80/20 with ParetoHealth

[00:00:09.530] - Andrew Cavenagh
Welcome to 80/20 with Pray to Health. I'm Andrew Cavanagh.

[00:00:13.010] - Andrew Clayton
And I'm Andrew Clayton.

[00:00:14.000] - Andrew Cavenagh
On today's episode, our standard three-part format, we'll spend a little bit of time talking about how stop-loss carriers come up with expected rates. We'll then spend a little bit of time with our friend, Cara Kirsch, and we will end the episode as we do with every episode with our, so, you know, they're a knucklehead when, and the idea there is that we make fun of something stupid that we've seen in the industry. Thanks for joining us today.

[00:00:40.880] - Andrew Cavenagh
In each of our episodes, we try to spend in a minute or two teaching our audience just one thing. So today we spend a little bit of time talking about how a stop-loss carrier comes up with an expected loss. An expected loss typically has two components. There's the specific expected loss and the aggregate expected loss. Clayton, manual rates, we hear about them in the industry all the time. What's a manual rate?

[00:01:04.280] - Andrew Clayton
A manual rate is what the carrier uses to balance the expected claims of an individual counts against their general book of business. So you look at their experience, they lean on actuarial analysis, both internal and external factors that go into it are the industry of the employer, the employer's location and their geography, cost of care relative to their geography, and then the demographics. So age, sex, those are the key factors that go into the development of manual rates.

[00:01:33.260] - Andrew Cavenagh
So if I said that in a way that people could actually understand, if I put age, sex, geography and industry into a model, it spits out the rates for that employer before I know anything else or before I learn anything else about it. It's what we would expect just on those four data points. Is that fair?

[00:01:50.960] - Andrew Clayton
That's fair. That's a good way of putting it down, which is one thing you excel at. Yeah.

[00:01:55.670] - Andrew Cavenagh
We have a manual rate and that says, okay, before we know anything else, this is what we should charge. So 100 bucks, pick a number, but then we actually have experience in some cases, if someone's coming from fully insurance, it's fairly limited, if somebody is already self-insured, then there's fairly extensive data. How does a carrier use a manual rate as compared to actual loss experience?

[00:02:15.440] - Andrew Clayton
So using your 100 buck example to look at and say the individual employer's experience is actually $80, and they want to take a balance of and say, individual employer, great, that's a data point. Their size has an influence on how much emphasis they put on the 80 versus the 100. So if they're using a 50-50 blend, meaning that they're not saying the employer's experience is worth half of what we project their cost to be, we'll use our manual for the other half, and they'll meet in the middle and say half of 80 plus 100 is 180. Divide that in half we get to $90 that there are expected claims.

[00:02:52.730] - Andrew Cavenagh
So our general assumption on this podcast is that the people listening might not know a ton about self insurance, but I am glad that you explain what 50-50 means, even though I probably would have assumed that they might know that. I'm sure they're they're very appreciative of that. So explain to me why the bigger the account, the less we use manual rates and the more we use actual.

[00:03:11.210] - Andrew Clayton
Yeah. The so the bigger the account, the more this...Again, I'm trying to dumb it down. I know it's a small word.

[00:03:16.490] - Andrew Cavenagh
It's a big word.

[00:03:18.320] - Andrew Clayton
Yeah.

[00:03:18.320] - Andrew Cavenagh
Stats.

[00:03:19.730] - Andrew Clayton
Stats, exactly. So the bigger you are, the more likely you're going to have a repeatable outcome. As employer size grows, their losses become more consistent year over year, there's less swing and less volatility. But the smaller you are, a moment in time might be exceptional and a moment of time might also be really unfortunate or really bad from a risk perspective. They want to blend that across a larger population.

[00:03:45.110] - Andrew Cavenagh
So let's geek out a little bit just to the final part of this. We're talking about size relative to coming up with expected losses versus manual. But what we really want to do at some point is cut those losses into two parts. You want the claims that are above the specific stop-loss and the claims that are below.

[00:04:03.110] - Andrew Cavenagh
Again, just pick a random number. Let's pretend we have an account where they have $100,000 specific stop-loss. The frequency of claims that go above that is going to be pretty small unless they're a massive account, whereas the frequency of smaller claims, your knees, your hips, your primary care, maybe your rotator cuff surgery, something like that are going to be below the 100,000. When I think about manual rates versus actual claims, I need to think about those two types of stop-loss differently, don't I?

[00:04:32.330] - Andrew Clayton
You absolutely do. Yeah, it's a specific stop-loss simply is the employer's responsibility. They're individual deductible, and they're buying insurance above that. But sticking with the large employer, small employer, for a large employer, $100,000 deductible is totally reasonable. They'll look at that and say, "We have the wherewithal and the comfort to pay for the knees and the hips and things like that," but they want protection for what they would view as truly volatile and catastrophic claims.

[00:04:58.970] - Andrew Clayton
A smaller employer would say, "I'm willing to pay for some simplified surgeries or some simplified medical practices, but I want coverage for things that are above 40 or $50,000 because at my total spend, that is a big swing in experience for me."

[00:05:14.930] - Andrew Cavenagh
Yeah. When we're rating those different buckets, if I think about an account that has maybe 150 employees, they might only have—in any given year—one or two claims that are above 50,000. It's hard to use just experience to come up with what the expected claims should be above 50 and so you have to lean more heavily on the manual rates. Whereas below 50, that's where they're going to have a lot of activity and their actual experience is going to be weighted more heavily.

[00:05:41.710] - Andrew Clayton
Correct.

[00:05:44.050] - Andrew Cavenagh
Great contribution there.

[00:05:45.370] - Andrew Clayton
Happy to help.

[00:05:46.270] - Andrew Cavenagh
All right. So there you have it, folks, on how a stop-loss carrier comes up with claims they're balancing manual rates, which is the before I know anything else, largely based on age, sex, geography and industry. They then blend that with the account's actual claim experience, and they weight the claim experience more heavily when setting accurate factors. Then they do on specific stop-loss premiums just because they don't have as much data. The bigger the account, the more they wait on the actual experience as opposed to manual rates. Might seem pretty basic, but I think it's a building block for future podcast knowledge sessions.

[00:06:26.990] - Narrator
Thanks, Cav & Clayton. Now enjoy this conversation with Cara Kirsch, Area Vice President for Gallagher, based out of Omaha, Nebraska.

[00:06:37.270] - Andrew Clayton
Cara, tell us how you got into the employee benefits space? How did you become a consultant?

[00:06:43.240] - Cara Kirsch
I've been in the industry for 25 years and started on the HR side while I was a baby consultant—I would call it—and then progressed through the insurance carrier world, was with UnitedHealthcare for nine years and Blue Cross for two. When I left Blue Cross, I was recruited by several firms and landed at a firm. It was a little unsure at that time as to whether I could really help employers solve challenges that they faced, and turns out I can. That's how I got in. That was about... I'm entering my eighth year of consulting.

[00:07:25.000] - Andrew Clayton
Awesome, then will certainly vouch for your ability to help them out. That's a pretty big step. You go from the the warm and comfy of a big insurance company into the unknown world of, can I really impact change? Will I be able to find a client base? How was that first step?

[00:07:45.900] - Cara Kirsch
It was terrifying. I remember at the time our leader came to my office on my first day and he said, "Here's your Amex, here's your cell phone. Go."

[00:07:55.770] - Cara Kirsch
I'm like, "Go where? Where is the lead generation? Where is my pipeline? How am I going to do this?"

[00:08:03.420] - Cara Kirsch
For a month I watched other producers and I was the only female producer in the firm. After a month, I thought, "Well, I'm not going to be able to do it exactly like everyone else. I'm going to have to do it my own way." My own way was just with a lot of genuine curiosity around how to build relationships with people and ask questions that maybe others were afraid to ask and to not give up. If someone said, "Hey, Cara, we're happy," or "We don't need you right now," it was never a, "Fine. I'll never talk to you again." It was a, "Okay, well I'll stay in touch, and when you're ready, I'm here."

[00:08:41.520] - Andrew Clayton
Not to give away your secret sauce, but what are some of the the questions that you ask that get the most insightful response, or that you think some of the other people are too much of a wallflower to ask?

[00:08:55.230] - Cara Kirsch
I think one of the questions that I love to ask is when people say... I'll say, "Well, tell me about your consulting relationship."

[00:09:02.520] - Cara Kirsch
They'll say, "Oh, we really love our consultant."

[00:09:04.200] - Cara Kirsch
"Okay, why?"

[00:09:05.490] - Cara Kirsch
"Well, they give us great service."

[00:09:07.830] - Cara Kirsch
I'm like, "That's great. Do they reduce your health care costs?"

[00:09:12.720] - Cara Kirsch
Then they'll say, "Well, not really."

[00:09:14.640] - Cara Kirsch
Then I'll say, "Well, do you think they should? Do you think they should have a responsibility in that?"

[00:09:20.130] - Andrew Cavenagh
Cara, you've done a lot of wonderful things for your clients over the years. If you had to pick one thing, one example that you're most proud of, that you've done on behalf of a client, what would that be?

[00:09:31.110] - Cara Kirsch
I took a client that was getting a fully insured increase greater than 50%, moved him self-funded, and saved him 3 million bucks over three years.

[00:09:45.450] - Andrew Cavenagh
That's certainly a good one.

[00:09:47.130] - Andrew Clayton
You spent a decade at two of the largest insurance companies. Any uh-huh moments when you said, "Wait a minute. I'm not so sure about the way the industry is operating, and there might be an opportunity for us to do a little bit better."

[00:10:04.290] - Cara Kirsch
Well, yes, many of them. I never really thought about a career in benefits until I joined UnitedHealthcare. I saw the difference I could make with clients in terms of breaking down the barriers within such a large organization. I was never afraid to really even challenge the status quo at that time, and I was not afraid to help customers understand what we were really good at and what we weren't really very good at.

[00:10:34.900] - Cara Kirsch
I think that it created a mentality around this thought of, "Get me to yes." When I would go to different parts of the organization, whether at United or Blue Cross, and people would say, "Well, Cara, we don't really do that," or, "How are we going to do that?"

[00:10:51.910] - Cara Kirsch
I'd say, "Well, what could we do? Get me to yes."

[00:10:56.170] - Cara Kirsch
99% of the time they would, and that's where I would really find my aha moments is, okay, well, why did it take so long for one person from Nebraska to ask for that, when across the system we should be doing that regularly for all of our clients?

[00:11:13.360] - Andrew Clayton
My opinion is that get me to yes is something that is developed throughout your life, typically at a younger age, but you don't get to our stage in the career and all of a sudden switch and say, "Oh, now I'm going to be a person that's really driven and really focused on getting us to yes." Just curious, what part of your background, nature, nurture, got you to be at the point where you're that driven and persistent?

[00:11:38.050] - Cara Kirsch
Well, I'm the oldest child and the only girl in my family. I was raised in a small town for the majority of my life. My dad was in the military, so we moved a lot as of when I was a young child. But I grew up in a small town and there were 17 kids in my class, four girls.

[00:11:56.170] - Cara Kirsch
In a small town, it's such a great opportunity. I wish kids could experience it at least a little bit because it does give you the opportunity to raise your hand and find a solution for every problem, because you don't have access the same way that everybody else has.

[00:12:11.860] - Cara Kirsch
Think about just even the sports teams. They're like, "Hey, Cara, you're tall. You could play basketball."

[00:12:17.620] - Cara Kirsch
I played for one season and I was like, "I'm out. I'll run track and I'll play volleyball, but basketball is not my jam."

[00:12:25.240] - Cara Kirsch
But they said, "We need people to lead on the future business leaders side," and I was completely unafraid.

[00:12:31.670] - Cara Kirsch
I think about it now, and that was getting my own self to yes. Then as I grew up in my career and I was part of these huge corporations where there was a lot of bureaucratic red tape, I would say, "Wait a minute, there's got to be a way." I used to make comments at United like this, "We're an $80 billion enterprise. There has to be a solution. What's the solution?"

[00:12:55.280] - Andrew Clayton
On the employer side, and the industry does a great job of promoting—the industry being the health insurance space—of promoting what they want the employers to hear. What's one or two things that you wish employers knew or had better insight into?

[00:13:13.330] - Cara Kirsch
There's a lot of promotion of messages that are not necessarily 100% in the best interest of the employer. One of the things that I wish there was more discussion around is data. How to use data to make different decisions. What is the appropriate kind of data that you should be expecting?

[00:13:38.030] - Cara Kirsch
Anything from, if I'm fully insured and I'm over 50 or 100 and I'm not getting premium versus claims information. Oh, but I got a 3% increase and I'm happy with that, but I never got premium versus claims. How do you know 3% was a good deal? Well, because you've been trained to believe that trend is 7-10%, or 7-12%, so you were below trend, so you're winning. That's one.

[00:14:01.220] - Cara Kirsch
The second is that what employees will do for money. Here's what I mean. If you incent employees in the correct ways, they will take action the way you want. It's not going to be seen as a takeaway. But everyone thinks that when you start to create strategy around specific areas of cost, that you have to take things away. That's just not true.

[00:14:25.970] - Cara Kirsch
Well, you need a narrow network. Well, yeah, I love narrow networks, but what value is it going to bring to the employee? Or will you need a centers of excellence strategy? Okay, yeah, that's great, but how is that going to bring value to the employee? Because most American families don't have $500 in savings.

[00:14:43.050] - Andrew Cavenagh
Cara, I don't know if you've heard me at members' meetings talk about knuckleheads. It's the phrase that I use to describe the subsection of the brokerage industry that I think doesn't do a whole lot of thinking. It's my polite way of throwing some shade on them.

[00:15:01.500] - Andrew Cavenagh
As part of this podcast, each podcast is going to have a segment called, You Know They're a Knucklehead When... The idea is just to identify things that are stupid in the industry, the stupid things that you see people doing.

[00:15:14.520] - Andrew Cavenagh
Putting you on the spot a little bit, could you give us an example or two of something that you see, whether it's your competitors or just somebody else in the brokerage industry do, that you're like, "Wow, that's really a knucklehead right there." No names unless you, of course, want to use their names, and then we'll publish them in bright lights in [inaudible 00:15:33].

[00:15:35.340] - Cara Kirsch
No names. One of the things that you'll know about me is that I am very respectful of my competition, even if I know I'm going to eat their lunch. I like their lunch with seasoning, so I like to be purposefully respectful.

[00:15:53.950] - Cara Kirsch
But one of the things that I think happens with those that aren't willing to roll their sleeves up, is they tell employers that are not 300 lives, "You shouldn't be self-funded. Your exposure is unlimited in a self-funded plan." Or, "You don't have the resources from a compliance perspective to manage a self-funded plan."

[00:16:21.180] - Cara Kirsch
The fear that's created with the employer is instilled in them in multiple ways, and it's very difficult to break through for someone who uses a more common sense approach to solving the problem of rising cost. Even when you go in after a broker who does that has said those things to an employer, it's almost as if they don't believe you.

[00:16:46.240] - Cara Kirsch
One of the things I've started to talk more about too is contingency-based compensation. Okay, you don't believe me? If you don't, I'll put a portion of my compensation at risk, or I won't collect a portion of my compensation to show you that I'm telling you the truth. I will tell you that never have I lost those deals. Never have I had to repay for a commitment that I made to a client. Be honest about the work that we are supposed to be doing for our clients, which is to help them create value, and value is defined as many things.

[00:17:25.980] - Andrew Cavenagh
Value is not summarized in a once-a-year spreadsheet. That's the thing that drives me nuts, is that the manifestation of my entire life's work is to give a spreadsheet that shows rates for one year. There's nothing that frustrates me more than seeing that in our industry, because it gives the industry a bad reputation that that's all we can come up with.

[00:17:45.210] - Cara Kirsch
Totally. One of the recent examples that Libby and I have, and I have to, Clayton and Cavanaugh, give a shout out to Libby because she's my girl and I trust her immensely, not only with my own personal business, but also how I grow my professional business.

[00:18:05.700] - Cara Kirsch
But Libby and I were working on an opportunity recently, and it was complicated, very complicated. One of the national carriers came in at 8-10% above current, and the self-funded option was just a little bit more than that.

[00:18:25.680] - Cara Kirsch
So I get on the phone with them to review their options and they're like, "Well, Cara, we don't see any reason why we would even consider self-funding."

[00:18:32.820] - Cara Kirsch
I said, "Well, let me just say this. The national carrier that gave you a quote, gave it to you based on no data. So they're basing it specifically on your census and maybe some pharmacy data, and they're at 10% above, which says they're probably at zero. So you would be remiss to take the easy option, and I will stand right with you to implement the right option. Do you trust me to do that?"

[00:19:04.740] - Cara Kirsch
They were like, "Yes, Cara, we do." They weren't planning to go self-funded for three years. But now, they don't have to leave money on the table. It's not easy. It's been freaking hard. But you know what? I can't sleep at night knowing that someone's going to get taken advantage of.

[00:19:22.610] - Andrew Cavenagh
Couple of comments on that, Cara. The first is that we have a rule within Pareto, never compliment somebody to their face. But Libby's not on this and so it's okay, we can compliment her and we'll just tell her it's not about her when she listens to the actual podcast.

[00:19:37.700] - Andrew Cavenagh
But then moving past that, it is one of the frustrating parts of the industry is that the employers have been told over and over and over again that self-insurance is risky, fully insured is safe. It takes five minutes with an employer if they're willing to listen, if they're willing to open their eyes to the reality that fully insured is unlimited in terms of the increase that you can get. If you break down the pulling point—and we'll do a segment at some point on this podcast to try to do that—you're still self-insured either way. You just don't have an aggregate and you have really high expenses and no data. But they hear it over and over again.

[00:20:14.900] - Cara Kirsch
And no ability to actually affect what is driving your cost because what we've done is we've created broad base fixes to cost problems. Okay, you're getting a 10% renewal, let's buy down the deductible and raise it for employees who, by the way, make $12 an hour or $15 an hour. That's a great idea.

[00:20:34.850] - Cara Kirsch
Or let's charge the employee more premium, rather than if there's a specialty medication driving your cost, let's get that the heck out of there and pay for it in a different way if we can and not penalize all the employees because of one thing that's happening in the plan. By the way, there will be more things that happen and we will respond accordingly.

[00:20:55.310] - Andrew Clayton
You can't do it without direction to the employer. You can't just present options to them and say, you choose. It's so refreshing to have the opportunity to work with people that have the backbone to say, "If it were my company, I would do X and act on it."

[00:21:11.750] - Cara Kirsch
I move to clients self-funded with Pareto off cycle. It's about the right thing.

[00:21:17.180] - Andrew Cavenagh
We were talking to a large—and again no names—large national firm at one point, and we said, "It's incredibly important to us that you're making a recommendation. We don't believe that what we do is right for everybody, but where it is right, you need to make the recommendation."

[00:21:31.070] - Andrew Cavenagh
They said, "Andrew, we don't do that. We're a consultant, we provide options, we don't give advice."

[00:21:36.080] - Andrew Cavenagh
I'm thinking, "Well, then what's the employer paying you for?" That's what the mid-market employer needs is advice. If all you want to do is, again, create options, create spreadsheets, then there's not a whole lot of value in that.

[00:21:48.530] - Andrew Clayton
That's also not the definition of a consultant. You're a broker.

[00:21:54.650] - Cara Kirsch
Right. You know what, though? That goes back to your earlier question around what doesn't happen in the industry is recommendations. Why would someone be afraid to give a recommendation? Because they're afraid it's not a good one. Or it's going to cause them extra work, or it's going to cause them lost revenue. I just simply do not believe that.

[00:22:14.310] - Andrew Cavenagh
Let's go a slightly different direction, if you don't mind. What would your today self tell your 10 years ago self about the world we're in today?

[00:22:23.070] - Cara Kirsch
First of all, I would have started my own firm, 100%, no question. I'm an entrepreneur inside my soul, and I've been able to be an entrepreneur, which is to use those skills and capabilities inside of large organizations to effect change. But had I known what my capability really was, no question.

[00:22:46.120] - Cara Kirsch
My dream is to teach young women, not so that they will do it. Hopefully at some point in my life, I'll have money enough that I can seed those women and coach them and teach them how to differentiate themselves better than maybe I was comfortable at the time.

[00:23:04.690] - Cara Kirsch
I think, personally, what prevented me from taking that leap is I'm a single parent. I've been a single parent for 17 years, and my children were all counting on me. Even though I felt like I could do anything, anything was possible, I just always felt that, "Well, what if?" Now in my life, it's about pushing young women to believe it and do it and have the right people surrounding them so that they're successful.

[00:23:35.060] - Andrew Cavenagh
The smart-ass comment about the insurance industry is three things; male, pale, and stale, right? Old white men. You're talking to two old white men right now. How do we change that in the industry? How do we get more diversity?

[00:23:46.850] - Cara Kirsch
Easy. I just said to Clayton, he looked younger today. He looks like he had his hair done before this. I mean, did you go to a glam crew before you came, Clayton?

[00:23:55.600] - Andrew Clayton
Thank you.

[00:23:58.480] - Andrew Cavenagh
That's not what the industry needs right now. We need something different than Clayton getting a new haircut.

[00:24:02.930] - Cara Kirsch
I would guess that all of us are around the same age, and it's on us. So how are we reaching back into the colleges, universities, high schools to say insurance is not sexy? But sitting with the CEO, the CFO, the vice president of HR is so much fun. The hunt is so much fun. The reward is so much fun. Don't you want to have that kind of fun? Oh, and by the way, make a good living to take care of a family?

[00:24:38.980] - Cara Kirsch
The more we can talk about that as not insurance industry people, as people that actually have a passion for solving business challenges, the more likely we are to pull people with us. I believe, and this is why I did something five years ago, I founded an organization called Ignite Women in Insurance. We have an annual conference. The purpose of that conference is to remind women in this industry that the ceiling is it's just not there. You can rise above.

[00:25:10.600] - Cara Kirsch
To your point, continuing to bring that group together and reaching into the universities across the country to send their women so that they can be exposed to the greatness in the room, that is the way to get them there. That includes minority women.

[00:25:26.800] - Cara Kirsch
How do we get minority women to get a seat at the table? Minority young men to get a seat at the table? That is my my life's mission. I will not sit tight until there are more women producing business just like me.

[00:25:41.160] - Andrew Cavenagh
I think it's fantastic. The industry does get a bad rap and it is not the glamorous thing, and you don't realize it until you spend a little time in it, how many parts of the economy it touches, how necessary it is. You can get rid of a lot of different things. You can't get rid of insurance.

[00:25:56.610] - Cara Kirsch
Yeah.

[00:25:57.510] - Andrew Clayton
If you weren't in insurance, well, what would you be doing?

[00:26:02.430] - Cara Kirsch
In my vision of my life is a food truck and I'm going to have one. I just became an empty nester last year and I have a little bit more time on my hands. I don't want work to be my hobby. It's always been my hobby and I want to find something else. That's going to come true. I'll have a food truck and you won't have a menu. You'll just wake up and know that you're going to get either something sweet, something savory or something vegan. It will be one of those, and you'll get just a great vibe and there'll be music and maybe live guitar outside. That's what I be doing.

[00:26:37.990] - Andrew Cavenagh
You and Clayton may be kindred spirits. He has dreamed for years of opening a soup only restaurant but it's a unique approach, which is that he's not going to tell you what soups he has that day. You have to show up and all he serves is soup.

[00:26:52.840] - Cara Kirsch
Yeah, I love that.

[00:26:54.550] - Andrew Clayton
We're a fast growing organization, the soup company. We're looking for a couple of influential investors.

[00:27:00.490] - Andrew Cavenagh
I would invest in your food truck era. I'm not investing in the soup, whatever.

[00:27:04.570] - Cara Kirsch
While you better rethink that.

[00:27:06.700] - Andrew Clayton
Soup box. Think of it. It's going to be everywhere. What's the strangest way that you've created or partnered with a new client? Because you're out there, you're you're vocal, you're loud. What's the way that you've developed a relationship?

[00:27:23.860] - Andrew Cavenagh
Met them on the plane? Started a food truck with them?

[00:27:27.910] - Cara Kirsch
Gosh, I think one of the things that differentiates me is that I'm not afraid to ask what I call provocative questions.

[00:27:35.440] - Andrew Cavenagh
Just curious, you said you like to ask provocative questions, but some of those are. Whether it's one you'd ask to an employer or one you want to ask to Clayton right now, I'm okay with that either.

[00:27:43.330] - Cara Kirsch
Yeah, no. One of the ones I ask to employers is, what's your least favorite benefit meeting of the year? Which meeting do you think it is?

[00:27:51.530] - Andrew Cavenagh
Open enrollment or renewal?

[00:27:52.310] - Andrew Clayton
Renewal meeting.

[00:27:53.310] - Cara Kirsch
Renewal.

[00:27:54.200] - Andrew Clayton
Yeah.

[00:27:54.720] - Cara Kirsch
100% unanimous renewal. Then my question is, well, why do you not like it?

[00:28:00.390] - Andrew Clayton
What degree of bad news am I going to get today?

[00:28:02.640] - Cara Kirsch
Correct. That's right. Well, how would you like it if, and then I create a story around the possibilities. It is possible to create benefit plans that actually provide rewards to people in terms of more compensation if they do what you're asking them to do.

[00:28:21.820] - Cara Kirsch
There is the ability to create benefit plans that have targets that the whole company is shooting for, no different than sales or production. Employers need more of us and our time than ever before. You cannot just have three meetings a year. You have to be continuously having discussions about ways that their business is changing.

[00:28:45.290] - Cara Kirsch
This is probably one of my best best stories is, I was meeting with the prospect in 2016, and you get through the HR conversations and finally get up to the CFO. The CFO says, "Cara, we really like you, we want to hire you, but our current broker is working for free."

[00:29:04.740] - Cara Kirsch
I said, "Really?" I said, "Tell me more. Why do you think that?"

[00:29:10.550] - Cara Kirsch
"Well, we never get a bill from them. We never see what they're getting paid, so they're just working for free."

[00:29:15.560] - Cara Kirsch
I said, "I'll tell you what? I will work for free for one year if they're working for free." How much do you guys think his compensation was? A hundred life group.

[00:29:27.020] - Andrew Cavenagh
I'm not sure I'm going to wade into that poll.

[00:29:28.950] - Andrew Clayton
Seventy-five grand.

[00:29:29.410] - Andrew Cavenagh
Yeah, 100 grand.

[00:29:29.640] - Cara Kirsch
Seventy grand.

[00:29:30.750] - Andrew Clayton
Yeah.

[00:29:32.840] - Cara Kirsch
Now imagine being the CEO or the CFO of an organization and not knowing that. Imagine now the road that's been paved for someone like me to come along and make sure that that never happens to them again.

[00:29:48.680] - Andrew Cavenagh
It's great. Great for the employers that they have somebody like you.

[00:29:52.490] - Andrew Clayton
One of the things I would say—and I mean this both as a compliment, but also as a challenge to the rest of the industry—is that one of the reasons that you're so successful is because you're authentic, because you're genuine, and that comes across in your passion.

[00:30:07.310] - Andrew Clayton
But so many people within the industry play a role, as opposed to saying to someone, "Look, bet on me, bet on us together, and I will invest my time, my energy, my commitment to make sure that you have a better experience." But I think that authenticity, unfortunately, is rare. But I also want to compliment you that it's a great reason for your success.

[00:30:30.560] - Cara Kirsch
Well, thank you. It's also a reason sometimes I don't get picked.

[00:30:34.790] - Andrew Clayton
They want easy overwrite.

[00:30:36.260] - Cara Kirsch
Right. Or they don't believe. They don't believe that what I'm saying is actually possible. One of the things I've thought a lot about is my approach when it comes to being authentic and having passion, but not being scary.

[00:30:51.590] - Andrew Clayton
Or you can just be like Kavanaugh and not care.

[00:30:56.300] - Cara Kirsch
Say what?

[00:30:58.910] - Andrew Cavenagh
As a final comment, Cara. I joke that insurance isn't isn't ever popular at a cocktail party. Just curious, you're at a cocktail party and someone says, "What do you do?" What's your answer?

[00:31:12.170] - Cara Kirsch
"I help employers solve the challenge of rising health care costs." I never say I do insurance. I always say, "I help employers."

[00:31:22.180] - Cara Kirsch
"Well, what do you mean? How do you help them?"

[00:31:24.680] - Cara Kirsch
"I create, I help, I support, I navigate, I lead." It's never about insurance. But I will say, my dad still thinks I sell insurance.

[00:31:37.590] - Andrew Cavenagh
Well, Cara, thank you very much for the time today. It's been wonderful having you and hearing the stories.

[00:31:42.630] - Cara Kirsch
Thanks for having me. I'm so, so grateful for the partnership with you guys, and continuing to do this work that isn't easy but really important, and hopefully will continue to make the progress that we want in getting employers to understand that they have power. My goal is to bring their power back to them. The best thing that they can say to me after I meet with them is, "Cara, I didn't know that."

[00:32:20.570] - Andrew Cavenagh
Now for the last segment of our episode before… Because this is the place where Clayton or I, but typically Clayton, put our foot in our mouth. Get ready for You Know They're a Knucklehead When.

[00:32:31.370] - Andrew Cavenagh
When we look at the now infamous renewal spreadsheet that a lot of brokers put together, if they're looking at-

[00:32:38.480] - Andrew Clayton
Hey, take it easy, man. They put a lot of time and effort and fancy colors into that thing.

[00:32:43.520] - Andrew Cavenagh
Sometimes there's colors. Rarely is there a second tab. We'll talk about that in a future Knucklehead segment, I suspect. But when you look at the spreadsheet, it's going to have a column for every one of the options and anything that is self-insured invariably, there will be something about the fixed cost and the premium at the top. There will then be a row for expected claims, there will then be a maximum, and at the bottom they will add up a bunch of those rows to show you expected costs as well as a maximum cost.

[00:33:12.080] - Andrew Cavenagh
That's the preface for what we're talking about today. What we see time and time again is on these spreadsheets, the broker will have a quote. Let's just pick hypothetical company, so they'll have a quote from HCC and a quote from Swiss Re. The quote from HCC might have an aggregate attachment point of a million dollars. The quote from Swiss Re might have an aggregate attachment point of a million one.

[00:33:39.290] - Andrew Cavenagh
What the broker does is they put expected claims at 80% of the aggregate attachment on the theory that there is a 25% quarter. You come up with your expected loss and multiply it times 1.25, that takes you to your agg attachments.

[00:33:54.970] - Andrew Cavenagh
On the HCC example, $800,000 expected loss, multiply it times 1.25 for 25% corridor gets you to the a million dollars. If you're reversing that, you type multiply it times 0.8.

[00:34:06.340] - Andrew Cavenagh
What they will put on that spreadsheet is 800 grand expected losses for HCC. I don't what the math is, but 875 grand for Swiss Re. It's just blows our minds. This is an example of you know they're a knucklehead when they give you-

[00:34:22.600] - Andrew Clayton
Eight hundred and eighty, by the way. But that's okay.

[00:34:24.110] - Andrew Cavenagh
Hey, I'm not here for the math, 880. It's the exact same TPA

[00:34:31.420] - Andrew Clayton
Wait a minute. Who's the knucklehead?

[00:34:35.430] - Andrew Cavenagh
This is my show. So, exact same TPA, exact same network, and somehow, because the carrier has set a different aggregate factor, that influence is expected loss. The claims are going to be the same under either scenario. They're being adjusted by the same person, are paying the same discount. Whatever claims that company has that year, they're going to be exactly the same under both those insurance options, and yet our industry loves to act as if the stop-loss carrier is influencing expected claims. Help me out, Clayton.

[00:35:07.950] - Andrew Clayton
You're saying it correctly. You have the same exact, as they say in My Cousin Vinny, identical. You have the same exact population, you have the same exact network, and you have the same exact care that's going to take place. Nothing is change under the Swiss Re or the HCC scenario yet because they valued the experience differently in the manuals differently, they're giving different aggregates.

[00:35:32.220] - Andrew Clayton
All of a sudden the broker, we can't call him consultant, says, "Well, your expected claims are going to be different," even though all of your underlying characteristics are identical. To us, that just jumps off the page as a laughable moment, that the stop-loss carrier who has no influence on your claims experience whatsoever is setting different expected claims.

[00:35:53.490] - Andrew Clayton
The broker will present that and say, "We should go with option A because it's cheaper," as opposed to saying, "We should roll our sleeves up and actually work on our claims," instead of just picking a rate or a factor that's going to determine what our efforts are going to be for the next 12 months.

[00:36:08.460] - Andrew Kavanagh
It would be accurate to say that in my example, the HCC maximum is going to be lower, assuming the premiums are similar, but the expected claims should be the same. Swiss Re, sitting there in their office, has no ability to will the claims to be higher, right? Just want to confirm that.

[00:36:23.280] - Andrew Clayton
Correct. They can hold their breath, but I don't think the claims are going to be higher just because of that.

[00:36:28.560] - Andrew Kavanagh
Again, Clayton, hit it, I hit it. If the claims are varying, if your expected claims are varying based on aggregate factor, someone's not thinking. They're being a knucklehead. What they should be sitting there saying is, "What is actually likely to happen from an expected claim standpoint?" That is the knucklehead test. If aggregate factors determine expected claims, they're a knucklehead.

[00:36:48.510] - Andrew Clayton
Kavanaugh, as a reformed knucklehead, obviously knows a lot about this subject.

[00:36:53.340] - Andrew Kavanagh
Sometimes people can't do math, but that doesn't make them a knucklehead.

[00:37:05.560] - Speaker
Thanks for listening to today's episode of 80/20 with ParetoHealth. We love hearing from you. If you have a question or an episode suggestion, please drop us an e-mail at 8020@paretohealth.com. That's 8-0-2-0@paretohealth.com.

[00:37:21.640] - Speaker
Dive deeper into 80/20 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.