COMMITMENT TO QUALITY [Rough Notes]

Agency's emphasis on quality management is reflected in its benefits offerings

O nce upon a time in the East, employers paid for employee benefits made of gold. No deductibles, little or no co-insurance, unmanaged prescription drug coverage and rich dental and vision care benefits.

Those fairy tales days are over, says James D. Freyer Jr., chief executive officer of Haylor, Freyer & Coon, Inc., based in Syracuse, New York. The weakened national economy and changing business patterns in the Northeast have made employers more sensitive than ever to increasing costs and more ready than ever to re-examine their employee benefits plan designs.

"Employee benefits costs increase every year," he explains, "and, as a result, employers are more careful about how they use their benefits dollars. They want their employee benefits plan to reach the broadest range of employees and to provide their business with a significant advantage over their competition in hiring the best talent."

Haylor, Freyer & Coon was founded in 1928 as a four-person independent agency specializing in personal lines for local firefighters and their families. It has since grown to a national company with 200 employees in 10 offices in its home state and more than $28 million in annual revenue.

The agency is a unique organization, executives say. All employees belong to an Employee Stock Ownership Plan (ESOP) that provides them with participation in company ownership. The company has also been ISO certified for 12 years and was re-certified in the quality management system this year.

The agency still specializes in municipalities and other public sector clients as well as construction industries and manufactured housing industries. Clients range in size from two to 2,000-plus employees with benefits programs designed for both very small employers and large national employers.

Employee benefits and related business far from dominate agency revenues, Freyer says, but maintaining a high level of benefits expertise and a broad range of programs for small and large employers is critical to the firm's position as a full-service agency.

Commercial property/casualty insurance accounts for about 65% of revenues, personal lines 20%, and group health and life insurance about 15%. However, health and other employee benefits have been growing steadily, Freyer says, and its role in agency strategy is expanding. Benefits revenues could grow to 20% to 25% of revenues by next year.

About 10 employees work in group benefit design and account management operations, wellness program management, and human resources consulting services.

"Providing high-level employee benefits expertise opens up a range of additional possibilities for the agency," he says. "By meeting our clients with a team of property/casualty and employee benefits producers, we are able to address their insurance and benefit needs in a more comprehensive way with strategic advice that takes into account their complete business goals."

Moreover, the ability to provide benefits advice and solutions, more often than not, is a "wedge" into prospective clients and an opportunity to outline the agency's full range of services, he says. Softproperty/casualty insurance markets have made rates so low that agencies struggle to compete on price and risk management strategy, but rising benefits costs have made employers open to new ideas.

"For many years, New York employers had some of the richest benefit plans in the country and the expense was treated as just another cost of doing business. But as the costs increased, so has their interest in re-designing their benefits to contain costs and meet specific human resource goals."

Freyer says the agency views employee benefits management as three partnerships with: employers, insurers and employees, and three goals: to transfer employer risk, negotiate the best costs and terms with insurers and educate employees about their benefits and health management.

He says the agency creates innovative plan designs for employers, educates employees to understand the advantages of the new plans, and supports insurers with enrollment and account management.

Largest health plans in the region include Excellus Health Plan, Inc. (Blue Cross/ Blue Shield), MVP Health Plan, Inc., United Health Care, and Aetna Health.

Dennis Cleary, vice president and benefit coordinator, agrees that escalating costs have been driving employee benefit plan innovation. Health plan rates have been increasing from 9% to 12% each year, he says, leaving employers to wonder, "How do I fund this?"

Employers with 50 or fewer employees have limited options. Health coverage for small employers in the area is community-rated, out of employer control. But for its smallest clients, the agency administers a special program, the James Howard Wayne Association, Inc., which is a membership organization designed to assist small employers and self-employed individuals with health insurance and other products and discounts.

The association allows members to select medical, dental and vision care benefit plans at discounted rates and a series of voluntary benefits that include accidental death insurance, long-term care insurance, and an employee assistance program. The program also provides health-related discounted services as well as retail and entertainment discounts.

Larger employers have more options for both plan design and risk financing, Cleary says.

Increasing numbers of employers are providing more plan options to employees, or at least a dual plan design option, featuring a traditional preferred provider organization (PPO) with moderate deductibles and copays, and a less expensive health savings account (HSA) combined with a high-deductible health plan.

The HSA model calls employee attention to health spending and provides incentives for containing costs with better health consumer choices. Haylor, Freyer & Coon can help its clients design and implement the new programs and also can support them with employee education. "For accountbased plans to be effective, employees have to understand the costs of high utilization and the value of prevention," Cleary says.

Larger employers also tend to self-fund all or a portion of their health risks, which makes them very sensitive to claims costs, he adds. Some employers purchase stoploss insurance to offset the risk of large claims, but some public sector employers completely self-insure, creating pressure to manage claims more effectively and incent employees toward more healthful lifestyles. The agency has assisted these public sector employers with health care coalitions that help negotiate medical network discounts and support more effective claims management.

For its largest employer clients, the agency is also developing a practice in employee benefits captive insurance companies to provide alternative risk financing, Freyer says. "We have a lot of experience with captive insurers for property/casualty risk management needs, but now captives are providing an alternative for larger clients that are willing to take a risk management approach to their employee benefits costs."

Tony Cabana, assistant vice president in the employee benefit operations, also points to the agency's comprehensive service as a key differentiator. Benefits producer/consultants lead the plan design strategic discussion and account managers execute the day-to-day tactics of employee benefit management, he says. The agency's in-house human resources consultant assists with state and federal compliance and required tax reporting.

Specifically, account managers provide claims management and analysis on a monthly and a quarterly basis to identify cost drivers for more effective renewals and rate negotiations-tracking co-pays and deductibles for employees with account-based health plans and managed pharmacy benefits, and managing strategic initiatives such as wellness and health risk management programs.

The agency creates an annual benefits review that employers can use to compare their performance with national benchmarks and a stewardship report to document the agency's performance.

Cabana says good analysis leads to more sophisticated decision-making. "Most employers are still looking for ways to manipulate co-pays and deductibles or adding layers of managed care such as pharmacy benefit management. But someday the dam will break and these techniques will have reached their limit in their ability to moderate costs."

A more strategic approach to bend the trend is wellness, and Haylor, Freyer & Coon provides leading wellness program support. A certified wellness coach assists employers in designing and executing wellness programs, Cabana says, and more employers than ever are choosing to sponsor wellness programs that range from education and health training to comprehensive health risk management biometric screening and incentive programs.

"The commitment to wellness varies from company to company," he says. "You can't just sell an off- the-shelf wellness approach and expect to meet the distinctive needs of each employer."

The programs can evolve slowly, he adds. "It takes time for employers to design and implement the plan they want and years before they can see results in their claims costs."

Many employers begin their wellness efforts with education programs, he says. An increasing number of clients are also turning to more formal health risk assessments and biometric screening that can reveal undiagnosed health issues such as hypertension or diabetes.

The agency provides a wide range of support materials, including Webinars on disease prevention. A recent Webinar focused on preventing skin cancer in preparation for summer outdoor activities.

"Wellness is more than a cost containment tactic," Cabana says. "You can literally save a life."

"For account-based plans to be effective, employees have to understand the costs of high utilization and the value of prevention."

-Dennis Cleary

The author

Len Strazewski is a Chicago-based writer, editor and educator specializing in marketing, management and technology topics. In addition to contributing to Rough Notes, he has written on insurance for Business Insurance, Risk & Insurance, the Chicago Tribune and Human Resource Executive, among other publications.