Self-Funded w/ Spencer - Episode 22 - Colin McNeese

This video provides an in-depth exploration of the self-funded employee benefits space, focusing on strategies for mid-market employers to manage escalating healthcare costs, particularly pharmaceutical spend. Colin McNeese, a Senior Advisor of Employee Benefits, emphasizes a data-driven, analytical approach, rooted in his background in Management Information Systems (MIS) and actuarial analysis. The discussion centers on leveraging data to uncover cost drivers, implementing long-term (3-5 year) strategies, and evaluating the tangible ROI of innovative point solutions. A key theme is the shift toward transparency and employee advocacy, aiming to steer members toward cost-efficient, clinically effective care settings, rather than relying solely on punitive measures.

The progression of ideas highlights the evolution of the benefits landscape, noting the significant disruption of 2020 and the resulting focus on hybrid workforces and regulatory concerns (like vaccine surcharges). McNeese details how self-funding, often starting with level-funded programs or group captives for smaller groups (70-150 lives), allows employers to gain crucial access to claims data—a capability previously reserved for large corporations. This data access is essential for applying the Pareto principle, where 5-6% of patients drive 60-65% of claims, allowing for targeted intervention. The conversation then pivots sharply to the crisis of pharmaceutical costs, which now account for 30-40% of total plan spend, up from 18% 25 years ago, and are the primary source of catastrophic, million-dollar claims.

McNeese discusses the rising influence of technology and customized medicine as potential cost-curve benders. He champions solutions focused on transparency (identifying wide variations in cost for the same quality of care) and employee advocacy (using incentives, or "the carrot," over penalties, or "the stick"). Specific innovative examples include customized medicine based on gut biome analysis, which can tailor dietary recommendations to manage blood sugar and prevent pre-diabetics from progressing, thereby reducing future utilization of expensive diabetic medications and insulin. The ultimate goal is not just cost shifting, but a quantifiable reduction in overall utilization, such as fewer unnecessary emergency room visits and a decrease in prescription drug reliance due demonstrated health improvements. The future of the industry, according to McNeese, lies in big data leveraging historical settlement information to establish fair pricing for claims adjudication, moving away from opaque billing practices.

Detailed Key Takeaways

• Data-Driven Underwriting is Essential: Benefits advisors must move beyond general inflation figures and use data-driven underwriting and actuarial analysis to prove cost drivers and quantify results for clients. This requires access to granular claims data, which is a primary benefit of self-funding.
• Pharmaceutical Spend Dominates Catastrophic Risk: Pharmacy costs now constitute 30-40% of total plan spend and are the source of most truly catastrophic claims (e.g., $900,000+ specialty drugs). Managing PBM contracts and utilization is the most critical lever for cost control in self-funded plans.
• Leveraging Economic Influence for PBM Savings: Smaller self-funded groups (150+ lives) can now access discounting and rebate structures previously reserved for groups of 500 to 1,000 lives by leveraging the aggregated economic influence of their consulting partners.
• The Power of Transparency and Advocacy: Innovation is focused on technology that provides transparency at the point of service and uses employee advocacy to steer members to the most cost-efficient, clinically effective care. This includes incentivizing members (e.g., deductible compensation) to choose lower-cost settings for discretionary procedures like musculoskeletal or sports medicine surgeries.
• Focus on Utilization Reduction, Not Just Cost Shifting: The litmus test for new vendors and point solutions should be their ability to produce a tangible ROI through a reduction in utilization (e.g., fewer ER visits, reduced need for diabetic medications), not just shifting costs or providing feel-good benefits.
• Long-Term Strategy is Crucial: Employers should commit to a 3- to 5-year strategy when adopting self-funding or new vendors, avoiding knee-jerk reactions to single bad renewals, which can undermine long-term cost-saving initiatives.
• Customized Medicine as a Cost-Bender: New technologies, such as gut biome analysis to understand individual food metabolism, allow for customized health interventions. This proactive, tailored approach can help high-risk populations (like pre-diabetics) manage their health and potentially reduce the need for expensive chronic disease medications.
• Addressing Preventative Care Deficits: Due to the pandemic, there was a reduction in primary care and preventive checks in 2020. Employers must re-educate and re-communicate the importance of preventive benefits to mitigate the risk of catching serious diseases (like cancer) at later, more expensive stages down the road.
• Direct Primary Care (DPC) Model: The DPC model is highly valued for reintroducing compassion and a substantive, non-transactional relationship between the patient and the physician, acting as a "quarterback" to coordinate and steer care effectively.
• The Future of Claim Adjudication: The industry is moving toward using big data and historical settlement information to establish a "fair price" for medical procedures, enabling faster and more equitable claims adjudication, though this faces significant friction from hospital systems.
• Setting Matters More Than the Doctor: Significant cost savings can be achieved by asking patients to keep their doctor but change the setting of care (e.g., moving procedures from inpatient hospitals to physician-owned surgery centers), where quality is often higher and costs are lower.

Key Concepts

• Self-Funding/Level-Funded Programs: Health insurance models where the employer assumes the financial risk for employee claims, typically mitigated by stop-loss insurance. Level-funded programs offer a fixed monthly cost, blending the risk management of fully insured with the data access of self-funding, often suitable for groups of 70-150 lives.
• Pareto Principle in Claims: The observation that a small percentage of plan participants (estimated at 5-6%) are responsible for the vast majority (60-65%) of the plan’s total claims cost.
• Transparency Legislation (No Surprises Act): Governmental efforts aimed at requiring providers and carriers to disclose costs upfront and prevent surprise medical billing, though its implementation remains uncertain and subject to political delay.
• Employee Advocacy: Technology and service models designed to actively guide employees to the highest quality, lowest cost providers and care settings, often using financial incentives to drive behavior change.
• Utilization Management: Strategies focused on reducing the unnecessary or excessive use of healthcare services, such as diverting non-emergency cases away from the Emergency Room.