It amazes me when I see smart credit union executives leave one of their top 3 expenses to chance. I’m speaking of employee benefits. I’ve been doing this long enough that it shouldn’t surprise me, but it still does. A group of credit union executives were fed up with losing the annual game of controlling their group benefits cost. So, they set out to do something about it.
I’m going to show you how a small group of credit union leaders became early adopters in the pursuit to take control of employee benefits expense. And, they nailed it.
About 6 years ago, a small group of credit unions in the northwest were struggling with annual double digit rate increases on their group benefits. One of those was Maps Credit Union in Salem, OR. Maps was dealing with the same problem many credit unions are dealing with, escalating benefits cost and being forced to make employees share more of the cost while increasing deductibles and co-pays. As you know, the real reason we provide benefits is to attract and retain the best employees. Maps was experiencing the effects of not being able to compete for top talent because of the lack of a robust benefits package for its employees and their family members. As I talked with executives all over the country, it was a common theme. Like Maps, many credit union executives thought there was no way to get control of it or chose not to.
With the help of Maps Credit Union, CU Benefits Alliance was formed. The CUSO was created by credit unions and only serves credit unions. This is important because being laser focused on serving one industry, allows CU Benefits to obtain more data about the actual employee demographics and claims risk associated with this industry than any other benefits firm. It also allows CU Benefits to be in a control position when dealing with insurance companies and underwriters about a credit union client. Because of the large amount of claims data on credit unions, it makes a case that is statistically credible, which leads to lower negotiated insurance rates.
Let’s look at where Maps Credit Union was 6 years ago and where they are now. Maps had 150 employees and had a fully insured medical benefits plan. This means they paid an insurance company in advance, for the insurance company to pay for potential future claims. It’s the same concept we see for our auto and home insurance. We pay a monthly premium and if we have a claim at some point in the future, we want the company to pay. The problem with this type of benefits strategy is that you have no control over it. You’re going to pay whether you use the plan or not. That’s what we call fully insured. You transfer all the risk to an insurance company.
The first thing Maps had to realize was they had a problem that wasn’t being solved. More importantly, they realized they didn’t have the internal knowledge to go about trying to fix the problem. They did what most organizations do….they relied on their benefits broker to bring forth what was in the best interest of the credit union. There’s a problem with this thinking; what’s in the best interest of a broker is rarely the same thing that’s in the best interest of the client. Most brokers have dozens of different industry group clients they work with, from manufacturing to professional services to retail. You name it, they work with whatever companies they can get in front of. By working with all these different client types, it’s impossible for them to be 100% dialed in to each of these employer segments. Brokers also answer to their shareholders. And, shareholders want to earn the highest returns possible on their investment. I think you all know how this is achieved.
What Maps’ decided to do, with our guidance, was to change the status quo and take control of their benefits spending. To do this, they needed to become better educated about how to manage their benefits expense. It had to be more than an HR Manager issue. Because this was a top expense item in the organization, the CEO and CFO had to be involved to drive the strategic direction. Frankly, if both or at least one of these two individuals is not involved, a credit union will not likely accomplish its ultimate goal. In the case of Maps, both the CEO and CFO are involved in three major strategy meetings throughout the year with the CU Benefits team; (1) the prior year in review in Q1, (2) pre renewal meeting in Q2, (3) final plan presentation for the following year.
Now that the foundational ingredients were in place for success, the next step was to determine how to accomplish long-term benefits expense control. The key to remember here is, it’s a marathon not a sprint. The old mentality was to manage the benefits plan from year to year. If you’re managing this way, you’re not really managing anything. You’re just spending energy trying to make plan changes to keep the cost palatable.
After several months of developing the appropriate education, Maps decided to move their benefits plan from being fully insured to a partially self-funded arrangement. This allowed them to only pay for healthcare expenses the employees actually used, not in advance. Rule #1 – never pay for something you don’t use. This strategy enabled the credit union to reduce their annual benefits expense by approximately $150,000. About $1,000 per employee per year. The partially self-funded strategy they used is what’s called a ‘bundled’ plan. In a bundled plan, one insurance carrier would be used for administration, claims, stop-loss insurance and pharmacy benefits. All, nicely packaged together. This strategy works very well for organizations new to self-funding benefits.
Part of the education that comes from going from fully insured to partially self-funded is learning where all the money goes. Before, when Maps’ was fully-insured, they just paid their monthly premium and expected the insurance company to pay the claims. After becoming self-funded, it was all about transparency. They knew exactly where every penny was being spent in their health plan, which is the only way to manage it.
When a benefits plan is partially self-funded, it becomes even more critical for an organization to take the health and wellness of its employees serious. The term ‘partially’ self-funded means the employer is taking some of the risk for paying its employees future healthcare claims. An unhealthy workforce will lead to larger medical claims. Besides being more productive, healthy employees have fewer and less severe medical issues.
The second step for Maps was to implement a strong wellness program. Again, this is a marathon not a sprint. They started with small steps and have continually improved their wellness program to get more employees active in better nutrition, exercise, relaxation, and social activities. They use an online/mobile gamification app that allows employees to keep up with personal wellness challenges, as well as, competitions with co-workers and even other credit unions. The whole idea is to make gradual, positive changes in employee’s lives. This will lead to lower utilization of healthcare benefits and happier employees.
The next phase Maps is tackling, deals with ways to reduce some of the larger fixed cost components of their health benefits spend. One of these fixed costs is stop-loss insurance. Inside every health plan is stop-loss insurance. And, it is pricey. Stop-loss insurance is in place to protect the employer and/or the underlying insurance carrier from large losses. For example, if an employee had a major health condition that required a $500,000 claim, it would be devastating to the group as a whole. A stop-loss insurance policy would pay for those claims that occur above a certain limit. This allows the employer and/or carrier to know their maximum exposure and how much to set aside for future claims.
To address this large fixed cost, CU Benefits has created a captive, medical stop-loss option for credit unions. This allows groups like Maps to purchase stop-loss insurance from a company that only insures credit union employee groups. This is a good thing because credit unions now have the opportunity to get a portion of the stop-loss premium back. In most benefit plans, it’s a use-it-or-lose-it scenario. In other words, the insurance company doesn’t give you money back when there is a surplus of unused premium. Also, credit unions are generally considered to be a pretty healthy population. This works in your favor with a ‘credit union only’ captive program. Other captive stop-loss companies usually bundle credit union employers in with other less desirable employer groups. This means the likelihood of getting a financial return, from the captive being profitable, is slim.
This is a brief look at how one credit union changed the direction of its health and welfare benefits strategy from reactive to proactive. And, the results are undeniable.