March 25, 2005: Distribution Channel Commentary (DCC) # 75

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TOPICS:

  1. THEMATIC QUOTES FOR THIS COMMENTARY.
  2. FRONT-LINE REPORTS ON THE HEALTH INSURANCE COST WAR.
  3. HOW DOES THE "OWNERSHIP SOCIETY" PHILOSOPHY APPLY TO OUR FIRMS?
  1. THEMATIC QUOTES FOR THIS COMMENTARY.

"Every man is a damn fool for at least five minutes every day; wisdom consists in not exceeding the limit."         Elbert Hubbard

"An idea not coupled with action will never get any bigger than the brain cell it occupied."          Arnold Glasow

"Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so."         Douglas Adams

"The person who says it cannot be done should not interrupt the person doing it."         Chinese Proverb.

"Vision without execution is a fantasy; execution without vision is a nightmare."          (From the inside of a bottle cap, author unknown)

        "Destiny is not a matter of chance, it is a matter of choice; it is not a thing to be waited for, it is a thing to be achieved."         William Jennings Bryan

    2.     FRONT-LINE REPORTS ON THE HEALTH INSURANCE COST WAR.

Regular visitors to our site at www.merrifield.com will know that our stream of commentaries has recently slowed in order to crank out two articles on: "health savings accounts" and "(Re)start your corporate wellness program". We have now posted at our site an abridged, annotated, slide show that will be used for a forthcoming trade association teleconference seminar on HSAs. In case you are interested in any of these three documents, here are the links to them:

Article 5.15: " Research Health Savings Accounts Now and Act" http://www.merrifield.com/articles/5_15.asp

Article 5.16 and support notes: "(Re)start Your Corporate Wellness Program" http://www.merrifield.com/articles/5_16.asp http://www.merrifield.com/articles/5_16SupportNotes.asp

And, the slide show entitled: "The Revolutionary Potential for Health Savings Accounts" is at this link: http://www.merrifield.com/articles/RevolutionaryPotentialof HSAs.pdf.

The legislative and commercial activity in the "health savings accounts" (HSAs) space is intense. HSAs, in turn, are a key catalyst to the growing trend toward "consumer driven health care." Every company should be keeping an opportunistic eye on HSAs related developments. Two good sites for staying informed and finding out what insurance companies are doing within the state(s) you operate are: http://www.hsainsider.com/ and http://www.hsafinder.com/.

More serious students of HSAs might benefit from skimming through the 29 pages of questions and answers that followed a big seminar that the National Association of Health Underwriters put on for professional underwriters last summer. Everything about HSAs and a link to the Q&A document can be found at: http://www.nahu.org/consumer/HSAGuide.htm.

WHAT ARE CLIENTS DOING?

A large, regional electrical distribution chain has an annual renewal for their health insurance coming up in June. They have been watching the on-going activity trying to see if and when they might start to offer any interested employees HSAs as an alternative option to their general group plan. Because they are based in a highly regulated (and therefore very expensive) health insurance state, the premium savings for HSAs have not yet become that compelling.(or have they? Read on.)

Another distributor – a one-location, lubricants distributor with 48 employees covered under a general health insurance plan with Blue Cross – discovered that the premium discount for HSAs don’t have to be that great for some employees to be enticed by the company offering to contribute the savings into employee HSAs. Here was their process of discovery:

  • First, they decided two years ago to pick a flat amount of money that they would spend per employee and then let the employees choose from four different option plans all offered through Blue Cross. Two of the employees surprisingly choose HSAs in Janurary ’04.
  • At the beginning of this year, the premium discount for high-deductible insurance that qualified for HSAs had increased a bit more over the other plan options, so the company did a bit of educational promotion on them. Employees attended voluntary sessions in low numbers, but the upshot was that 11 out of 48 employees switched to HSAs. 34 employes, or 70%, stayed with the traditional HMO plan, and 3 opted for a $1000 deductible PPO plan. The company reduced its projected increase in total health spend, and the original 2 plus 9 employees with HSAs have both reduced their insurance costs and increased their savings so far.
  • The company now hopes to leverage the testimonials from the 11 with HSAs and continue to shop for better prices on plans that qualify for HSAs. They have discovered that the "Blues" and other national health insurance carriers are the slowest to offer best rates for plans for HSAs. They also realized that it would take quite a bit more education and even a wellness culture push to get the majority of the employees to wake up to the total benefit value of having HSAs. Patient, repetitive education of a superior economic story is the key to overcoming inertia and fear of the unknown.

A 400-employee distribution chain with branches across the country looked at the economics of HSAs last year, but they could not find a national carrier that would give them a compelling premium discount that would allow the company enough savings to redirect into contributions to HSAs. Management also had a big concern about the average employee’s ability to manage themselves, their health and their savings. The last two years the company has not been able to get enough of the bottom 80% of the payroll to contribute to their 401K accounts – in spite of generous company matches – to allow the top 20% to make contributions.

But, here were some thoughts we shared:

  • Learning from the lubricant distributor case above, perhaps they should declare a flat sum of money with which every employee could choose from one of about four plan options and see if anyone raises their hand for HSAs. And then, have a several year plan to convert as many people as possible to HSAs knowing that they may never get 100% unless they mandated it.
  • HSAs, unlike 401K accounts, don’t have to exist for all employees. Perhaps some of the first subscribers to HSAs will be: healthy, older, higher-paid employees with grown children who could use their HSAs as a more aggressive savings tool than their 401k in which they have been unable to save as aggressively as they might like. The executives around the conference table all liked this idea for themselves.
  • Continue to shop for plans that qualify for HSAs because more carriers are offering them in more states at lower premiums every month.
  • How much should we coddle and rescue our employees? President Bush is preaching the "ownership society"; why can’t more companies preach self-responsibility as well as high-performance, stakeholder responsibility (see topic 3)?
  • Do we think that traditional health insurance is going to stop climbing in cost? What if we don’t aggressively get consumer-driven health care cost management working within our company and our competitors do?

General conclusions at this point:

  • 2005 is the year to study and stay on top of the HSAs developments
  • Local, low, market share insurers are going after this market much more aggressively than the national, big-share insurers who have no interest in losing high premiums from small, healthy firms that are cross-subsidizing the big health cost users in their insurance "pools". Besides, both brokers and carriers don’t want to cut the volume of their premiums. Life insurance companies had the same problem when smart, healthy, prudent people started to buy straight term insurance instead of "whole life" policies.
  • Migration to HSAs within a company will take several years, but it isn’t too early to start a wellness program and a flat-fee per person approach.
  • Getting consumer-driven healthcare incentives and responsibility within a company is consistent with attracting best, healthy, responsible employees who can then be part of the solution for executing a high-performance, customer-value-added strategy.
    3.    HOW DOES THE "OWNERSHIP SOCIETY" PHILOSOPHY APPLY TO OUR FIRMS?

In President Bush’s vision of an "ownership society", every citizen would have more choices and assume more risk in nearly every part of their lives. The results, in theory: we would all save more, own more and rely on the government less. Although there is the normal, capitalist-socialist debate over this conservative vision, there is bipartisan agreement that ownership does make people better, more involved citizens and that it is a pillar of the American Dream. The promise of liberty and a stake in a new world is what has always drawn immigrants to America.

But, according to polls, some decisions to "own" are easier than others. Most Americans want to, and do, own a home and a car. Most feel comfortable managing their own money in an IRA, but they would prefer that the government or their employer continue to handle pension (social security) and health insurance decisions. In one poll that I saw, 64% of those polled didn’t want HSAs, they wanted a traditional company insurance plan. But, the pollster didn’t ask people how much they really understood about the long-term economics of HSAs, because if they did it would have been close to zero knowledge for all of them.

Do you see a disconnect between feeling comfortable buying a home and a car and managing your money in an IRA, but not wanting to go to HSAs? I do. Buying a home and a car could be more complex than buying a health insurance policy. Investing funds into HSAs to eventually go into mutual funds is the equivalent to IRA activity. And, using a special debit card or checks to pay for medical expenses, as needed, out of HSAs is familiar activity to adults. What should we conclude? I think that employees have had their health insurance matters taken care of for so long by paternalistic employers, they just aren’t thinking enough to do the math for HSAs. Selling HSAs will require overcoming ignorance and inertia with patient repetitive education.

How long will the educational challenge take? IRAs, for example, were first legally possible in 1974, but there were design flaws in the legalities and few mutual funds. With an early ‘80s legal overhaul, thousands of new mutual funds and the beginning of a bull market, they took off to become commonplace today. Because HSAs are medical IRAs with better total tax incentives and much more withdrawal options, I think the mechanical how-to education hurdle is negligible. Because 70%+ of employees will actually save good to great amounts of money with HSAs (assuming that most of the premium savings for both the company and the employee are contributed to the HSAs), the use of HSAs will take off quickly. People are currently opening HSAs faster than any expert has predicted.

Now, how do "ownership society" principles apply to our businesses? Do all of our employees understand that they are "stakeholders" in the company whether they own stock or not? Do they understand "what’s in it for me" if they should choose to put in extra, flexible effort to make the company’s focused, customer-value based strategy happen? Do they understand that profit after tax is not just a cost of capital to keep shareholder capital in the business, but the primary source of new growth capital to reinvest into the business to assure every employee’s job security and growth? Do they understand that they are either part of the solution or the problem for the company continuous need to improve and innovate?

If you think it is time to sign up all of your employees to be part of the high performance, customer-value solution, then you might want to invest in our comprehensive video training program entitled: "High Performance Distribution Ideas for All". The investment cost is minimal, the product is unconditionally guaranteed for 30 days and over a thousand distributors of all sizes and types are happy users. For more information on the video check out the links in the center of our home page at www.merrifield.com.

 

That’s all for this commentary!

Bruce bruce@merrifield.com.