This month’s Business Expert is Bob Gearhart Sr. from DCW Group, an employee benefits and business consulting firm based in Boardman. Gearhart Sr. is president of the third-generation family business. In this Q&A column, he discusses the challenges facing the nation’s health care system.
How did you start in insurance?
Bob Gearhart Sr., president of DCW Group: I come from an insurance family. For over 42 years, my father was the general manager of benefits and compensation for Republic Steel/LTV Steel in Youngstown and Warren. Our agency began when my mother started Health Care Claim Consultants in 1992 to assist retirees in filing and reconciling their medical claims. I began working with my dad at Republic Steel during my summers while in high school. My role expanded during college when I began working at Republic Employee Benefits Inc., a subsidiary of Republic Steel.
I later received my bachelor’s degree in industrial management from the University of Akron and entered an intensive two-year training program with Blue Cross and Blue Shield of Ohio. Following several years on the insurance carrier side of the industry, I transitioned to the brokerage side and built the health insurance practices for Key Bank, Charter One Bank, and National City Bank.
In 2006, we began the transition of Health Care Claim Consultants into DCW Group. In 2010, I was joined by my oldest son Bob Jr., who is helping us take DCW forward.
What is the current state of health care and health insurance?
Gearhart: The entire system is broken. A 2017 study by the Organization for Economic Co-operation and Development ranked the U.S. No. 1 in cost of care and 31st in quality outcomes among 35 countries with advanced economies. By almost any measure, we have the worst return on investment for our health-care spending of any country.
On the insurance side, many businesses have come to accept double-digit rate increases as the new norm. Sadly, the only real key performance indicator used for insurance broker/consultants today is coming in under budget or under trend, which I could argue is fabricated by the insurance industry.
What do you mean by the trend being fabricated?
Gearhart: Industry trend is something that typically falls between 8% to 12% depending on who you talk to and is simply used by mediocre broker/consultants to declare victory by coming in a percentage point or two under trend at the renewal. One of the largest factors in developing your rates is your plan’s actual claims experience. There are groups that consistently reduce their health insurance expense year-over-year by driving better health-care utilization.
What will it take to gain control over rising health-care costs?
Gearhart: If you look at the way we manage employee benefits and the annual renewal dance, it’s crazy. The best description I’ve heard came from my friend and industry expert Craig Lack who describes most brokers’ renewal strategy as “hope, shop, spreadsheet, compare, shift costs, reduce benefits, limit access to care, add best practices that don’t work, and repeat the process year after year.”
The problem with this is that it doesn’t do one thing to lower costs. The only way to lower costs is to gain access to data and ultimately take control of the health-care supply chain including the pricing of medical and pharmacy claims.
How can companies better manage employee benefits expenses?
Gearhart: Business leaders who have a massive impact at their organizations view health insurance and employee benefits as a capital expense rather than an operational expense. Operational expenses imply a cost of doing business with price being the major determining factor in the buying decision. A capital expense is an investment that is made with some type of defined, expected and measurable return on investment. We teach clients how to take their benefits expense, which has historically been a “cost of doing business,” and use those dollars to improve their ability to attract, train and retain the best talent. Successfully managing a top-three expense for our clients involves not only the best benefits at a lower cost but driving an increase to earnings before interest, tax, depreciation and amortization, something all businesses are measuring.
If business owners are waiting for the insurance carriers, providers or politicians to work together to lower costs, they’re wasting their time. The carrier share prices for the four largest publicly traded insurance carriers have increased between 295% and 571% since passage of the Affordable Care Act. Employer sponsored health-care plans are the primary source of this increase.
You mentioned that carriers and providers are not lowering costs. Can you elaborate on that?
Gearhart: Preferred provider organization discounts are one of the greatest fallacies and misconceptions in the industry. A PPO discount sounds appealing on the surface, but nobody pays the full price.
My son Bob Jr.’s new book, Breaking Through the Status Quo, How Innovative Companies Are Changing the Benefits Game, details PPO discounts. He explains how employers need to be mindful that the discounts received are much less important than finding the true unit cost of the services being used. A 40% network discount on a $1,000 MRI seems like a great deal until you find that another provider will perform the same MRI for $200.
I have also witnessed the pharmacy industry spin out of control. They have a lobbying group larger than the next three industry lobbying groups – oil and gas, financial and defense – combined. Medicare is the largest purchaser of prescription drugs in the U.S. and the pharmacy-lobbying group is so powerful that they have a law in place that makes it illegal for Medicare to negotiate directly with prescription drug manufacturers. This ensures that every party along the supply chain receives their piece of the pie, which increases the cost to the consumer and ultimately the employer.
This summer we began working on a project to re-price pharmacy claims for a large group in the Valley. We asked the pharmacy benefits manager for the group’s pharmacy data and were told it would take 10 business days. The initial data we received was incorrect and we had to go back twice for clarification. When we officially took the group over as a client and had access to their pharmacy data, it turned out that the manager had given us only half of the available data. Simply reviewing the data we had on hand showed us that we will save this client 20% on its pharmacy spending, a number that will increase based on being able to re-price all claims.
How are you aligning compensation to client success?
Gearhart: We are beginning to structure “fee for performance” agreements with clients where we put part of our compensation at risk based on our ability to reduce plan costs. We encourage not only our company but all of our partners who work on behalf of our clients to tie their fees to the performance of the client’s employee benefit plan.
Employee benefits are a top-three expense for most employers, and yet many of the organizations don’t know how, or how much, their current adviser is being compensated. In 2017, we initiated the Mahoning Valley Employee Benefits Survey. More than 80% of the respondents said they did not know how their adviser was paid, further illustrating the problem.
Conflicts of interest regarding broker compensation are rampant in the insurance industry. Most are compensated by health insurance companies to distribute their products. This does not necessarily lead to a positive impact on the client’s employee benefits.
While still not required, we knew in 2016 that the right thing to do was to move to full fee disclosure with our clients and that has evolved into fee for performance.
How has the approach to employee benefits changed?
Gearhart: We are seeing the C-Suite becoming actively engaged in strategic discussions and decisions. In most businesses, no other line item on the profit-and-loss statement is growing faster than the health-care expense. The HR staff is still maintaining the operational aspects of the benefit plan but the C-Suite is setting the strategy.
True costs cannot be controlled until the C-Suite is focused on strategic decision-making within the health-care spending. Top executives need to be more involved in changing the way they buy health-care services. We have a very simple financial exercise we walk our new clients through that opens their eyes and changes their mind set regarding their health-care spending.
Aside from health care, what are the biggest challenges your clients are dealing with now?
Gearhart: Hiring (qualifications and drug testing). An aging workforce or the baby-boomer bubble that is about to burst and the lack of skilled labor or those willing to do skilled labor is what we hear most often. Last month we held our third client summit for 2017. During these summits, we update clients on what is happening in the insurance industry and also provide them with non-insurance resources that we, as a small business, find helpful. At our last summit in August, we invited representatives from career and technical centers in Trumbull, Mahoning and Columbiana counties to address the group regarding training and certifications they offer.
What led DCW Group to become a “next-generation benefits firm,” and what does that mean?
Gearhart: This January, Bob Jr. spoke at the Agency Growth and Leadership Summit in Nashville, Tenn. After his presentation, we were approached by Nelson Griswold and Scott Cantrell, the leaders of Agency Growth Mastermind Network, a group of 32 elite, independently owned benefits firms that share best practices. What we learn from our peers we bring back to aid our clients here. We also return the value to our peers by sharing successes we are having here.
In July, on the steps of Independence Hall in Philadelphia, the AGMN partners signed our own declaration of independence. Our goal is to move beyond the complacency of the status quo and adopt a new and innovative approach to benefits. As next generation benefit leaders, we seek to keep our firms relevant and bring value and meaningful results for our clients. We align our motivations and incentives with our clients to ensure mutual success. By operating this way, we will elevate the employee benefits industry into the future.
You mentioned the work of your son, Bob Jr. Can you elaborate?
Gearhart: Well to be fair, I have two sons. I would love to work with both but my younger, Michael, graduated last spring with his Ph.D. from Case Western Reserve and is a professor in St. Louis.
I feel very blessed to have Bob Jr. in the business with me. His book launch was in September at the 2017 Employee Benefits Forum and Expo in Boca Raton, Fla., where he shared our clients’ successes with 900 benefits professionals and employers from across the U.S.
I can’t possibly describe how proud I am of the work Bob Jr. and our entire team at DCW are doing to change the industry. We’ve been so fortunate that we are in the process of hiring two additional account managers and expect to need at least two more in 2018.
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