Presentation on forming a Presentation on forming a

Group Healthcare Group Healthcare CaptiveCaptive

Friday May 21, 20102:00 – 3:00 pm EDT

Your Presenters:

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John Cassell is the Senior Partner at Spring Consulting Group, LLC. He is responsible for the strategic focus of the group and for corporate development. John has over 20 years experience in the healthcare and financial services sector.

John is a regular speaker at industry conferences and has contributed articles and papers to a number of publications and journals. He is an associate of the Royal Society of Medicine.

John CassellSenior Partner

Spring Consulting Group, LLC

Phil CollyerPresident

National Assembly Business Services, Inc.

Phil Collyer is VP of the National Human Services Assembly and President/CEO of the association’s for profit subsidiary, ‐National Assembly Business Services, Inc. In 2009, his program collectively saved nonprofit members $10 million.

Retiring in 1991 from active careers inscience and industry, Phil helped build a Washington DC nonprofit, Greater DC Cares, into the region’s largest and most comprehensive provider of community service and volunteer management. He is passionate about saving nonprofits money.

Spring Consulting Group LLC

Leading US actuaries and consultants in employee benefits funding

Spring associates established one of the earliest employer group employee benefit funding programs using a captive insurance structure in 1996

Works with a wide range of associations and employer groups including National Assembly since 2006 and ASAE since 2009

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National Human Services Assembly

• Formed in 1922• American Red Cross, Boys &

Girls Clubs, YMCA• Human services / community

development sectors• Youth-serving agencies, family

strengthening, workforce development

• 75 national members (incl. AFB), 150,000 affiliates

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Health Reform: What is Likely to Happen What will happen now?What will happen now? – Some of the relevant changes within

the first year under the Reconciliation Bill include:

– Tax credits for businesses - businesses with fewer than 25 employees and average wages of less than $50,000 could qualify for a tax credit of up to 35% of the cost of their premiums (25% credit on payroll tax for non profits)

– Coverage of children under parents’ plan until age 26

– Elimination of:

• Lifetime caps on benefits ( annual limits 2014)

• Ability to rescind plans

• Pre-existing conditions

• Extended waiting periods

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Increased government oversight and penalties levied against health insurers pharma and medical device companies

Health Reform: What is Likely to Happen

What will happen in the future?What will happen in the future? – A complex series of reforms that may be resisted at the individual state level

– Health insurance "exchanges“ for employers up to 100 employees

– Employer penalties for not providing appropriate cover

– New employer reporting requirements

– New charges for self insured plans

– Rules requiring insurers to accept all applicants

– Excise tax on “Cadillac” insurance plans

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Health Reform: What is Likely to Happen

Other Key Proposed Developments:Other Key Proposed Developments:

– Establishment of the CO-OP program (designed to foster the creation of non-profit, member-run health insurance companies); $6B will go toward financing the program to establish CO-OPs by July 1, 2013

– Premium subsidies for take up of prevention and wellness programs in 2014

– States can form healthcare choice Compacts allowing cross selling of state health plans from Jan 2016

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Why Developing Our Own Health Insurance Program is Essential

Cost escalation in healthcare is unlikely to be effectively addressed for decades

Political resistance is likely to dilute and delay health reform efforts Expanded coverage costs will be shifted to employers by the

government and insurance companies It will take time to create real insurer competition and efficiency at

the state level

Health insurance costs are damaging the effectiveness of NA/ASAE organizations now

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As healthcare costs continue to grow –the imperative is to take control

Taking Control: National Assembly/ASAE Health Insurance Program

A captive insurance programcaptive insurance program will be established in Washington, DC:

– It will offer a wide range of health plans tailored to its members’ needs

– Members (as the owners) will be able to respond quickly to any benefits of health reform

– The program becomes increasingly cost effective over time as the group grows

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What Is a Captive? An insurance or reinsurance company

Specifically established to insure or reinsure the risks of its parent or associated third parties

Part of an organization’s risk financing repertoire

Benefits of a captive are: To gain cost savings and to increase cash flow The ability to tailor-make benefit designs Tax advantages Transparency

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Major Captive Advantages Strength in numbers

Spread of risk

Access to more sophisticatedhealthcare plans

Members of the NA/ASAE program are owners of the Captive Insurance program

Advanced wellness and disease management programs can be custom designed for the group

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Eventual Long Term Benefits

Develop targeted health management mechanisms to save additional costs

Add additional liabilities or insurance such as:

Benefit from investment returns from accumulated reserves, reduced risk charges and leveraging scale

Pay dividends from revenue as the program becomes larger and the risks more predictable

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In the long run, the captive should allow the members to:

Life Vision Accidental Death

Disability Dental Property & Casualty Risks

History of Nat’l Assembly Captive

In 2006, 16 nonprofit agencies (National Assembly members) investigated alternative health care options

11 agencies funded a detailed feasibility analyses to cover 4,000 employees – including AFB

Aggregate savings average 5.7% in year one

Research showed: $18M saved over 5 years

Insufficient employee reserves at that time for successful program launch

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NA’s Health Insurance Captive 2010 Redux

National Assembly members asked their association to try again

ASAE Joined with National Assembly….working together with Spring Consulting Group

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Program's Structural Background

Available to National Assembly members, nonprofit associations and their affiliated members

Potentially a wide choice of nine plan options

Will have providers of administration and reinsurance services

Working with legal advice from McDermott, Will & Emery, we are proposing a Group Captive, to be domiciled and licensed in Washington, DC

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Phases in 2010 Pre-decision Financial & Benefit Analysis

– New Feasibility Report (new participants)– Undated Feasibility Report (earlier participants)

Decision– Commitment to launch (need threshold number of EEs)

Implementation– Captive setup, legal documentation, domicile plan

submission, board development, approval, employee communication

Launch

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Timetable: Completion Dates (with Phases)

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Costs Pre-decision Financial & Benefit Analysis 1

For new participants― $3600 : up to 100 EEs + $6/EE additional

For participants who have already invested in the prior feasibility study― $2400: up to 100 EEs + $4/EE additional

Decision Commitment to fund going forward

Implementation Formation cost: ~$15/EE 2 Capitalization: ~$500,000 (entire Captive) 3 Claims pre-funding: ~3 months’ premiums 4

Launch – monthly premium payments

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1 Payments made in advance to Nat’l Assembly/ASAE or Captive once formed; cost as incurred2 Implementation costs will depend on numbers of final participants. Initial feasibility, captive design and product

development have already been funded3 Capitalization is $500,000 and remains in the captive as an investment owned by its members4 Typically 3 months of estimated working rates are deposited into the Captive in advance

The Next Steps: Evaluating this Program for Your Organization

Before you commit – learn about your specific benefits:– Send Spring Consulting data on your health insurance

• Census, plan design(s) and current rates• Claims history if available and current carrier

– Analysis costs will be based on your organization’s size (this will be reimbursed from the Captive once the program is up and running)

Participants will receive a custom risk/benefits report and conference call with:– Full details of program structure/ownership– Recommended plan design(s) reflecting your current coverage– Actuarial high level cost analysis and savings projections for your

organization

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Questions / Discussion?