Today’s guest is Michael Dinich. Michael is an expert in the health insurance world. He’s a financial planner. He gives a lot of advise in the most hated topic of most business owners: Health Insurance. Also known as YourMoneyGEEK.
We are going to talk with Michael about how Health Insurance affects your whole game in business planning. We also talk about how employers tend to mislead health insurance to their employees.
Here are some of the things you’ll learn in today’s podcast:
- Private business mistakes when it comes to health insurance
- Is health insurance a liability or a commodity?
- Strategies on how to approach your employees health insurance
- When a partially self-funded plan makes sense.
- Mistakes you might make when buying health insurance.
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful.
Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hey, how are you today? This is Josh Patrick and you’re at The Sustainable Business.
Today, our guest is Michael Dinich. Michael is an expert. He’s a financial planner. And he’s a specialist in health insurance.
That’s what we’re going to be talking about today. It’s the exciting world of health insurance and employer-sponsored plans. Now, I know that many of you listening are going to say, “Oh, this is a boring one. We’re going to skip it and move on.” I’m going to recommend that you don’t do that because as you’re well aware health insurance is a major expense in your business. And, more importantly, you’re probably using your health insurance really poorly and not getting the benefits you could get out of it. We’re going to talk with Michael about that today on how you can get more out of your health insurance plan. So, let’s bring Michael on and we’ll start the conversation.
Hey, Michael. How are you today?
Michael: Great. How about yourself?
Josh: I’m doing well, thank you. So, Michael, tell me something. You’re a health insurance expert and an awful lot of privately held business owners really miss the boat with health insurance. What kind of mistakes are they making?
Michael: Well, they view health insurance as a liability or a commodity. It’s just an expense that they think they have to pay. And it keeps going up and up and up every year. And it’s a pain point. And it doesn’t really represent anything fun or meaningful to them. But what they’re missing is that health insurance programs, if properly set up, can be a great way to incentivize employees. It can be a nice way to stabilize cost of business. And it can be a nice way, actually, for employees – and the business owners to save additional money for retirement.
Josh: So when you say “incentivize”, how would they go about doing that?
Michael: Well, they do it through a partially self-funded health insurance. So what that is, is instead of having an insurance company be responsible for all of the health insurance costs of the employees, what a self partially-funded plan does is the employer sets aside money each year in a fund to pay for the first certain amount of medical expenses its employees have. And then health insurance would step in and pay any overage.
Josh: So what size company would you need to make a partially self-funded plan make any sense?
Michael: Well, generally, it’s recommended to have at least 25 employees. But they do work for smaller companies, if the employees are younger. You could go as small as five to ten employees. But what happens with a smaller group, if they have one individual that’s maybe older or has higher medical expenses, it can actually make it more costly than traditional insurance.
Josh: All right, so my understanding with partially self-funded plans is that they’re really for a bigger company, meaning 25 is even a bit small. Because if you have one bad loss, that’s going to destroy your plan into tail spin until you get up to about a hundred people.
Michael: Well, that’s true with self-funded insurance. A lot of large corporations actually completely self-fund their insurance. And then what they do is they may transfer some risk away for catastrophic cases but it’s basically thought of effectively as being completely self-funded.
Michael: In partially self-funded plans, the business chooses the amount that they feel comfortable self-insuring and they buy insurance for the rest.
Michael: So those costs can be managed and the risk can be mitigated, it is possible to make them work for small businesses that have between 25 and 50 employees.
Josh: Oh, okay. Cool. That’s something that’s new and interesting.
So how much work are these plans for the owners? And why would they— I mean, do you do it because it helps you save money?
Michael: Well, you do it for a couple of reasons. It does help you save money. On average, for a small business owner, they can see premium reductions as much as 30% so it does help them save money. But the nice things is, if used effectively, the money that gets contributed into the plan can be a source of money to incentivize employees either through profit sharing. The money in the plan can be used to hedge against increases in future insurance expenses. Now, it’s one complaint that a lot of business owners have is they say, “Every year, my insurance costs are going up and going up and how do I budget for this?” Well, sometimes these plans are thought as health insurance-leveling plans because the excess money in there can be used to offset future increases to insurance costs creating stability for the small business owner.
Josh: So when you do a partially self-funded plan and you have a small company, aren’t you supposed to put your small company through the Insurance Exchanges?
Michael: Well, it depends on several circumstances. But the nice thing is, these partially-funded plans are actually exempt from a lot of the provisions of the Affordable Care Act. And I don’t want to get too much in the weeds on the politics of this—
Michael: –but a lot of clients have actually come to me, especially because they do turn on the news and small business owners – they have to think ahead, “What’s going to happen?” And they look at the news and they look at things like Republicans talking about maybe changing provisions of the Affordable Care Act. And like a small business owner could be nervous about investing heavily in a program that could change in a number of years.
Michael: So the nice thing is, because these plans are exempted from a lot of those provisions, we know that if they make significant structural changes to the Affordable Care Act that we’re still going to have this as a viable option for small business owners. They worked before the Affordable Care Act. It stands for reason that if there’s any major changes, they should continue to work.
Josh: So I’m going to assume that you could combine this partially self-funded plan with a health savings account. Would that be correct?
Michael: It is correct.
Josh: So could you explain to our listeners what a health savings account is. And then talk about how the two can work together?
Michael: So the health savings account is basically an account where the employer or the employee can contribute a portion of money on a tax deferred basis into the account. And should they need to purchase medical expenses throughout the course of the year, they can use that money, without taxes or penalties, to pay for medical expenses. At the end of the year, if they didn’t end up using that money, that money can grow and accrue similar to an IRA. And then at retirement, they can use that money for retirement income like they would with an IRA or 401K, or they can use that money in a tax advantage basis to purchase healthcare or health insurance for retirement.
Josh: That makes sense.
Now, when I’ve looked at HSAs in the past and I had them in the past, I see a lot of companies, they pay for the insurance portion and they expect their employees to fund the deductible part, the HSA part.
Josh: And my experience is that the employer funds the insurance but the employee never gets around to funding the HSA part and as a result they don’t go to the doctor unless they’re really, really, really sick.
Josh: So how would you recommend that employers don’t build that problem in for their employees by mistake.
Michael: Well, it starts with working with the employees to educate them on the benefits. And the employers should really consider when they’re looking at bringing in a vendor to provide a health insurance person [inaudible 00:08:10] out on the health insurance. They should really look for an advisor who’s committed to showing up to the small business and working with the employees and educating them on the benefits.
What I find new is—our experiences found is that a lot of employees really don’t understand the benefits of the health savings account. Some employees actually think the health savings account is like the old flex spending account. So if you remember those where money goes into an account but if you don’t use it by the end of year, you lose it.
Josh: Oh, yeah. Yeah.
Michael: So there’s a lot of misconceptions out there. So it really starts with working with the employees, working with the employer and making sure that everybody understands it, especially because the HSA is actually a huge value-add for the employees. I have a lot of planning clients of mine that actually work for employers and they wish they had an HSA. They realize the benefits of accumulating the money on a tax advantage basis, especially now with the loss of ability to itemize– you know, difficulty to itemize medical expenses. They look at an HSA as a great opportunity to save money, accumulate and buy healthcare in a tax advantage basis.
Josh: Yeah. It makes sense to me.
And one of the things I’ve often recommended to people when they are considering an HSA is what I call the “reverse HSA.” That’s where the employer funds the HSA and the employee funds partial cost of the insurance which fits in with the more traditional way that employees are used to buying health insurance. Do you ever do that with your customers?
Michael: Not exactly. But what we’ve done is we’ve used—
I mean, that’s a great idea actually. If you don’t mind, I think I might steal that from you.
Josh: Go right ahead [laughs].
But what we’ve done is with a partially funded self-insured health insurance plans, what we’ve done is work with businesses over a number of years where once they start accumulating monetary savings in their pool of funds, that they then start using that pool of funds to reduce the co-pays and deductibles on the insurance and make those contributions on the HSAs on behalf of the employees. And I think it works really well with— what I’ve heard you talk about in the past, about open book management—
Michael: –where you kind of explain to the employees like “This is why we’re doing this program. This is why saving money is going to help us be more competitive, saving money is going to help us maybe be better able to pay pay raises or to give you better benefits. And the HSA is really a way to kind of give the employee some ownership in that process and incentivize them for being good consumers of healthcare which is ultimately going to reduce the cost of insurance for the employer.
Josh: And the truth is our employees are a whole lot smarter about this stuff than we ever give them credit for.
Michael: They are.
Josh: These health insurance plans can be ungodly complicated. At the same time, I have found that employees can understand this stuff for one very simple reason. It’s because it involves them [laughs].
Michael: It does. And it involves their future.
Michael: So now you’re taking something that maybe a lot of people think of is not very sexy for a lack of a better term, right? You know, health insurance doesn’t seem that exciting. But now you’re giving them an ownership interest into it. This is not only a way to protect your family, it’s a way to save additional money for retirement. It’s a way to save some money in income taxes. And I think when most employees really get an opportunity to see the benefits of it, they love it.
Josh: Yeah, that’s my experience too.
So if you’re an employer, you’re going to go from a fully-insured plan of some sort, whether it’s an exchange fully-insured plan or a more traditional fully-insured plan, and you’re going to introduce a partially self-funded along with an HSA because I think the two really would work very well together.
Michael: You’re correct.
Josh: How do you go about introducing this so it becomes a positive and not a negative?
Michael: Well, you really have to work for the employees and especially too because one of the benefits of the partially self-insured plan is the plans are allowed to be medically underwritten, okay. So what that means is the insurance company is actually able to take a look at the health status of the employees. And what that does is it drives– just that alone actually drives the cost of insurance down.
Imagine if you’re buying car insurance and you couldn’t tell the car insurance company what the car was you’re driving, what your driver’s record was like, right? The car insurance company is going to assume you’re driving the most expensive car on the road and you’re driving very aggressively because of the risk they’re taking. If they actually get to see what the risk they’re taking, they can potentially lower the cost. And so, it’s really important that the employer works with the employees in establishing these plans.
Josh: So, Michael, we are talking about how to introduce this to the employees—
Josh: –what do we need to do to do to make sure the employees don’t— I mean, my experience is every time I ever introduce anything new to my employees, their question is, “What is Patrick trying to do to screw us?” And I don’t think that’s a completely irrational thought that happens from employee because it happens enough. So when you’re going to introduce this, how do you make it a positive?
Michael: Well, I think, one thing— you know, it’s really kind of show them the benefits. And especially as you mentioned in the past about the open books, if you’re using an open book management style, the employees will already have some sort of sense of the goals of what the business is trying to accomplish and the expenses. So I think that helps.
But then the other thing I think that kind of helps is it’s nice if you can bring in a professional that will share the benefits of a program to the employees so they don’t feel like this is just something that management is trying to cut corners or reduce costs. It’s beneficial to have someone actually explain to the employees, “This is how the program is going to benefit you. This is how you can maximize the benefits of the program and really take advantage of it.” Because it really is a benefit to employees.
It does lower the cost to the small business which is great. But it’s ultimately a benefit to the employees, especially to a lot of these younger employees who aren’t using the health insurance expenses a lot. You know, if you have an employee that’s 25 years old, 30 years old, he doesn’t have maybe kids or a spouse yet and he’s not really taking advantage of the healthcare, he’s not seeing a benefit from all the money the employer is actually paying on his behalf. So now this becomes an opportunity where they can see, “Okay, I have money that’s going into my account every year.”
Josh: Yeah. That brings a kind of an interesting point is that an awful lot of times, when you look at companies, the younger employees are saying, “Gee, I’m subsidizing the healthcare costs of the older employees.” And with an HSA plan, you basically are taking that away and you’re saying, “Well, if you stay healthy and you do the right things and you live a healthy life and don’t have a lot of medical expenses, you get to put this extra money in your pocket which, over a period of years, can add up to be a significant amount of money, I assume.
Michael: It can. It can add up really quickly especially for young people. And depending on how the plan’s set up, it doesn’t necessarily come out of their standard of living, especially young people. They may be struggling with student loan debt, maintaining housing – those types of expenses setting up. They might not be in the situation where they can afford to max out a 401K but the HSA might be an opportunity for them to save some additional money each year.
And for those that are saving, maybe they’re already maxing out their 401Ks or IRAs. The HSA can be a great opportunity for them to save additional money, reduce their taxable income, and save some additional money on a tax advantage basis for retirement.
Josh: Okay. So, Michael, we just have a few minutes left and I’m a little curious about I’m an employer and I say, “Well, this is all nice and good, Michael, but it’s too complicate for me.” And so, if somebody doesn’t want to go to partially self-funded and an HSA and they say, “I don’t want to do this complicated thing” because it is complicated, what kind of recommendations do you have for people who would like to have a more traditional insurance that can provide some of the benefits for their employees?
Michael: And so, you can still offer an HSA plan without offering the self-insurance element to it. So that’s still a nice way to incentivize employees to take an ownership interest in healthcare. The idea is by giving them the opportunity to save that money, they’re going to be better consumers of healthcare. And that because they’re purchasing health insurance more cost effectively, that’s going to offset premium increases in the policies. Unfortunately, because of recent healthcare limitations, our healthcare legislation, as it was passed, we’re kind of limited to what we can offer outside of something like partially self-insured plan.
Josh: How do you find a broker who understands this stuff because, in my experience, there are not a lot of health insurance salespeople that really have any clue at all about partially self-funded plans and how they work. And if you bring it up to them, they’ll say, “Oh, stay away from that. It’s too dangerous and too complicated.”
Michael: It’s kind of funny that you mentioned that because we didn’t intend to become health insurance experts. My family started doing the health insurance about 30 years ago and we tried to move away from it a little bit. And I actually had clients come to me and they’re like, “Our insurance person’s telling us this.” Maybe they’re a small business owner and he’s like, “You have an opinion on it.” I’m like, “Oh, I have lots of opinions” but I’m like, “Let me take a look at it.” And I look at what they’re going on and then I tell them, “You’re a small business owner. Well, you should just do this and this. Consider these programs like the partially self-insured programs.” They would go back to their insurance people and try to get them to do it. And they didn’t want to do it. And they would say, “Well, it’s too complicated. It’s difficult. The costs are too high. You’re taking on too much risk.”
And what I found out was what that was really coming from was that the agents and advisors unfortunately didn’t want to do the work, right. And then we actually tried creating relationships with people that bring them in. And, unfortunately, there’s a lot of individuals out there, they just want to go for the low-hanging fruit and signing up somebody – a small business for an exchange policy. It’s quick and easy. And, unfortunately, it’s the low-hanging fruit.
Josh: Yeah. And I also find that many health insurance “experts” don’t understand this stuff and it’s easier to say, “Just stay away than learn about it.”
Michael: Yeah. It’s a little more complex on the advisor’s end.
Michael: It’s really not more complex on the employer’s end. They’re actually doing the same amount of work, that is the same amount of effort in signing up for a traditional plan as there would be a plan like this. So they’re really not taking on any additional expense, any additional complexity. If anything, the expenses are going to go down a little bit.
And the nice thing about that is an employer that’s maybe worried about having a large expense. Well, all that they’d want to commit to is partially self-insuring what they felt comfortable with, right. So whatever that amount is, so they’re not going to get into a situation where they end up owing more for the health insurance than what they agreed they would feel comfortable with.
Josh: Sure. That makes perfectly good sense to me.
Unfortunately, we are out of time. And, Michael, I’m going to bet there are some listeners who would say, “Well, this sounds pretty cool. I’d like to learn some more. How do I find this guy?” So how do they find you?
Michael: They can go to our website, yourmoneygeek.com.
Michael: And we have some on there. It’s a new site we’ve launched. We’re going to be adding new services to that website. But they can go onto that website, schedule a phone call, a request, consultations and also get some background information.
And I have an offer for you also. I just published my first book. I was going to say my new book but it’s also my first book. And it’s called Sustainable: A Fable About Creating a Personally and Economically Sustainable Business. To get it is really is easy, you just got to www.sustainablethebook.com. There’s a big orange button on the homepage that says, “Buy the book.” So just click on that and buy the book. It’s $15.95 and you get two, what I consider kind of cool bonuses with it.
The book is a parable about running a privately held business. And there’s lots of lessons within the book. Many people say, “Okay, how do I actually implement this stuff?” so I’ve written an implementation guide which is an ebook. And you get that if you buy the book on my website. And if you buy the book at Amazon, which you can also do, you don’t get the bonus. And the second bonus is you get a free 20-minute conversation with me where we get to talk about a problem that you’re having or an opportunity you’re not taking advantage of. And I can tell you that in the 20-minute conversation, you’re going to walk away with at least one things that’s actionable that you can do when you get off the phone, in the next 10 minutes, after we talk.
Thanks a lot for spending some time with us today. This is Josh Patrick. You’ve been at the Sustainable Business. I hope to see you back here really soon.
Narrator: You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around 100 years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802-846-1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an email at firstname.lastname@example.org.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.