This edition of MRM's "Ask the Expert” features advice from Trion Group. Please send questions to Modern Restaurant Management (MRM) magazine Executive Editor Barbara Castiglia at firstname.lastname@example.org.
Q: As restaurant groups build benefit solutions, will they find more savings if they focus on brokering or strategy?
A: The proper consultative answer is, it depends! The brokerage approach focuses on a simple analysis of per unit cost. This is the appropriate strategy for a smaller operator with a single restaurant or with a limited number of restaurants that has to be fully insured. The only factors that have to be considered for this option are price and the use of plan designs that are appropriate for the sector.
For larger operators, especially those with multi-state operations, the analysis becomes far more complicated. Since self-funding will be the likely solution, more technical factors must be built into the decision-making process. Factors to bake in include the vendor’s plan design flexibility, fixed cost analysis, network discounts, migration assumptions, claim management services, company growth plans, and reinsurance solutions.
Here’s a deeper dive into each.
Plan Design Flexibility: Many carriers with little experience in this sector simply offer a high deductible plan (HSA compatible) as the basic plan offering. This is both unappealing to the workforce and can unintentionally increase claim cost. Chronic medical conditions that can be controlled at the primary care level become catastrophic claims due to the tendency of these employees to delay primary care in order to avoid an out-of-pocket cost. Often, carriers will add a pricing surcharge based on the lower levels of participation in the traditional plans. In addition, many carriers don’t offer an integrated minimum value or minimum essential coverage (MEC) offering, and they won’t allow a third-party MEC program to be offered alongside their medical plans. A minimum value plan, however, is important for two reasons: First, employees like them! Second, for the employer, every MEC participant saves the employer thousands of dollars because otherwise, the employee would be in a higher cost plan.
Detailed Cost Analysis: Analyzing cost in a self-funded program is far more complicated than simply running a spreadsheet of the various quotes. Network discount rates should be independently verified, so any hidden fees/costs such as inter-plan charges and prescription drug arrangements can be quantified, network access data should be standardized and migration forecasts developed. None of these items are typically included in the proposals provided by the carriers, and they can have the greatest impact upon final cost.
Claim Cost Management: As noted above, proper plan designs help control high cost claims; but there are also utilization programs that should be considered. Well-being programs are very ineffective for this sector; however, clinical prescription drug programs and concierge services have been very successful even though they are difficult to quantify. Employers that have been implementing these programs on a prospective basis are seeing trend rates that are less than half that of the general market. They merit careful study.
Growth Plans: Every restaurant is in growth mode, albeit at different rates. Expanding restaurant groups know which markets and states are attractive to them and which ones they want to avoid. The choice of carrier network should match these goals. A good regional carrier with attractive medical plans and rates might be very attractive for the group’s current footprint, but could make geographic expansion difficult. For example, a carrier in one geographic region might have a significant local presence; however, imposing these coverages outside of the area can be unexpectedly costly and ineffective. As groups choose their medical plan partners, they need to include information regarding their growth plans and business strategies. In addition, a hospitality company needs to understand how their carrier partner can assist with growth. Experienced carriers (and consultants) who understand the sector can address and manage the gnarly claim transition issues that are inherent with the acquisition process.
Reinsurance Solutions: Much like medical plan carriers, some reinsurance carriers understand the sector and some do not. Key differences from other sectors are:
- Participation rates are actually healthy at around 25 percent
- It may be more cost effective to accept a laser than to pay for a “no laser” contract
- Reinsurance partners should be more cooperative during the acquisition process; and
- A reinsurance carrier with experience in the sector should understand that buying and selling locations is normal and does not fret the process.
All of this brings us back to the original question. While a brokered rate may look attractive, restaurant operators need to ask all the strategic questions first and understand how they are priced into the brokered rate. We recommend that large groups – especially multi-state groups – look for a partner and not a rate. It’s important to be transparent and upfront with the carrier on your operating plans and allow the carrier to answer. Then look at their costs. Managing a lot of restaurants is hard work and complex; likewise, your insurance carrier needs to be able to manage your insurance needs with all its complexity and have the flexibility as it evolves. For large groups, strategy is first, then brokering.