Not long ago I was meeting with Chad – recently promoted CEO of a 30-year reference list client. I have known Chad for decades, and he frequently participated in our business meetings regarding the company’s employee benefit programs during that time. The topic for the day was the health insurance program for its roughly 200 employees, but first I inquired as to how things were going now that he was sitting in “the Big Chair”. As CEO of intellicents, we shared stories about our common roles and commiserated about how many meetings we often got pulled into over the course of a given week. At that point I asked him what his “least favorite” meeting was. Without hesitating he looked me straight in the eye and said, “this one”. As you can imagine, I was somewhat taken aback, and eventually replied, “Excuse me?” His explanation was very telling. He said that even in periods of market weakness, our 401(k) strategy sessions were strategic and “enjoyable”; while our meetings regarding health insurance were generally centered on bad news (i.e., the upcoming renewal premium increase), and very reactionary.
You know….. I hate to admit it, but I could relate. I hate my annual meeting with our HR professionals regarding our “options” for how to deal with our health insurance “dilemma” for the upcoming year. As CEO, I want to spend my time dreaming up the next big idea for intellicents and our clients on how to improve the financial wellbeing of the American worker. That is why I love coming to work every day. Instead, that health insurance meeting generally involves either a dramatic increase in a corporate expense, changing carriers and plans, limiting coverage for the upcoming year, shifting more costs to our teammates, or a combination thereof. There has to be a smarter way!
While there is not one sure-fire way to remedy the national problem of escalating health insurance costs, I now approach this issue with the same essential mindset I have regarding investing in a 401(k) plan – i.e., there are going to be good years and there are going to be bad years. Those that are the most successful develop a long-term strategy for success. So as CEO, what does that look like from a corporate strategy standpoint for your health insurance program?
First of all, you must realize that, like the stock market, the typical corporate health plan generally runs in a cycle when it comes to premium increases. No one likes to see losses on their 401(k) quarterly statement; but EVERYONE – employers, their employees, their health insurance advisor, and even the insurance companies – hates seeing double-digit increases in health insurance premiums (i.e., the dreaded 25% increase all too common among small- to mid-sized employers). You just can’t budget for that!
By-in large, fundamental declines in the stock market are a function of overall poor business conditions both nationally and internationally. As business conditions improve, so does your 401(k) statement. Your health insurance premiums are a function of the anticipated claims your health insurance company foresees for your covered employees and their dependents for the upcoming year. If you have an “unhealthy group”, your premiums will reflect that. In general, over any given five-year period, the health insurance actuaries will accurately predict your claims three years, but then underestimate them one year (resulting in a big premium increase the following year), and overestimate them one year – generally resulting in a good renewal but seldom a premium decrease. Just like we have to expect down years in the stock market, so too we have to expect years when there are unanticipated high claims in your health plan. Now how do we reduce the probability of those years occurring?
While there are many key players in this team effort (see my prior blog “Benefits and the CFO – Take 1”), you, the CEO, need to focus on getting your employees involved in the battle. This must start at the highest level of your management team. It is our job as CEOs to motivate and engage our people with both ideas AND issues that affect the company at large – not only those new ideas that excite, but also those issues that affect overall corporate and personal wellbeing. The vast majority of your employees do not understand that their health, and in many cases their poor life style choices, affect their health insurance premiums. The vast majority of your employees do not understand how taking a long-term approach to their annual health insurance choices could save them literally thousands of dollars over the next five years. The vast majority of your employees desperately need not only a physical wellness program, but also financial wellness education and advice.
As CEOs, our people look to us for opportunity and leadership. It is time for us, as the leaders, to look at this problem in a smarter way.