny objects just as much as anybody else. I think John Powter, who is my business partner, and I, we couldn't be more opposite, which I think makes us really good business partners in a way that we look at things.

[00:12:06.580] - Andrew Clayton
I have no idea what that's like.

[00:12:09.570] - Seth Denson
But in the same way, I think that we're very similar in the idea that we both got into this business a little bit by, I don't say by accident, but somewhat. Neither of us from day one got into the business and then really felt like, "Okay, let's just ride the coattails of this business forever." Which is what I think the industry does. Status quo is the optimal gain.

[00:12:34.720] - Andrew Clayton
That's how they golf on Wednesdays. Status quo.

[00:12:37.090] - Seth Denson
That's it. That's exactly right. Yeah. When we brought both of us together and said, "Okay, we both think this is a system that could use an overhaul. How do we do it?" What was great was both of us from an educational purpose perspective—and I think that we'll call it the C plus student thing—works to my advantage, because I don't go to the book. I don't go to the book and say, "Here's what the book says we should do. Let's do it." I can't really read the book, so let's just figure out a new one and let's just write our own. I think that's really it. Now, for the first few years, we were really bad about chasing those shiny objects because everything sounds really good when you're trying to think about doing things different than everybody else.

[00:13:14.430] - Seth Denson
In 2017, I had this moment of clarity in life. I'm sitting down with John saying, "Dude, you can have my half of this agency for a six pack and a Happy Meal." Because I was so tired of chasing this shiny object and looking for that silver bullet that, quite frankly, just didn't exist.

[00:13:30.920] - Seth Denson
I had to come back to it and start at the beginning and recognize that we were trying to be good at everything instead of being great at something. I think that for us, the ability to continue to innovate is recognized that thinking through the complexities of doing something new and unique and different is actually something we're great at. When you realize that and you stay in your lane with that, two things can happen. One is you can find very quickly those things that will work and figure out a way to implement them very quickly and effectively, not making it complex. I think our industry historically thinks if it's not hard, we didn't have to work hard enough to do it. So we got to make it really hard and really complex and do all these Gantt charts and all this other garbage.

[00:14:14.530] - Seth Denson
I'm like, "No. Actually you can get from A to B really easy. It's a straight line. Let's just get there." We didn't overthink it, I think is probably the best quick answer to your question, Clayton, is we just didn't overthink it. What's the simple way of getting from A to B, or A to Z? Once we figured that out, two really key things happened. This is a mantra that we still have today is, we do not go to try to find solutions for our prospects. We don't. We try to find prospects for our solution.

[00:14:42.430] - Seth Denson
Once we realize what is the thing that needs to happen and how it needs to happen, we say, "Okay, who needs this? Now let's go find them." Versus the other way around, which is the way our industries always work where we go in, we learn about a company, we ask them a million questions. We never get around to actually asking them for the business. We just hope someday we've said enough that eventually they'll say yes, which is ridiculous, which is why I think our sales industry's close ratio is so bad.

[00:15:04.130] - Seth Denson
We have a very distinctive process. When we go in to meet with a prospective client, it's four meetings. You get four meetings with us. The first meeting is very quick. It's just telling you about us, why we think we're different, what we do, how we do it. If that sounds interesting to you, then we'll have a second meeting. In that meeting, I'm going to learn about you. You're on stage, tell me all about yourself. I'm going to ask and we're going to try to identify challenges and issues that you've got and determine if it's a fit for our solution. The third meeting is us coming back to you saying, we think you're a fit for our solution. Here's how our solution works. The fourth meeting is we're going to refine that.

[00:15:33.800] - Seth Denson
At the end of that fourth meeting, you're doing business with us or you're not. But we're done doing free work. For us, it's interesting because in the very first engagement with a prospect, we tell them that process. "Hey listen, we have four meeting process. Here's how it works. Now you know at the end of the fourth meeting, it's your turn to say yes or no. But that's when you're going to determine whether or not to do business with us." It's amazing how many people will say thank you, thank you. It's so refreshing to know when the close is coming, when you're actually going to ask us to do business with you.

[00:16:09.100] - Seth Denson
I'll tell you that if we get people to that fourth meeting, we have about an 80% close ratio, because they've invested the time and so have we but there's been a lot along the way, who we haven't gotten to that fourth meeting because we determined they shouldn't. A long way around the bar into your answer, Clayton, but I think that to continue to stay innovative, it's recognizing we know where our lane is and we stay in it.

[00:16:28.150] - Andrew Cavenagh
I'll ask you a leading question, Seth, that ties into this, I think. Why is it that the insurance industry has such a hard time succinctly explaining their value proposition?

[00:16:39.570] - Seth Denson
I don't think that they know what their value proposition is. They really don't. You talk to 20 brokers and you ask them what differentiates you? How do you bring value to your client? They're going to tell you service. Service is stable stakes in this business. If you don't do that well you're out of the business. If your differentiator is the same thing that differentiates everybody else, guess what? It's not a differentiator at all.

[00:17:01.020] - Seth Denson
I have prettier spreadsheets. I golf more with Blue Cross, therefore I think I've got a better relationship with them. I don't know what the answer to that would be, but I think that the vast majority of people in our business could not properly articulate a value proposition that they actually believe was true. Or maybe they do believe it's true, but they think it's a differentiator and it's not i.e. people can think that you have great service, and I'm sure they do. Guess what? You can't quantify that till someone is a client anyway, so how are you quantifying that differentiator? I think that's really a big part of the issue we have as an industry.

[00:17:34.360] - Andrew Cavenagh
You're at a cocktail party, you and John are talking to somebody, and they ask you, "What do you do?" What's your answer?

[00:17:40.770] - Seth Denson
I played for the Texas Rangers.

[00:17:43.590] - Andrew Cavenagh
I haven't seen you.

[00:17:47.650] - Seth Denson
From my barcalounger I will tell you, it's funny. Early on, I'd be like, "I'm in health insurance business." You want to talk about clearing a room in front of you very quickly? Hey, I'm so sorry. I got to go say hi to somebody. Let me go." Because they know, "Okay, I'm about to get pitched here it comes." I tell people that I'm a business analyst and I help companies uncover EBITDA that's trapped in their capex. Then when they say [crosstalk 00:18:09]

[00:18:10.000] - Andrew Clayton
Then they still walk away.

[00:18:11.950] - Andrew Clayton
They do, but they think I'm really smart. "That guy must know what he's doing."

[00:18:16.240] - Andrew Cavenagh
But it's telling that we're talking about the talent pool that goes into insurance to begin with, what we talk about the lack of ability to succinctly describe a value proposition, because it might not exist. Then we talk about being known as pitching. It paints the industry in not a great light. Yet it is that not great light that allows somebody like you to easily differentiate yourself and excel. We'd love to hear... Again, this is going to be you patting yourself on the back a little bit, but what has enabled you, what are some of the things that have made you so easily separate yourself from what I just described?

[00:18:50.920] - Seth Denson
At the risk of being overly appreciative of who's on this, I like to think I surround myself with people that are a lot smarter than me at this.

[00:19:00.060] - Andrew Cavenagh
Plus Clayton.

[00:19:01.330] - Seth Denson
Plus Clayton. Listen, I think that if I was—we'll call it the standard broker—and I hung out in that standard broker circle at standard carrier events. Guess what? Probably never challenging my knowledge base, the status quo, the way things work, all of that, it continues to just manifest itself. We're the best at nothing. But by surrounding myself and the people that I call colleagues, who actually I also call friends, I don't have a lot of friends outside of colleagues, but that's because I live and eat, and breathe this world.

[00:19:39.520] - Seth Denson
These are the people I spend time with, you guys and some others, and they're people that are like-minded and thought of saying, "Hey, let's challenge each other. Let's think differently about this." I think that's a big part of it. I'm a college drop out, so I don't have that back end, "I went to school for this, therefore, this is the way that I operate."

[00:19:59.840] - Seth Denson
I think there's two things that have come from that. One is, and I want to say this, I don't think the College is for everyone, but I do think that education is. I made the determination early on when I realized how much college was actually going to cost me without those baseball scholarships and the theology scholarships that I could either come out of college with at the time, $100 to $150,000 in debt, or I could go work for absolutely next to nothing for the smartest people that I could find and learn as much as I could from them, and I'm going to roll the dice that way. And I did. I got to work for some really extremely intelligent people in their fields over the last 20 years or with them.

[00:20:35.940] - Seth Denson
For me, I think that it was the fact that I didn't have that piece of paper on the wall. I knew that I had to try that much harder. I knew that I had to spend that much more time learning and investing, and even today. I'm an early riser. I get up between 4:00 and 4:30 every morning and I religiously, in the mornings, research business, healthcare, what's going on in the industry, all of those things to try to increase my business acumen, because I don't have acumen on a wall, I have to develop that acumen in my brain.

[00:21:05.910] - Andrew Clayton
What are the one or two things you look at the industry and say, we'll call them myth, maybe some others will call them lies or miss statements that you're just like, "That is just flat out wrong." How do they continue to get away with this stuff?

[00:21:21.730] - Seth Denson
First and foremost, I would say that health care and health insurance are synonymous. I think that is the big myth that's out there. I will tell you, you guys talked about the executive in the amount of time that it's getting in front of their eyeballs, they think it's the same. Because that's what we trained them to think. As long as they do think that it's the same, they won't think of it differently. I say all the time we have a supply chain problem in the United States when it comes to health care. That's what it is. It's not an access problem. It's how we engage in the supply chain components of health care.

[00:21:55.630] - Seth Denson
In addition to that, I say all the time that I'm not trying to change what people are buying. I'm trying to change how they're buying it. From the perspective of people are buying healthcare, but they're buying it as health insurance. That's how they're buying it. That's a wrong way of doing it. Billy Bob can buy a truck, but Billy Bob would never buy a $60,000 truck when he could buy a $40,000 truck that does the exact same thing, same color, same features, everything. But he does every day in healthcare, because he doesn't have the information, he doesn't know how to do it. If we can get there, then that's the way to do it.

[00:22:22.280] - Seth Denson
I think that part one, that would be the first thing that I think is a myth that they continue to lie. The second thing is there's an old adage, don't miss the forest for the trees. In health insurance we train people that when in reality they should not miss the tree for the forest, meaning that 90%, the vast majority of expenses is tied up in one or two folks in 10% or less of the population. Yet what do we do? We raise everybody's deductible that's going to make the move. That's going to change the needle. We're going to implement a wellness program that all of our healthy people are going to participate in and none of our sick people are, because we don't need data to do it. We're just going to just throw something on the wall and hope it sticks.

[00:22:58.300] - Seth Denson
By doing that, we actually penalize the 90% of the population that isn't using health care by making healthcare less accessible for them, raising deductibles, making it harder to get all that. I think that's the myth. I firmly believe that the more you make healthcare free to the user, the lower healthcare cost gets, the more accessible it gets to them, the cheaper it gets, the more effective it is.

[00:23:19.100] - Seth Denson
Then employers all the time, if we can just get them to the point. You and I, all three of us, we've talked about this, it's the milk in the back of the grocery store. If you move that to the front, guess what? You avoid all the profit margin that's built into the store, and you get people what they ultimately wanted to get anyway.

[00:23:33.480] - Andrew Clayton
Your kids are old enough to understand that dad goes to work, works hard, is diligent, has an important job as an important leader. What do you tell them? What do they think your job is?

[00:23:47.340] - Seth Denson
My kids think I'm a doctor. I don't know how that happened, and apparently so does my grandmother. That's another story for another day.

[00:23:54.250] - Andrew Clayton
You don't break grandma's heart.

[00:23:57.070] - Seth Denson
No. I think so. I'll give you the reasons, which I disperse. I literally get a call from my mom one day. She says, "Hey, you need to get up to the hospital. Your grandmother's in the hospital." I'm like, "Okay, what's wrong?" She goes and she tells me, and I'm like, "Okay, what am I supposed to do?" She goes, "She won't let the doctors engage with her until you're there, because she said her grandson is a doctor and she only trusts him." Of course, I have to walk in. The doctor's, like, "Are you the doctor?" And I'm like, "No. But yeah. Okay." Of course he pulls back the sheet and I nearly lose my lunch. I do the whole perfect on television, like, "Doctor, what's your assessment?" "I think this is what she needs." "I concur. Doctor, go for it. Grandma, you're in good hands." And I walked out the door and lost my lunch.

[00:24:36.250] - Seth Denson
For my kids. Listen, I tell the kids that daddy helps businesses be more successful. That's what daddy does. He helps businesses be more successful, and what does that mean? It depends on the business. How do they determine success? Is it improving the overall culture of the organization? Daddy helps them do that. Is it improving their overall margin or EBITDA? Daddy does that, too. Is it managing their overall risks? Yep, daddy can do that. Effectively that's what Daddy does. He just helps businesses be more successful. Taking that a step further, and it's actually, I don't say our motto here at GDP, but somewhat is, is that we're people driven to make people's lives better.

[00:25:15.490] - Seth Denson
That's what we stand for here. I tell that with everybody that comes on board here, when I'm interviewing them. I still do orientations. I still think it's an important thing for us to do as being one of the leaders of the organization, is to make sure that people that are coming on board understand the vision. I tell them something very clear, "I don't care what institutional knowledge you have. I care about really two things. One is, you give a darn right and your desire to impact the lives of others."

[00:25:43.210] - Seth Denson
Everybody has to figure out what their why is. Why are you doing this? Because we're all trading time for this, and that's the great equalizer for all of us. I don't care who you are. We all have the same amount of that in a day. We're trading it for this. Why? Why are you doing it? Why this versus that? And that if this is a place that you can feel like you can be relevant in your life, that you can fulfilll that why, then it's great. If you don't think it is, then I will be the first person to help you find where that is somewhere else.

[00:26:07.960] - Seth Denson
But we're driven to make people's lives better. If we do that, a really powerful thing will happen. We don't have to chase money. Money will chase us. Money will chase us. It'll want to be where we are, because people will want to be where we are. That's a really powerful thing that when you can take. If you think of our organization, the vast majority of people that work on our staff are under the age of 30. We have a lot of them that are college dropouts. Most of them came from outside of the industry, and that's it. I can't teach people to give a darn, but I can teach them this business it's not that hard.

[00:26:37.610] - Andrew Cavenagh
What's something that also gives you a lot of optimism about health care, and or health insurance. Again, I agree with you separate the two in the US over the next five years.

[00:26:48.240] - Seth Denson
The optimism I get, I'll start with that, is that I think that the health care providers themselves, the people that actually deliver health care, are eager to see the system change. I'm not talking about the business people that run it because they're not, but I'm talking to people that actually do it. The people that actually deliver health care. By and large, the vast majority of them that I speak to anymore are saying something needs to change and we want to be part of it. When you get the people that are actually delivering the goods and services that we're actually buying now saying, "I don't want to do it the way we've always done it." That's really exciting.

[00:27:22.840] - Seth Denson
I think that's why we're seeing a lot more single case agreements that we're getting done with providers and surgeons, things like that, and people willing to enter into either direct primary care or direct contract one off contracts, things like that. It's that provider network. I shouldn't say provider network like an EDNA, Blue Cross or anything like that. I'm saying the network of providers, the industry as a whole, that is saying enough is enough.

[00:27:44.740] - Seth Denson
I want my patient to be better, and I don't feel like they should go bankrupt to do that. I don't want to deal with the bureaucracy that is the carrier anymore or even the hospital system that maybe I've sold my practice to that now I'm in bed with the devil. I want to do something different. How do we do it? That to me is very encouraging, and I'm excited to see where that develops over the next year to five years.

[00:28:05.280] - Seth Denson
Where I see the industry going. I think that we're going to see a very hard push from the large carriers, who there are very few of now. Really pushing the big firms, which there are very few of now that continue to buy up the independence. The broker is still, we'll call it, the gateway to the industry, and more and more of the brokers have been acquired. Myself included. I recognize that. I think that as they become fewer and fewer independence, as the big conglomerates become bigger and bigger, the carriers will feel like they have them right where they want them, which is big contingencies, big opportunities to align themselves and fear that we'll pull your appointment and therefore X amount of your dollars are going to go away, because you're not going to be able to access us anymore unless you play ball with us.

[00:28:58.460] - Seth Denson
I think that there's going to be a hard push for that, and I think these bigger firms are going to have to make a difficult decision on do we feel like we have to do that or not? I'm really proud of where I am with Acrisure and it's the reason, I was amenable to taking the role as director of healthcare strategies for the entire organization, because I made it very well known, "Guys, if you want me to go to the Blue Cross meeting in glad-hand, that's not my job. I'm not going to do that. I'm going to give you guys a really bad reputation." It was very apparent from the executives on down as we recognize the relationships we have there, but we recognize we got to do what's right for our clients that's our primary relationship, and if you feel that there's a better way, lead us there.

[00:29:34.690] - Seth Denson
That was really encouraging to me. I even said it could cost us contingencies, it could cost us the dollars that are out there, and they're going to be thrown in our face and we can't get wooed by that, because I do think that there's going to be a hard push over the next three to five years and hospital systems in alignment with the healthcare carrier systems, which will try to find themselves in alignment with the broker systems more than ever before, I think are going to be pushing those things.

[00:30:00.280] - Seth Denson
It's up to the few of us that really do think differently and want to see something different to do it. Hopefully we continue to do that, because at the end of the day, here's the reality. The carrier, the delivery system, the broker, we're all subservient to the end user, which is the client, the CEO and the CFO, and the more of them that wake up to this and say this is the way I'm willing to do this, the more that it'll actually start moving the needle there.

[00:30:22.890] - Andrew Cavenagh
It's been fun watching your evolution. I don't mean that to sound patronizing at all, just that the impact you've been able to have on a per-employer basis than on the number of employers has been inspiring.

[00:30:36.090] - Seth Denson
Listen, I'll really say if that evolution, a significant part of that that was you guys. Listen, our partnership with you is truly that, and there is very little chance. I wouldn't say zero chance, because I may have figured it out eventually, but there is very little chance that myself, GDP or to that, and even Acrisure would be where it is today without Pareto and without you guys and your organization. Thank you for that.

[00:31:01.340] - Andrew Cavenagh
We appreciate the partnership. Appreciate the kind words, and absolutely appreciate you jumping on the phone with us today. Thank you very much, Seth.

[00:31:07.890] - Speaker 4
Thanks, Seth.

[00:31:08.290] - Seth Denson
It was fun. Hey, I think we were actually pretty safe.

[00:31:12.550] - Andrew Cavenagh
Yeah. No swear words.

[00:31:13.540] - Seth Denson
Not too much [crosstalk 00:31:13].

[00:31:14.130] - Andrew Cavenagh
You did say to give a darn, and I thought, "That's not what you say in Philadelphia." But then if I corrected you, that meant we couldn't air it in Philadelphia.

[00:31:36.700] - Andrew Cavenagh
Now for the last segment of our episode. The one that everyone's been waiting for, because this is the place where Clayton or I, but typically Clayton, put our foot in our mouth. Get ready for, you know they're a knucklehead when. My one for today is really straightforward. You know they're a knucklehead when they show a client a comparison of a fully insured premium to a self-insured maximum. Walk me through why that's a knucklehead definition.

[00:32:05.930] - Andrew Clayton
Correct. Absolutely. The simplest way to think about it is that as they show the fully insured premium, they're showing the best case scenario under fully insured, and they are showing the worst case scenario under the self-insured maximum. It's best case versus worst case as opposed to best case, best case or worst case, worst case.

[00:32:29.830] - Andrew Cavenagh
The thing that drives me nuts about this is I get that if you're considering a self-insured program, any insurance program, you should think about what is the expected, what's the probability of the expected, and then what's the downside case? Then also what's the upside case? Those are the things you should go through. Where it drives me nuts is when they show the fully insured and it's just, here's expected, slash your actual cost, and then they compare it to the maximum. The reason that it drives me nuts is that those things are connected in that if you hit the maximum on a captive on self-insurance, it's because you had a crappy year. If that happens, what's going to happen at their next renewal if they had stayed fully insured?

[00:33:08.600] - Andrew Clayton
Your favorite expression, they're going to get their teeth kicked in. The reality is based on their size and how far off their claims are, it's a renewal increase of probably 25% on the very low end, to upwards of 40, 45. We've seen 75 and triple digit increases. But you're right. That's my comment is that the actual worst case scenario fully insured doesn't happen until day 366. That's why your renewal is where you're paying for your bad claims.

[00:33:38.060] - Andrew Cavenagh
Right. Not to plug our prior episode, but you should go listen to our prior episode where we talked about deferred, not insured. This is just an example of it. Twirling its ugly head again, in that these two things are linked. They're dynamic. You can't have a terrible year in self-insurance and not also see some of that same impact in the fully insured world. I think that's why it frustrates me so much, is that a lot of the brokers that are out there like to think of these as two independent, completely independent things.

[00:34:05.410] - Andrew Clayton
Yeah. The thing that I would add, you mentioned the three areas or three criteria to look at: best case, worst case, and expected, then the likelihood of each. The other thing that ties into our previous podcast plug 80-20 with ParetoHealth, hashtag trending, is that in one scenario, fully insured, you have no ability to influence what your claims are going to be, and so your probability of outcome is totally set at the start as opposed to being self-insured where you now have the ability to influence what your claims are going to be, you also have the ability to influence what the health and the consumption of health care of your population is driving towards better health and wiser choices. It's a sliding scale or moving target, if you will, and what your potential outcomes could be in self-insured.

[00:34:54.480] - Andrew Cavenagh
Just teasing this through or thinking this through a little bit. We need to do one of our entire episodes just around the concept of the spreadsheet. A spreadsheet that just shows a bunch of columns for different insurance products, one year rates, min, max, et cetera. Doesn't hit on the leverage and most importantly, isn't a multi-year or a dynamic spreadsheet, as you know, drives us nuts. Maybe let's make a mental note of that and we'll come back and do a whole episode on that.

[00:35:17.610] - Andrew Clayton
You're saying spreadsheet. I just want to make sure that you're not saying something that's going to get us banned or censored.

[00:35:24.180] - Andrew Cavenagh
I have no idea what you think I said, but I definitely meant to say spreadsheet.

[00:35:27.230] - Andrew Clayton
Okay, great.

[00:35:28.320] - Andrew Cavenagh
Yeah. I did not say spread stuff around.

[00:35:31.060] - Andrew Clayton
Spread manure.

[00:35:32.240] - Andrew Cavenagh
Right, I did not say that.

[00:35:33.490] - Andrew Clayton
Got it.

[00:35:34.670] - Andrew Cavenagh
So knucklehead test. If they're comparing maximum on a self-insured or captive product to a fully insured without highlighting that those are, in fact, linked together and that there is a relationship between the two on a multi year basis, you're dealing with a knucklehead. Thanks for joining us.

[00:35:59.130] - Speaker 5
Thanks for listening to today's episode of 80/20 with ParetoHealth. We love hearing from you. If you have a question or an episode suggestion, please drop us an email at [e-mail]. That's 8-0-2-0 @paretohealth.com. Dive deeper into 80/20 by visiting us at paretohealth.com/podcast. Lastly, make sure you follow us on Apple Podcasts, Google Podcasts, or Spotify so you don't miss an episode.