Presented by Hales & Company · and spent 13 years with KMPG as a Senior Manager in the firm’s...

Rob Lieblein Managing Partner

717-541-9300, ext. 101

[email protected] www.halesgroup.com

Presented by

Hales & Company

Transformation Strategies to Succeedin the New World of Healthcare Reform

EBA Summit ~ September 26, 2011 ~ Dallas, TXPresented by Hales & Company

About the Presenter

Robert J. Lieblein - Managing PartnerHales & Companyp yWith over 25 years of experience, Mr. Lieblein has been involved in more than 150 mergers & acquisitions and is known as one of the industry’s leading financial advisors. He has written numerous articles for industry publications and is a frequent speaker for industry trade groups and associations. Mr. Lieblein is a Certified Public Accountant and spent 13 years with KMPG as a Senior Manager in the firm’s Financial Services practice. Rob also is the co-founder of Wharton Capital Partners, a private equity firm involved in starting and ADDRESS

2040 Li l t R d

2

acquiring companies since 1997. Mr. Lieblein earned degrees in Accounting, Mathematics and Computer Science from Shippensburg University.

2040 Linglestown RoadSuite 100Harrisburg, PA 17110

TELEPHONE717.541.9300 ext. 101

[email protected]

About Hales & CompanyHales & Company is one of the oldest and most experienced advisory firms solely dedicated to the insurance industry.

Merger & Strategic Consulting Corporate FinanceMerger & Acquisition Services

• Identification of Buyers or Sellers

• Preparation of Confidential Memorandum

• Operational and Financial Assessment

• ValuationTransaction

Valuation Services

• Mergers and Acquisitions

• Equity Compensation Plans

• Buy/Sell Agreements • Transaction Fairness

Opinions • ESOPs • Personal Goodwill

Strategic Consulting Services

• Strategic Planning• Business

Memorandum and Operational/Financial Assessment

• Succession Planning• Compensation and

Equity PlansSteady State Analysis

Corporate Finance Services

• Analysis of financing Requirements

• Determination of Optimal Capital Structure Alternatives

• Evaluation of Financing Proposals for Suitability

• Negotiation of Term Sh t• Transaction

Structuring• Negotiation• Due Diligence• Transaction

Agreement Review• Closing• Integration

Management

Valuation • Shareholder Disputes • Expert Witness

Testimony • Litigation Support • Intangible Asset

Valuation

• Steady State Analysis• Outside Advisory

Board Services• ESOP Strategies• Financial Advisory

Services

Sheets• Loan Commitment

Terms• Due diligence and

Lender Wrap-up Processes

3



Hales & Company has 20 professionals with offices in the following locations:

About Hales & Company

• New York

• Harrisburg

• Seattle

• San Francisco

• Chicago

• Washington, D.C.

• Southern California

4

Leading Firm inthe Insurance Industry

You aspire. We advise. You achieve.

2005 2006 2007 2008 2009 2010 TotalNumber of Deals 18 19 30 34 19 24 120

Total Deal Value1 $243 $642 $462 $568 $485 $256 $2,657

1Dollar amounts in millions.

5



An Agency’s Choices

WRONG WAY

Stay AsYou Are

For mostagencies,

MaximizeShareholder Value

Sell TheAgency

not a good option!

FOCUS HERE, but be prepared for

Modest “Course Corrections”Sustaining Investments

Acquire or Grow OrganicallyImplement Organizational StrategiesAlter Compensation StrategiesBuild a Sales CultureEngage in Strategic Planning

Commit to the ProcessSeek Professional GuidanceGet Your House in OrderValue Your Agency Be Proactive

6

Transformation S i S d iStrategies to Succeed in

the New World of Healthcare Reform



$35,000

Average Annual Premiums for Family Coverage

Health Insurance Premiums –Family Coverage

5 791

6,438

7,061

8,003

9,068

9,950

10,880

11,480

12,106

12,680

13,375

13,770 14,865

17,324

20,190

23,529 27,421

29,603

14,435 15,863

16,629 18,273 20,081 21,050

22,067

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

5,791

$0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Sources : Kaiser/HRET Survey of Employer-Sponsored Health Benefits

Note: Health insurance premiums projected for 2011-2020 assuming that the average growth in premiums between 2000 and 2010 (8.0%) continues or that the average growth in premiums between 2005 and 2010 (4.8%) continues.

8

20 0%

Average Increase in Health Insurance Premiums

Health Insurance Premiums

12.0%

18.0%

14.0%

8.5% 8.2%

10.9%

12.9%

13.9%

11.2%

9.2%7.7%

6.1%8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0.8%

5.3% 5.0% 5.0%

3.0%

0.0%

2.0%

4.0%

6.0%

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Sources: Kaiser/HRET Survey of Employer-Sponsored Health Benefits and Bureau of Labor Statistics 9



Solving out of control health care costs is an economic strategy, not just a health care cost issue

Accept Fundamental Changein Business Model

strategy, not just a health care cost issue

“Winners” in this business transformation will incorporate population health management and become consumer centric

Besides death and taxes, realize the following:

- Revenue compressionRevenue compression- Increased costs- Consolidation- Many will become irrelevant if they can’t transform

business model

10

How will employers respond to rising health care cost over next 3 to 5 years?

Real Cost of Health Care

next 3 to 5 years?

- Put off hiring 35%- Reduce raises or bonuses 34%- Switch benefits to employee paid 29%- Implement a consumer driven health care plan 18%- Implement a voluntary benefits program 18%Implement a voluntary benefits program 18%- Put off equipment or other purchases 14%- Reduce salaries 13%- Eliminate employee benefits 13%- Lay off current workers 10%

11Sources: “Shifting Paradigms? Explaining Employee Benefits in the Midst of Economic Uncertainty” LIMRA 2010



Private Health CareSystem is Broken

Rising medical costs continue to drive employers out of the health benefits marketplace and/or shift costs to employees.health benefits marketplace and/or shift costs to employees.

Remaining employers are searching for SOLUTIONS that mitigate price acceleration and system complexity.

Beginning to see divergence in the health benefits distribution system.

“Old School” brokerages perpetuating legacy models.Old School brokerages perpetuating legacy models.

“New School” brokerages recognize the need to be innovators.

Innovators addressing medical inflation through cost and quality solutions to keep both employers and brokers “in the game”. 12

The Response –“Old School Broker”

Business as usual for many with little change in strategy or behavior.or behavior.

Believed competitive differentiation came from “great” service, value added services and access to product/services.

Skill sets of employees remain the same.

A short term approach focused on providing counsel onA short term approach focused on providing counsel on benefit design and vendor selection rather than innovations that might have longer-term implications.

13



Recognized that “bending the trend” and behavior modification and employer/employee engagement is key

The Response –“New School Broker”

to future success.

Behavior is the single greatest determinant of health status, far exceeding the effects of access to care, genetics and environment.

Firms will focus on growth and diversification creating a more durable business model with diversifiedmore durable business model with diversified products/services and a new service model.

Recognizes that skill sets of employees will need to change.

Redefines the relationship with the employee.14

Focus on shifting employer relationship from premium comparison or “spread-sheeting” to addressing the root

Mindset of Benefit Innovators

comparison or spread sheeting to addressing the root causes of health care cost inflation.

Shift from Products/Services to Health Management.Shift from Wholesale (Employer) to Retail (Consumer).The “Four Quadrants Theory”.

15



The Four Quadrants

HEALTH• Performance transparencies • Financial planning

PRODUCTS/

HEALTHMANAGEMENT

• Wellness programs• Value network• Evidenced‐based medicine

• High deductible plans• Benefit buy downs

• Ancillary products• Discount cards

• Health risk assessment• Personal health records• Home‐based biometric monitoring• Health service shopping markets

PRODUCTS/SERVICES

WHOLESALE(employer)

RETAIL(consumer)

y• Negotiated provider discounts• Administrative efficiency

• Mini‐med• Consumer decision tools• Catastrophic plans• Voluntary Products

16

Broker Strategies – 3 Options

Regardless of what the federal government or individual states enact significant health careindividual states enact, significant health care distribution changes are coming. Therefore, brokers must realize not “If” but “How” their

strategies will shift.

Option 1 “Stay As You Are”Option 1 – Stay As You AreOption 2 – “Merge Or Be Acquired”Option 3 – “Benefit Innovator”

17



C i i l A i I fCritical Action Items for Future Success

Critical Action Items for Future Success

Accept, Adopt and Implement the New Business Model- The ability to survive and be successful in the future health care

distribution system will require you to shift toward wellness and health management and imply a far more consumer-centric model

- Your role will change from a provider of benefit design and selection to the following strategies:

• Strategic Planning around an Economic Issue – not a Healthcare Cost Issue

• Bending the Cost Curve

• Managing the Health Trend

19

THE UNKNOWN IN THIS NEW BUSINESS MODEL IS WHEN AND HOW QUICKLY A FIRM MUST

ACCEPT, ADOPT AND IMPLEMENT



Client and Prospect Segmentation Understand client and prospect needs and purchasing habits and


- Understand client and prospect needs and purchasing habits and lifestyle attributes

- Define what messages and vehicles are most effective to reaching profitable prospects

- Know where to spend time and money

Market Intelligence- Who are your competitors? – benefit brokers, payroll companies,

HR consultants, HR & benefit technology firms, GA’s. Are they competitors, partners or both?

- Know and evaluate competitors and understand their strengths, weaknesses and threats.

20


Determination of Services and Capabilities- Population Health ManagementPopulation Health Management

• Medical director, Pharmacy director, wellness coordinators and programs, actuarial, biometric testing, health risk assessments, etc.

- Development of Captives and/or Consortiums- On-site Clinics- Small Group Strategies- Compliance and RegulatoryCompliance and Regulatory

• Legal and regulatory compliance, audit services, communications, ERISA compliance

21continued on next slide



Determination of Services and Capabilities - Recognize the Convergence of Employee Benefits, Human Resources

and Payroll All with technology “wrap around”


and Payroll – All with technology wrap around- Benefit Administration

• Communications, health care reform tools, COBRA, FSA, HSA, FMLA, benefit billing & reconciliation, eligibility management, etc.

- Payroll • Payroll processing, tax filings, unemployment, etc.

- Human Resources• HRIS systems, health advocate, benefit surveys, HR

consulting/outsourcing, communications, newsletters, - Technology – In the near future, more than 3/4th of all employers will

be fully automated• HR portal, employee portals, employer portals, web based, call

center, HRIS systems, etc.22

Implement Fee Transparency Aetna already will require employee benefit consultants in the 51+


- Aetna already will require employee benefit consultants in the 51+ employer groups to negotiate a fee

- Is it reasonable to expect this may even become the norm in smaller groups, particularly with the insurance exchanges?

- Compensation transparency is already a point of differentiation

- How to determine “how much you are worth”

- Understand what your employer wants, needs and values

- Explaining your services and value creation

23



Develop a Small Group Strategy Small group business will fundamentally be changed forever


- Small group business will fundamentally be changed forever

- Defined as groups less than 50 lives but also need to consider segmenting into several baskets (e.g., less than 10 lives, 11-25 lives, 26-50 lives)

- Need to analyze your small group business, both financially and operationally and determine appropriate strategy going forward

Analysis includes how to compensate your employees/producers- Analysis includes how to compensate your employees/producers on this business

- Do you consider selling or partnering small group business with a firm such as Digital Insurance?

24

Broker Association – BAN, ProSential Group, UBANational presence


- National presence

- Back office operations and/or technology

- Build vertical markets

- Key – how to successfully execute on an “Association Strategy” that can benefit the members.

- Leverage resources versus “build it yourself”g y

25



Need to become a “Trusted Advisor” –

HALES DEFINITION


HALES DEFINITION - Strategically important to help your client achieve business goals

and objectives, not just health care cost

- Hard to replace/substitute

- If you can become a true “Trusted Advisor” you become a confidant, an invaluable resource in decision making and your

d i i ht i t t t i d i i b i dadvise is sought prior to strategic decisions being made

26

Performance Counseling - You will need help employers identify solutions with meaningful


You will need help employers identify solutions with meaningful, quantifiable results

- Provide guidance and benchmarks to help employers gauge program success (e.g., analytical services to measure and benchmark program offerings)

Be A “Change Agent” (SCE strategy)Y t b “ h t” f l 3 “B k t ”- You must become a “change agent” for employers – 3 “Buckets” –Innovators, fast followers or traditionalists

- Support innovators, Convert fast followers and Educate traditionalists (Zero Trends concept)

27



Brand Differentiation - Service is not a differentiator


Service is not a differentiator- Escape the commodity trap - Develop your value proposition - Deliver your “unique” experience

Empower Consumerism- Need to increase consumer awareness and accountability about y

cost and quality of health care- Educate consumer about upfront and ongoing decisions regarding

personal health decisions

28

Lifestyle Management - Employers must embrace lifestyle reward programs that provide


Employers must embrace lifestyle reward programs that provide employees with incentives for getting and staying healthy

Technology Advances- Health care technology advances are coming and must be

embraced in your business model

29



People and Skill Sets- Understand the skill sets that your employees must have in the future


Understand the skill sets that your employees must have in the future - Ability to speak business strategy- Sell to the “C-Suite”

Organizational Structure- The typical organizational structure of sales and service will most likely

not work in the future. Are you producer centric or client centric?

30

A Mission Statement For Organizational Structure

Create an organizational structure thatCreate an organizational structure that supports the delivery of EXCEPTIONAL

QUALITY SERVICE that results in superior retention rates while providing

your producers TIME to SELLyour producers TIME to SELL.

31



Why This Structure Works

►Allows producer to focus on selling – Let Them Be HUNTERS- Ideal goal is to have at least 50% of time selling, preferably 60% to

70% selling

►Allows them to achieve goals with NO EXCUSES►Aligns activities closer to agency goals►Minimizes client risk if producer leaves► Improves customer service►Develops team concept in the agency

32

Common Themes of a High Performing Sales Agency

►New business development is a culture►Do not just talk about sales, demonstrate a commitment to►Do not just talk about sales, demonstrate a commitment to

sale: - Recruiting, training, managing, investing rewarding and supporting

sales efforts

►Culture of Accountability►GREAT SERVICE IS A GIVEN, NOT A DIFFERENTIATOR►Service Comparison – Insurance versus Hotel Industry►Service Comparison Insurance versus Hotel Industry

33



Compensation Strategies Historical compensation strategies throughout an organization must be


- Historical compensation strategies throughout an organization must be revisited in light of changing business model – Producers and Account Managers

- High Performing Agencies Create a Sales Culture of Accountability and Rewards by Providing Incentive Compensation to all Sales and Service Employees

34

Compensation Strategyfor Producers

►Sales goals clearly defined- Align goals with those of the agencyAlign goals with those of the agency

►Commission compensation structure that motivates salespeople to focus on new business development

► Incentive-based rewards (bonuses)► “Penalties” for non performance►Strict accountability and monitoring – proven correlation►Strict accountability and monitoring proven correlation

to performance►Pipeline and prospect sales meetings and monitoring►Offer equity with success

35



Flaws with Legacy Compensation Plans

►Producers not effectively motivated to sell- Commission % is high for both new and renewalCommission % is high for both new and renewal- No goal setting- No penalties for non performance- All sales dollars created “equal”

►Allows producer to earn “comfortable” income and books of business stop growing

►N d ti t ff ti t li d ith►Non production staff compensation not aligned with agency goals and objectives

►Lack of information communicated with non production staff

36

Recent Trends to Compensate Producers for High Performers

►New commissions – 40% to 50%►Renewal commissions 20% to 25%►Renewal commissions – 20% to 25%►Payment on “growth in the book” not just new sales►Not all sales treated “equally” – % increases with more

sales►System of rewards and penalties based on performance►Focus on “80-20” rule►Focus on 80-20 rule ►No commissions on “small” accounts – direct correlation

with minimum account threshold and average and high performers

37



Innovative NewCompensation Plan Design

►Trend- Commission year one significantly higher than renewal commissionCommission year one significantly higher than renewal commission

(with upside potential)- Less customer maintenance, more focus on new sales- Account executives managing customer not sales – from date of sale

and beyond- Account executives and managers moving to a “variable”

compensation structure versus all “fixed”

38

- “Penalties” built into compensation plan- Service is driver year 2 and beyond- Non production staff shares in risk/reward of new business

development and retention- Designed to increase shareholder value versus current income

Keys to AE and AM Compensation

►Realize that these employees are primarily driven by base salary but are motivated by incentivesbase salary but are motivated by incentives

►Need to align and reward compensation to a combination of:- Company goals (new business, retention rates, profit)

- Team goals (e.g., small group, large group, producer groups)

- Individual goalsIndividual goals

- Discretionary goals

39



Examples of Best Practices

►Average incentive compensation as a percentage of “Targeted” base salary- AE – 15% to 25%- AM – 10% to 20%- CSR/Support – 5% to 12%

►AM have portion of “Target” base salary tied to book of business:- Book of business managed $500,000- Target base salary $85 000- Target base salary $85,000- Base salary $60,000 and 5% of monthly commissions

► Incentive compensation tied to growth in book –factors in new business development and retention

►Company goals tied to new business development, total commission revenue and agency profitability

40

Prospecting Strategies


- Reevaluate how your organization prospects –“Raving Fans” whether clients, centers of influence, personal network must drive activity

Hit Ratios - The changing health care market will require a

firm to have much higher hit ratio’s than the historical brokerage firm

41



“There’s no question that workplace wellness is worth it. The only question is

whether you’re going to do it today or tomorrow. If you keep saying you’re going to do it tomorrow, you’ll never do it. You

have to get on it today.”

~Warren BuffettChairman, Berkshire Hathaway

42

Q i dQuestions andComments

Robert J. Lieblein Managing Partner

Harrisburg, Pennsylvania 17110 (717) 541-9300 ext 101

[email protected]

www.HALESGROUP.com

Presented by Hales & Company · and spent 13 years with KMPG as a Senior Manager in the firm’s...

Documents

Transcript of Presented by Hales & Company · and spent 13 years with KMPG as a Senior Manager in the firm’s...