How One Maine Organization Has Saved Millions for Mission
Kennebec Behavioral Health (KBH) has saved approximately $4 million over the past decade. How? Their story provides important lessons that all large mission-driven organizations should consider when making decisions about how to attract and support staff in an environment of tight budgets.
When KBH’s new CEO Tom McAdam was crafting his organization’s budget back in 2004, premiums for health insurance coverage – the second largest cost for the organization – were skyrocketing. Tom’s attempts to engage their broker in creative solutions to contain costs were met with the response, “It is what it is.” Frustrated, and committed to best practice for vendor selection, Tom put the organization’s health insurance coverage out to bid.
He was floored by what he discovered.
Over the calendar year 2004 the organization had paid $875,000 in premiums with a fully insured carrier, but the carrier only paid out $535,000 in claims. The insurance company had pocketed $340,000 in profit. Faced with the reality of significant money being diverted from mission-related programs and services, ten years ago Tom made a bold choice to pursue self-funding their employee health insurance.
This change was met with board resistance. Leaders were appropriately concerned about potential risk. Tom worked to convince the board that this was the right move for the organization, and that the long-term potential for savings was worth the risk. Working with his new broker at Healey & Associates, the KBH leadership team crafted a plan that included strong reinsurance protection to mitigate risk.
There were also challenges at the staff leadership level. The Director of Human Resources was concerned about the steep learning curve, and more substantial administrative burden for this type of plan. While these were very legitimate concerns, Tom was convinced that these adjustments were necessary to achieve the vision of significant savings, and provided the leadership and vision to ensure that the management team was supported to develop appropriate expertise.
Transitioning the health insurance model also required a major transformation at the staff level. Self-insurance requires a proactive approach to wellness, and more hands-on management from staff, which is a culture shift that took several years. The organization has committed resources to educating and supporting staff.
With these challenges and growing pains, was the transition worth it?
In Tom’s words, “This was hands down the right business decision. It has allowed us to become more competitive. We’ve reduced employee premiums and put money back into mission.”
Between 2004 and 2014 KBH has saved almost $4 million. Over the ten years claims were considerably less than budgeted working rates. Only once was it necessary to use the reinsurance that provided a safety valve for maximum claims exposure.
In recent years, as commercial plans have become less rich, KBH has been able to maintain an excellent plan with competitive premiums, which is an asset in recruiting and retaining high quality staff. In the most recent renewal year, KBH was able to reduce their premium without compromising the quality of their plan.
With strong leadership and vision from the CEO level, the organization has experienced a successful cultural as well as fiscal shift. Employees at all levels have an increased sense of ownership of their health, and investment in employee wellness not only saves money, but aligns with the organization’s larger mission to enhance individual and community health.
Mission-driven organizations have a responsibility to their stakeholders to understand the details of their employee benefits plans, to explore options, and open their experience ratings to accept bids from multiple sources rather than deferring to existing vendor relationships.
Self-insuring can also simplify compliance with the Affordable Care Act, including reducing fees and expenses. It is one of the fastest growing options, and can help some employers avoid community rating in 2016 the “Cadillac Tax” coming in 2018.
A self-funded health insurance plan has the potential for enormous reward, but it does require a strong commitment from the organization’s leadership, trust between the board and CEO, and a partnership with a creative brokerage that has experience in setting up these kinds of plans. A successful transition involves a significant culture shift within the organization, and commitment to staff and leadership learning over several years.
If you’re interested in learning more about self-funding your organization’s health insurance, contact Scott Schnapp at 207-871-1885 or SSchnapp@NonprofitMaine.org.