Self-Funded w/ Spencer - Episode 25 - Vincent Lewis

This podcast episode features an in-depth discussion with Vincent Lewis, VP of Sales at Partners MGU, focusing on the dynamics of the self-funded healthcare market, the role of Managing General Underwriters (MGUs), and emerging risks like gene therapy. The conversation provides a deep dive into the operational and strategic aspects of medical stop-loss insurance, drawing on Lewis’s extensive 35+ year career, which began in underwriting before transitioning into sales. The speakers emphasize the importance of human connection and consultative expertise in the relationship-driven stop-loss business, particularly following recent industry conferences.

A significant portion of the discussion is dedicated to defining the MGU model versus direct writing carriers. Lewis explains that MGUs perform most services—underwriting, policy issuance, premium collection, and claims payment—but typically take on very little or no risk, which is laid off to reinsurers. This structure allows MGUs, like Partners MGU, to offer greater access and intimacy, contrasting with the perceived bureaucracy of large carriers. Partners MGU’s unique value proposition, the "Build Sell Manage" model, is highlighted: the intent is to build the company to critical mass and eventually sell it, splitting 50% of the sale price with producer partners—a model successfully executed previously with Partners RX.

The speakers also analyze current market conditions, noting an unprecedented aggressiveness in pricing due to many carriers being behind their growth goals for 2021. This commoditization of stop-loss is identified as a major pitfall, where the focus on the lowest price often overlooks crucial policy provisions (like plan mirroring) and the quality of the underlying contract. Looking forward, the conversation addresses the future of risk, particularly the impact of gene therapy. These emerging, high-cost, and often curative treatments (such as Zolgensma and CAR T-cell therapy for cancer) pose a significant threat to small employers and the sustainability of traditional stop-loss underwriting. Lewis suggests that a potential solution could be the creation of a specialty carve-out policy for gene therapy, similar to how organ transplants are often managed, to shift this unpredictable risk off the core stop-loss coverage.

Finally, the discussion touches on operational innovation, specifically the use of advanced data analytics. Partners MGU has invested heavily in proprietary risk analytics using tools like Microsoft Business Intelligence (BI). This system allows them to analyze the propensity for a case to be profitable down the road, inform underwriting decisions, and provide objective data on TPA performance and block analysis to their producer partners. This consultative approach, combined with a commitment to developing talent through an internal "farm system" for underwriters, positions the MGU to navigate the evolving market and address the growing demand for self-funded options in the small group market (employers under 100 lives), which currently sits at only 12-13% self-funded penetration.

Key Takeaways: • Gene Therapy Risk Management: Emerging high-cost gene therapies (e.g., Zolgensma, CAR T-cell therapy) present an unsustainable financial risk for small self-funded employers, potentially leading to public relations nightmares if treatment is denied. A strategic recommendation is to advocate for or create a specialty carve-out policy for gene therapy, akin to organ transplant policies, to shift this catastrophic risk away from standard stop-loss coverage. • MGU Value Proposition (Access & Intimacy): MGUs differentiate themselves from large direct writers by offering superior access to executive leadership (e.g., the CEO) and faster claims turnaround times (Partners MGU averages 4-5 days for clean claims, 14 days maximum for complex claims), fostering stronger, more responsive partnerships. • Avoid Stop-Loss Commoditization: Brokers and employers must look beyond the lowest price when purchasing stop-loss. Failure to read and understand critical fine print provisions, such as plan mirroring and exclusions, can lead to significant conflicts and denied claims when high-cost events occur. • Leveraging Risk Analytics: Sophisticated MGUs are moving beyond traditional underwriting by utilizing proprietary risk analytics programs (like those built on Microsoft BI) to analyze the long-term profitability potential of a case, rather than just using it for decline decisions. This data informs proactive suggestions to producers regarding adjustments to deductibles or plan design. • Strategic Partnership for Risk Control: Stop-loss should be viewed as a mutual partnership between the MGU and the producer/consultant. The MGU provides data-driven block analysis to help the consultant identify high-risk areas and implement programs to control unpredictable risk, ensuring better renewals and long-term case stability. • Small Group Market Growth: The primary growth area for self-funding is in the small group market (under 100 lives), which currently has only 12-13% penetration. Brokers who recognize this need are seeking level-funded and transitional products, highlighting the need for innovative underwriting solutions to overcome the barrier of limited claims data. • Importance of Underwriting Expertise: A background in underwriting is highly beneficial for stop-loss sales representatives, enabling them to act as subject matter experts who can answer technical questions immediately and explain complex provisions, building trust with producers without needing to defer to internal teams. • Industry Talent Pipeline: The average age in the insurance industry is high (around 55), necessitating a concerted effort to create mentorship roles and "farm systems" (like Partners MGU’s program of hiring and training college graduates) to attract and groom the next generation of talent, changing the perception of insurance as a "boring" career. • Market Aggressiveness Warning: Due to competitive pressures and carriers needing to hit growth goals, the stop-loss market is currently experiencing aggressive pricing. This may be unsustainable, and the industry should brace for potential rate corrections or the delayed impact of deferred healthcare utilization from the pandemic in 2022.

Tools/Resources Mentioned:

• Microsoft Business Intelligence (BI): Used by Partners MGU to develop proprietary risk analytics tools for block analysis and case profitability assessment.
• David Young: Mentioned as a third-party system potentially used for underwriting.
• Voya, HEC: Other industry entities mentioned in the context of gene therapy and transplant policies.

Key Concepts:

• MGU (Managing General Underwriter): A stop-loss provider that handles underwriting, policy issuance, premium collection, and claims payment, but typically lays off most or all of the risk to a reinsurer, operating under a carrier’s paper (e.g., U.S. Fire, Everest Re).
• Plan Mirroring: A critical stop-loss policy provision ensuring that the stop-loss policy essentially duplicates or mirrors the provisions and coverage defined in the employer’s underlying self-funded plan document.
• Gene Therapy: An emerging medical field involving the insertion of human-made genes to attack or replace bad genes causing ailments (e.g., cancer, hemophilia). These treatments are often curative but carry extremely high costs (up to $2 million per dose), creating significant financial risk for self-funded plans.
• Build Sell Manage Model: Partners MGU’s unique business model where the company is built to a point of critical mass with the intent to sell, splitting 50% of the sale proceeds with producer partners, while the executive team remains contracted for continuity post-sale.