EP 1 - Fully deferred? What the heck are these people buying? w/Austin Madison of HUB International

Welcome to the first episode of 80/20 with ParetoHealth! Today, we explain why the so-called “fully insured” model is neither full nor insured. We talk with Austin Madison of Hub International about baseball, his crazy high GPA, and how he realized that a self-insured model was better for his clients and his business. Then the gloves come off and we take on the knuckleheads, the spreadsheet addicts, the dinosaur insurance brokers who think they’re the smartest ones in the room - bless their hearts.

More about Hub International at https://www.hubinternational.com/

Find out more about our solution at http://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.

[00:00:07.680] - Andrew Cavenagh
Welcome to 8020 with ParetoHealth. I'm Andrew Cavenagh.

[00:00:11.280] - Andrew Clayton
And I'm Andrew Clayton.

[00:00:12.360] - Andrew Cavenagh
On today's episode, our Knowledge segment will focus on fully insured health insurance plans and the value, or the lack of value that they provide.

[00:00:21.720] - Andrew Clayton
During our second segment, we will interview Austin Madison, partner and friend. Austin is SVP of Benefits for Hub international out of Nashville.

[00:00:31.080] - Andrew Cavenagh
Our recurring segment, which we call, You Know They're a KnuckleHead When, will conclude today's episode, where we'll focus on insurance brokers and certain things that if you hear them say it, well, you know they're a knuckle head. Clayton, today's Knowledge segment is about fully insured health plans. When an employer hears the words, fully insured, what do you think they think?

[00:00:55.920] - Andrew Clayton
Sorry, did you say, fully insured, F-U-L-L-Y or F-O-O-L-Y?

[00:01:01.040] - Andrew Cavenagh
I said F-U-L-L-Y, but A, I'm impressed you can spell, and B, let's tackle it from both directions.

[00:01:06.720] - Andrew Clayton
I had it written out for me, I needed a little help. To answer your question, the immediate jumps to simplified, overpriced and an incredible example of what marketing in inertia means within a market.

[00:01:21.390] - Andrew Cavenagh
That's what, I think, what you think fully insured means, what do you think the employer thinks it means? When they hear, fully insured, are they thinking risky or not risky?

[00:01:29.670] - Andrew Clayton
They're thinking, not risky. I wash my hands, I can walk away from it and ignore it for 12 months.

[00:01:35.580] - Andrew Cavenagh
Possibly the greatest marketing event ever happening in health insurance is coming up with the phrase, fully insured. Because if I'm a buyer, well, do I want to be only slightly insured or do I want to be fully insured? Well, I'd like to be fully insured because that sounds pretty cool.

[00:01:53.380] - Andrew Clayton
Absolutely.

[00:01:54.380] - Andrew Cavenagh
Let's just talk about math for a second with fully insured. As you know, we use the phrase all the time, deferred, not insured. Let's explain how, fully insured, works to our listeners.

[00:02:04.140] - Andrew Cavenagh
Employer A, has claims throughout the year. Let's say they have, I don't know, $500,000 in claims. When they get to their renewal, how does the renewal work?

[00:02:14.480] - Andrew Clayton
They take 500,000, they then predict what those claims are going to be in the upcoming year. They add medical inflation, that RX inflation, they add administrative costs, expenses, profits, consultant fees to it, and they basically then repackage and sell it back to the employer for the upcoming year.

[00:02:34.080] - Andrew Cavenagh
I'm going to see if I can say it in a slightly different way. $500,000 of claims, and you said they predict the upcoming year, but they don't really predict it. What they do is they take the $500,000 and they apply industrywide medical trend. To make our math easy, we'll say that's 10%, which is probably a little bit high.

[00:02:52.200] - Andrew Cavenagh
But that means that if I had $500,000 of claims this year, the number that goes into my renewal math is $500,000 dollars. Then as you said, they add the administrative expenses to that. Let's pretend those are $150,000, that takes us to seven 700,000. Your renewal increase is the difference between $700,000, which is the formula we just walked you through, and what you're paying today. Is that right?

[00:03:17.880] - Andrew Clayton
That's correct.

[00:03:20.200] - Andrew Cavenagh
What that means is that next year's premium is always determined by this year's claims. The way that I think about it is that, what the employer is doing is putting down a deposit that then gets adjusted to actual in the upcoming renewal. Is that a fair way to think about it?

[00:03:37.160] - Andrew Clayton
Sure, it's a short term loan against their claims with incredibly high interest rates and penalties.

[00:03:45.240] - Andrew Cavenagh
If I have a really bad year this year, instead of 500,000, which might have led to, 10 or 15% increase, if I'd had a million dollars, particularly in small little claims, is there any limit to what my renewal increase could be?

[00:03:59.480] - Andrew Clayton
They'll buffer it out by weighting it against the pool. That's the only reason and way that they limit it because it's really bad press. But we see employers that get , 40, 50, 75%, even north of 100% renewals.

[00:04:14.000] - Andrew Cavenagh
I paid the "fully insured premium", but the reality is they get to adjust it to actual based on what my claims were during that period, which all of a sudden doesn't sound very full or fully insured to me.

[00:04:27.120] - Andrew Clayton
No, basically what you did, is you paid a static premium on a monthly basis until you got to renewal and had to reup for the claims that already were incurred.

[00:04:35.780] - Andrew Cavenagh
What happens if I have lower than expected claims? Do they give me a 20% decrease in my premium?

[00:04:42.380] - Andrew Clayton
No, they typically try to invite you to an entertainment event to keep you as a client, but they will use your profits to offset some of the losses of others.

[00:04:52.740] - Andrew Cavenagh
If I have a good year, I still get an increase albeit a small one and if I have a terrible year, I get a huge increase, which, in theory, is uncapped, but maybe for publicity reasons, they cap a little bit. But I've got a lot of exposure to this year's claims, even though, I bought a "fully insured policy."

[00:05:12.110] - Andrew Clayton
That's correct. That renewal, it's really a question of what degree of bad news are you going to receive. To your point, the the bad news, which we've been convinced is good news, is I'll get a couple of point increase if I'm a phenomenal performer, and if I am a really bad or unlucky performer, then I'm going to get a really big increase.

[00:05:32.030] - Andrew Clayton
But the perception in the market, is totally flip from reality, where employers and even brokers/knuckle heads, think that the 5% renewal is phenomenal news. Encounter they think that the 30% increase is terrible news, as opposed to 30% is actually fully justified as part of the fully insured renewal process.

[00:05:56.960] - Andrew Cavenagh
If we think about fully insured health plans, the employer doesn't have full insurance, in the sense that if they have bad claims during that year, they're still going to get a bill for it, albeit in the form of a renewal.

[00:06:09.200] - Andrew Cavenagh
That's obviously why we refer to it as deferred, not insured, in that there's no running from your smaller, predictable claims as an employer, you're going to end up paying them whether you are in this fully insured model or some other type of risk financing model.

[00:06:24.480] - Andrew Clayton
I think that's incredibly well said.

[00:06:27.040] - Andrew Cavenagh
Thank you.

[00:06:27.040] - Andrew Clayton
That shocked me too. The other part that employers need to remember, is that there's also no running from your population. There isn't a company out there that hires people for 364 days, fires them, and then hires entirely new population as they approach their health insurance renewal. Your people are going to be your people. It's a question of how do you best manage them over time?

[00:06:54.290] - Andrew Cavenagh
I think that's a great way to end this segment, is really just to highlight that, in that, you're not going to run from your claims, and your people are going to be your people for as long as they are.

[00:07:04.250] - Andrew Cavenagh
You as the employer are implicitly or explicitly paying for their health care, or a portion of their health care and their family's health care, as long as they remain your employees and so the key is thinking about this long term.

[00:07:28.410] - Andrew Cavenagh
Clayton, we are thrilled to have with us today, a our friend, partner, Austin Madison, from Hub international. Austin, as you know, is the practice leader for Hub Mid South as well as the sales leader for Hub, southern region.

[00:07:42.410] - Andrew Cavenagh
Thrilled to have him, based in Nashville, Tennessee. He speaks slowly, but thinks quickly, though I'd just love to welcome you to the show. Thanks, Austin.

[00:07:49.610] - Andrew Cavenagh
I'd love to start it off just asking how you got into the insurance space. I know it was a difficult decision. You're sitting there thinking, pro-baseball career or insurance, and you chose insurance. I would just love to know why and how that came to be.

[00:08:04.890] - Austin Madison
Well, like everybody else, I mean, I grew up wanting to be an insurance salesman. I mean, that was what, it was just ingrained in my mind from the beginning. I wanted to save lives.

[00:08:17.810] - Andrew Cavenagh
All the cool kids were doing, right?

[00:08:19.370] - Austin Madison
Yeah. Save lives and really be able to talk about renewals and things like that. What got me into it was, you mentioned baseball. I always wanted to play pro baseball. Like every other kid, who played baseball, thought that they could. When I realized that I could not, and I realized I was not going to be a doctor, dad tried to convince me to get into law school and I told him I was done studying.

[00:08:45.480] - Austin Madison
I did what a lot of other C plus students who had too much fun in college did, and that was, realized I needed to get into some kind of sales. I hopped around in different industries. [inaudible 00:08:58] talked to me about insurance right out of college. I thought, man, there's no way I'm ever selling insurance.

[00:09:03.200] - Austin Madison
I had a buddy who was working for Unum on the disability side, I was in the pharmaceutical industry at the time. When I started talking about what he was doing, I thought, man, that sounds like it would actually be fun. I interviewed with Unum and got the job.

[00:09:18.800] - Austin Madison
From there, was calling on our agency, at the time, and we had no business with them, then got a call from their CEO, who was on the PNC side, and thought he wanted to talk to me about putting together some program for them so I jumped at the opportunity. He ended up telling me, we want you to come work for us.

[00:09:36.880] - Austin Madison
I went through about a three-month process with them and just honestly, really liked their guys and worked at that agency. It was a great group and is a great group. I just... It felt to me like the closest thing to what felt like being on a team or in a fraternity or something like that.

[00:09:54.240] - Austin Madison
I went into it and the funny story about that is, I'm going on a first client prospect meeting with one of our principles and he goes, "Austin," we were driving over, he suddenly, "set this up for you. His Group really wants to talk about HSA. I don't know anything about them, the PNC guys, so I wanted to bring you in." I look at Bob Jackson, one of our founders, and I said, "Bob, I don't know anything about HSAs." He's, "What do you mean?" And I said, "I don't know anything about health insurance at all."

[00:10:25.800] - Austin Madison
I said, "I sold disability." He looks at me and goes, "Well, you did a good job selling us." He said, "Let's hope you do a good job selling these guys." That was it.

[00:10:34.880] - Austin Madison
I think it's fascinating how people get into this industry. For so long, every story was, "I got into it by accident. It wasn't intentional." But that's changed now. You have to be careful, because we have people in our company that went to college and studied risk management and knew at an earlier age that they wanted to do this.

[00:10:51.560] - Andrew Clayton
I think the most impressive part of your story about how you got here, was the C plus student. Are you trying to show off or something, flex on us a little bit?

[00:11:00.460] - Austin Madison
I know. Yeah, and I worked really hard for that C plus, average or GPA. We laugh all the time. Our ideal salesperson is a C plus student who is in a fraternity and played on a sports team, something like that, or sorority, and were having too much fun to make a 4.0 or e point f3.5, something like that. I agree. That's setting the bar high of that C plus average, Clayton.

[00:11:22.660] - Andrew Clayton
You beat both of us. As you go into the industry, was there a, I don't want to say, aha moment, but was there of, wait a minute, this is broken. This is totally wrong, one of those Seminole, this is something that we should jumping all over. I can't believe it's this way?

[00:11:38.940] - Austin Madison
I think the not having health insurance experience was a big deal. Because, I guess, I always and still do have this ingrained fear of failure. I had guys that hired me and I wanted to basically validate that they'd made a good investment so I spent a ton of time just trying to learn as much as I was trying to sell or trying to get appointments. Through that process, I just thought, "Man, if I were an employer, what would I be trying to figure out?" What could or how could I separate myself? Even early on, I was like, I need to understand health insurance because that fully insured side, deductible, out-of-pocket, co-pays, networks, it's not rocket science. I mean, you shop it, find options.

[00:12:23.960] - Austin Madison
Two things I really tried to hone in on, was understanding HSAs, after Bob found out I knew nothing about them, and then trying to understand self-funding. I was scared to death about self-funding. I spent some time with a couple brokers who explained it to me, still scared me to death. But I knew enough to know that I should be asking the questions.

[00:12:47.480] - Austin Madison
Once I started understanding those things: consumer driven healthcare, self-funding, it blew my mind, that how many brokers out there did not have those conversations with their clients because they were scared to be found out that they knew nothing about it.

[00:13:04.980] - Austin Madison
I remember, I'm sitting in a meeting with a prospect, and did a simple analysis. They were getting a big renewal, and I looked at just an HSA option. I mean, this is blocking and tackling. They had never seen an HSA option from their broker. I did the analysis, it was going to save them 25%. The client looked at me and goes, "Why have I never seen this for my current broker?"

[00:13:29.230] - Austin Madison
I remember, I didn't bash the broker. I just said, "Well, I can't speak for your current broker, but I found this, this makes sense. I think this is a good fit. But I realized that it wasn't that brokers weren't smart, it was just that they were scared to look stupid.

[00:13:45.630] - Austin Madison
When I realized that, it really drove my confidence, I knew I didn't know enough about self-funding, but I knew enough to say, this is something we should consider. That was that moment of, "I think we can really differentiate ourselves here, and I think we can really grow this."

[00:14:03.050] - Austin Madison
I think too, realizing through that, Clayton, that the client start putting two and two together, they looked to me and said, "Well, you're paid on commission?" I said, "Well, yeah, it's a percentage of premium." They said, "Why would you give us this option if you're going to make less money?"

[00:14:20.690] - Austin Madison
I said, "Well, I look at it pretty simply. If I look at for your but best interest, maybe I make less money than what current brokers are making right now. But if I do a good job, you're going to recommend me to your peers and your friends and I'd rather build that compensation on volume than on just sticking the screws to you.

[00:14:40.970] - Austin Madison
That was another, aha moment too, of just, if we look out for the best interest of our clients, we're going to be taken care of too. I think that helped me relate to employers and then feel, "This person's a partner, and they're not just trying to sell me something."

[00:14:57.690] - Andrew Clayton
I think, you collectively answered why their current broker didn't show him the 25% savings option?

[00:15:03.800] - Austin Madison
That's right.

[00:15:05.400] - Andrew Cavenagh
Austin, as I think you know, I came from the property and casualty side, it wasn't a benefits, person by background, until we started really getting into the benefit captive space. In the PNC side, there's lots of things that you can do to control cost. You can have no slip shoes, better driver training, better driver safety, harnesses to protect against falls on construction sites.

[00:15:25.400] - Andrew Cavenagh
It's something that you look at and think, I can control this so saving money, reducing costs makes sense. When I got to the benefits world, I was perplexed, because I thought, how can you save money? There's nothing one can do. Obviously, 10, 12, 15 years later, however long I've been doing this, I now have 180 degree different view of that.

[00:15:45.050] - Andrew Cavenagh
But when you retire on the Austin Madison top 10 best moves that you did for a client to save money, give us one or two, no names necessary, but just things that you did to help them save money, separate from the funding mechanism.

[00:15:57.210] - Austin Madison
I give you guys a lot of [inaudible 00:15:58]. I know it's not why you're asking this, but I think starting to... I think, I grasp this, but, I think, what I really understood was, at one of your all's conferences, I member meeting and listening to clients get that there's a difference between cost and rate.

[00:16:18.920] - Austin Madison
I think, on the broker side, on the employer side, most of the time, when we think through cost, we associate that with rate. When you're able to change that mindset to, what do we do to manage risk and cost versus what do we do to drive down rate, you start thinking outside of the box.

[00:16:39.840] - Austin Madison
Part of that is, when you're talking on the PNC side, managing falls, dealing with harnesses, dealing with all these safety mechanisms. Always thought, there's got to be a way we do that around health insurance and wellness and things like that, touch on that, but you never saw the benefit of that when you were fully insured.

[00:16:57.710] - Austin Madison
When you start pulling back the curtains, and I know you said, you don't have to mention funding, but self-funding is a big part of that, because really, you're never going to get the full benefit of any type of risk management, cost management program that you put in place until you're able to unbundle what is tightly bundled in.

[00:17:17.950] - Austin Madison
Even when you're self-insured, you can be bundled in, and still not get the full benefit. But understanding that, when we pull back the curtains, you see more transparency, we start looking at how do we impact claims? If we impact claims, and impact spend, that impacts cost.

[00:17:34.350] - Austin Madison
One of the top 10 things on there is, once that's done, I really think the low hanging fruit right now, and has been for a while, is around pharmacy spending so what can we do on prescriptions?

[00:17:46.890] - Austin Madison
When I first got in this industry, everything was about repricing. Let's reprice the network. Let's look at who's got the best network discount. Now, it's like watching March Madness. There's so much parody anybody can win at any time in basketball and in college sports.

[00:18:02.410] - Andrew Clayton
We've collectively spent a ton of time on RX and pharmacy analysis and resources and playing the game of whack-a-mole. If you walk into 10 prospects, what's your level of confidence that you can help X number of them on their pharmacy?

[00:18:18.910] - Austin Madison
Super high. I mean, I would, I would tell you, when we first started looking at this, you get lost in the PBM contract world. You start digging into a contract, and you think, if I make this change, or we negotiate this, then it's really going to make an impact and you quickly find out, like to your whack-amole analogy there, that you're not really making a difference.

[00:18:43.150] - Austin Madison
Like most things in life, I think, the more you can simplify it, the better it is. It comes down to, we've talked about this a lot with you guys, frankly, that's where I learned a lot, where you guys have invested on that, on the consulting side is, is it a transparent pass through contract, is it a spread contract or traditional contract, number one.

[00:19:01.700] - Austin Madison
Number two, where do the rebates go, and number three, what are we doing about specialty? I think those things, if we can answer those questions and address those things, we're going to make a big impact. There's a lot of really great PBMs out there. I would tell you that. I think, there's some ones that are at the top, but I think if you can address those questions and look at that in the contract, you can plug and play a lot of different PBMs.

[00:19:28.020] - Austin Madison
It comes down to the service model PBM, but, I think, you can really impact stand. Having those kinds of conversations with a prospect or client, they've never had that. Similar to what's happened on the broker side around insurance is, we have felt, historically, as brokers that we build our value and spreadsheeting and shopping and bringing this beautiful spreadsheet in, to show all the work we've done.

[00:19:53.150] - Austin Madison
We do that on the PBM side too and I don't think it's necessary. Pick the PBM that you know is going to service well, has got a good model, that has the right contract, lead with it. When we do that, and we explain how the nuts and bolts work, clients have not heard that. All they see is... They hear contract language, they go to sleep, and all they look at is the lowest rate. Again as we know, that's not always the best cost.

[00:20:19.830] - Austin Madison
When we're able to just break it down and do a PBN 101, understand those three things, success rate is super high, and we hear from the client, "We just never heard this."

[00:20:30.390] - Andrew Cavenagh
It's a recurring theme that transparency and education are really the keys, that people don't understand the industry. Some of that's just because they don't spend time in it, which is understandable, but some of it's by design. Just curious, what are the, I don't know if you want to call them lies, but stories or storylines that are out there in the industry, that aren't true, maybe by design that we have to then combat?

[00:20:56.140] - Austin Madison
I think, one of those is rebates. I'm not trying to win an account. We won the account. They were with one of the big [inaudible 00:21:02] carriers, and this is not a [inaudible 00:21:06] but while we're looking through that, they were okay with one self-insured, they were going to charge a big fee for us to carve out the PBM and for the stop loss.

[00:21:17.300] - Austin Madison
They said, "We just want the shot to show our value on the PBM." I said, "Absolutely. Let's look at this." We go through that repricing with PBM, and they kept hammering about their rebates. They said, "Look how much better our rebates are." I said, "Yeah, but if I'm looking at this, you've inflated the cost on generic medications and these medications that are not special medications, so that the rebates are higher."

[00:21:47.250] - Austin Madison
I said, "If I understand this correctly, the member is going to pay more at the pharmacy so that you can give a bigger rebate to the employer. The employer is going to pay the claim, employees are going to pay the claim, and they're going to get a bigger rebate."

[00:22:02.700] - Austin Madison
I said, that feel to me that I'm withholding taxes to the max so I can get a big tax rebate." I said, "If I look over here on this other contract, maybe the rebate's not as higher, but their actual drug spend is less." Said to the, "Why would I do that?"

[00:22:18.980] - Austin Madison
I think that's a big mystery and a misconstrued deal, where employers think that it's all about the rebate, broker thinks it's all about the rebate. Frankly, there's a part of me just wishes the rebates would go away. It's just about unit cost. Let's look at what we spend the least amount on and that what's going to drive the biggest difference.

[00:22:39.320] - Austin Madison
That's one Cav, and I think the other side is, adjust... Shopping the plane constantly to just drive down the lowest rate for that year is what makes the difference and it's not. What we're what we've changed that mindset to is we want sustainability. We want less volatility and more sustainability. We know long term, we're going to save more money doing that.

[00:23:00.360] - Andrew Cavenagh
When the employer gets it, when they pick their head up and look out past the next spreadsheet that they're going to get and look multiyear, all of a sudden, the mystery starts to fall away and they start making good decisions.

[00:23:11.480] - Andrew Clayton
If there's one thing I can leave the industry with, it's the, move away from the spreadsheet. I love how people get different stop loss quotes, and the aggregate attachment dictates or determines what the expected claims are.

[00:23:27.650] - Andrew Clayton
The stop loss carrier, who has no influence over what your claims are actually going to be, is the one who's setting your expected claims. Explain that one to me. Riddle me that Batman.

[00:23:38.490] - Austin Madison
You're so right. I mean, I agree with that. Also, part of that Aha moment was understanding that it's all about the claims. If I look at healthcare spend, and that's what we try to do for our clients, and we try to ingrain with our producers and consultants is, break down the total health care spend. How much of this total health care spend is fixed cost? That's going to be the same whether you have one claim or a thousand claims, and how much of this is variable cost?

[00:24:10.040] - Austin Madison
65- 75% of it, it's variable, meaning your claims. So we've got to move our attention to that, not to driving down fixed cost. That's where brokers historically have looked to drive value is, look how much I've driven down their spend, which is primarily fixed cost.

[00:24:26.880] - Austin Madison
Instead, we got to put our solution to ahead on. That's a fun part about this. The aha moment in this industry was, this is about problem solving and we get to be a consultant, which is way more fun than being a broker.

[00:24:40.240] - Andrew Cavenagh
As part of the podcast, we are doing a segment called, You Know They're a Knucklehead When, and I know that you've heard me in Nashville, the members' meetings talk about knuckle heads in the industry, and we obviously have them.

[00:24:50.760] - Andrew Cavenagh
Without naming names, unless you really, really want to, give me an example of one or two of the dumbest things you've seen a competitor do that just makes you shake your head and instantly label them in that knuckle head category.

[00:25:03.630] - Austin Madison
We could talk all day about this. I could share plenty of examples of me being a knuckle head too, but nobody's immune from it.

[00:25:11.950] - Andrew Clayton
Don't forget to say, bless their heart. That gives a car blanch.

[00:25:15.910] - Austin Madison
Bless their heart, they are a knuckle head but... We were competing on a trucking company, which you would not think historically, is a great benefits fit or even a great self-insured fit. This group had been with UnitedHealthcare. This is not all UnitedHealthcare. This is on a broker... They had been with UnitedHealthcare for years. They had been getting double digit increases. This group is like, "Man, we're never going to go self-insured. We got burned in THE captive program on the PNC side and not going to do it. We just kept... I was like, "Let's look at the analysis here." We dig in and I started getting information [inaudible 00:25:50]. This can't be right.

[00:25:52.230] - Austin Madison
The broker on a fully insured account was making 10% commission. They'd been getting a 20% increase each year. He told the group, we probably need to keep these plan designs the same. We don't want to cause disruption to the employees. I'm looking at this, I said, "Probably too smart." I'm digging into it and I go, because you can be self-insured, or even if you weren't self-insured, we move you to another carrier.

[00:26:23.590] - Andrew Clayton
I'm just gonna put this out there. Your broker has basically gotten a 20% increase on their compensation for the past five years. You could have heard a pin drop. We end up moving them. We put them in the captive. They were super nervous about it.

[00:26:38.230] - Austin Madison
As they make the transition. The current broker, who was a really good friend with the CEO, calls the CEO and that's the... This is the dumbest thing you ever made. Can't believe you're doing this. You're going to come crawling back to me asking for me to take you back. When they told me that, I'm like, I can never imagine saying that. Because this a small road. You don't want to burn a bridge. The CEO goes, no problem, we'll see how it ends up.

[00:27:05.470] - Austin Madison
They got a 20% increase. Year 1, self-insured at the end of the year, they were 10% below the current spend was. Why is that a... Aggregate, 30% reduction compared to what their renewal was. The CEO calls up the broker shares the news with him and basically just goes, how about them apples and hangs up on them.

[00:27:27.820] - Austin Madison
But the cool thing, that story for that client, that's a 200 life trucking company. The next year, second year in the captive, and again, this is not trying to do a commercial for you all, this is just facts. Second year in the captive, they get a negative 10 on their total health care spend.

[00:27:50.140] - Austin Madison
This a group we've got millman on so all this is millman validated. This group thinks we've hung the moon. We're C plus students here but CEO called the broker again and let him know about the performance. It's just stuff like that where, you never say never and never think that you're smarter than what you really are.

[00:28:12.860] - Andrew Cavenagh
The thing that I think that I like the best about the story is that, and I'll try to do the math, they were paying $100 rate, the renewal was going to go to 120. Their first year was 90, a year later, I think it went to 80 or something like that.

[00:28:26.620] - Andrew Cavenagh
That 40-point Delta over what would have happened had they stayed fully insured, we think about it in terms of premium and rate and things like that. What's really cool is that the reality is that meant more trucks or the ability to invest in other parts of the company, or bonuses, or hiring more people or expansion. That's ultimately what makes this business a ton of fun, isn't getting the rate lower, it's giving the, the employer the ability to buy more trucks or pay their people more et cetera.

[00:28:57.830] - Austin Madison
Cav, you're exactly right. I think as benefits folks, we don't often give our PNC counterparts enough credit, because both of your background too, but, I remember one time I was dealing with a self-insured client, a large client, several acquisitions, they were freaking out because projected healthcare spend was going up significantly.

[00:29:17.510] - Andrew Cavenagh
I was talking to our CEO about that. He's a PNC guy, and he said, "Well, Austin, didn't they double in size?" I said, "Yeah." He said, "Before you go into the meeting, ask the CFO what their revenue per employee was a year ago. Ask him what their compensation per employee was a year ago, and ask him what their EBITDA was a year ago.

[00:29:42.310] - Austin Madison
I asked those questions, we look at that a year later, and all of those things have doubled. Our CEO, Jimmy Ward, goes, "They shouldn't be upset about anything. Their revenue is doubled, Their EBITDA has increased, our compensations increased, and their health care spend, instead of doubling, like everything else did, has gone up 1.25." He said, "Try having that conversation."

[00:30:06.950] - Austin Madison
I had the conversation with the client's, CEO and CFO. CEO is in the meeting, which is rare, and he looks at me, looks at the team that's in there, their team, and goes, "What's the problem? Because this is perfect. It's exactly what we need."

[00:30:23.260] - Austin Madison
That changed that mindset. Because you're exactly right. It's focusing on that healthcare spend, but being able to correlate to those other things. For that trucking company, we just increase their margin significantly. For all the brokers out there, if you really want to blow your client's mind, you talk about EBITDA, and if they ask you what EBITDA is, you're in trouble, but it sounds good when you say it, so you can talk about that.

[00:30:50.100] - Andrew Cavenagh
Austin, when you're at a cocktail party with your wife, someone says, what do you do? How do you answer that?

[00:30:56.020] - Austin Madison
It depends on the person. If it's somebody I'm trying to get away from, I tell them I'm in insurance and I sell life insurance, and I ask them if they've thought about what would happen if they died. That's one answer. The other answer is, we are in the insurance industry and we work with mid to large size employers on consulting around how to manage risk and cost.

[00:31:16.260] - Andrew Cavenagh
We really appreciate you joining us today. It's been great having you on. I've been great getting to know you over the years, and appreciate you taking the time sharing some of your thoughts with the three people that are out there listening.

[00:31:24.300] - Austin Madison
You all were big part of that aha moment for our agency too, really. Understanding a complex industry, simplify and really be able to bring value to the clients. Thanks for all you guys do.

[00:31:35.900] - Andrew Clayton
Good things happen to good people. Can't say enough good things about you. We appreciate you being with us and more importantly, the personal and professional relationships. Congratulations on all your success. Thank you.

[00:31:47.100] - Austin Madison
Thanks guys. The same to you.

[00:32:02.910] - 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. So get ready for, You Know They're a Knucklehead When.

[00:32:13.670] - Andrew Cavenagh
Clayton, as you know, I love looking for things in the industry where people do or say things that let me then cast the spotlight on them and say, wow, that person is a knucklehead based on what they just did or what they said.

[00:32:26.320] - Andrew Cavenagh
Let's start with one of my all time favorites. When somebody says, fully insured is too risky, in my mind, they're a knucklehead. Let's unpack that a little bit. What are the reasons somebody might say that?

[00:32:37.360] - Andrew Clayton
I think, Jimmy Buffett said it best when he asked, is it ignorance or apathy?

[00:32:42.320] - Andrew Cavenagh
I don't know, and I don't care.

[00:32:44.040] - Andrew Clayton
Exactly.

[00:32:45.440] - Andrew Cavenagh
There's probably two reasons that an insurance broker would tell an employer that self insurance is too risky. The first is, they just don't understand it. They just don't have the knowledge base and they don't understand how fully insured works.

[00:32:56.320] - Andrew Cavenagh
Maybe they should have listened to the first part of this episode where we teach them how fully insured works. They don't understand how self-insured works, and they think that an employer can run from their claims, or maybe that they're going to get all new employees next year.

[00:33:08.320] - Andrew Clayton
The second part is-

[00:33:10.120] - Andrew Cavenagh
Laziness.

[00:33:11.160] - Andrew Clayton
-on the laziness side, there's, a jaded perspective that perhaps brokers are intended to think short term, that putting together one-year spreadsheets is benefiting the deeper pockets and not necessarily the employers, that they're not taking the holistic or long term approach.

[00:33:28.680] - Andrew Clayton
Sometimes they just simply don't have either the backbone, the gravitas, the confidence to go to an employer and say, we need to stop the cycle of thinking short term, that we need to extend our conversation, we need to extend our relationship and I need to give you better, more strategic long term advice.

[00:33:46.040] - Andrew Cavenagh
Well, let's conclude with that. The one thing that you said is, that the employer deserves better advice. That's what we would say to you, to the employers that are out there. If an insurance broker come to you and hasn't done a multiyear assessment, hasn't looked at your claims and hasn't really dug in and done the hard work that requires some knowledge of the various risk financing vehicles that are out there, well then they're a knuckle head, if they're telling you that self insurance is too risky is a blanket statement.

[00:34:19.080] - Speaker 1
Thanks for listening to today's episode of 8020 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 [e-mail].

[00:34:35.560] - Speaker 1
Dive deeper into 8020 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.