Finance Monthly March 2020 Edition

reducing benefits translates into reducing costs. The reality is there’s an inverse relationship between cost and benefits. Most executives are shocked to look behind the curtain and see that quality and cost are inversely related. 2. 1% of employees incur 25% of ALL claims – and there’s a name for them. They are called Super Utilisers and are the cornerstone of our risk management solution. If you can do something about your Super Utilisers then you can: • Completely change the economics of the healthcare budgets in your portfolio. • Arbitrage the cost of health claims by double digits (spinning off the Super Utiliser risk). A typical self-funded company books an unfunded liability of $100K-$1M per member and SIHRA lowers that risk to less than $5K. WHY IT’S HARD There are obviously many options available with healthcare consultants and brokers. But it’s hard to really know if you’re exploiting all the opportunities available because the industry sets up so many roadblocks. • The healthcare supply chain dictates terms to companies. No one knows the cost of anything until they get a bill 30 days later! • The insurance companies prefer to sell a black box, hide their margins and they aren’t transparent. They’re set up to look like a bond but in some years receive stock-type returns on your premiums. Most companies manage healthcare like a gambling addict – they might accidentally win once in a while, but they fully expect to lose every year! • Industry Best Practices have mostly failed to produce measurable savings for years. Additionally, one has to include the roadblocks established by the companies themselves: • The culture of many companies rewards status quo and creates a fear of change. • Innovation is perceived as risky so the path of least resistance is the rule. • While operational improvements are routinely implemented – healthcare is ignored. THE SOLUTION Catilize Health’s SIHRA technology transforms uncertain large liabilities into small fixed expenses by driving employee engagement into a medical plan that arbitrages pricing asymmetries. As a result, participants receive 100% coverage, claim liabilities are capped, and enterprise value grows substantially. SIHRA is bolted next to your existing health plans without the need for changing any vendors, consultants or health plans. It enables companies to pivot healthcare from an operating expense into an asset that generates free cash flow and earnings. Lack paints a typical picture to better visualise SIHRA: • An average self-funded 5,000-employee company will spend $60M on its healthcare. • The company will purchase stop-loss reinsurance protection of about $700K per member. This means the company has an unfunded maximum liability of $700K for every member (for example, 5,000 employees = 10K+ members). • The SIHRA solution shows the company how to arbitrage that risk from $700K per member down to <$5K per member. • A family of four translates to $2.8M in unfunded liability and the SIHRA reduces the unfunded liability to <$20K for the family. HOW SIHRA WORKS The SIHRA works by leveraging behavioural economics. Science has proven that human beings are risk-averse and will act in their own financial self-interest. Free cash flow is created by attracting a disproportionate number of high claimants (the Super Utilisers) to enrol (spin- out) in alternate group coverage by offering them 100% medical coverage with zero out-of-pocket expenses. They voluntarily elect coverage. When employees save thousands of dollars in out-of-pocket expenses after enrolling in the SIHRA, they let all their coworkers know of their savings. Consequently, enrollment grows organically every year, which produces larger savings and higher enterprise value. It works because each of the portfolio company’s medical claims is dispersed in the same way: • 1% of members incur 25% of ALL Claims • 5% incur 50% • 20% incur 80% • 30% incur 93% 14 www.finance-monthly.com FRONT COVER FEATURE - RECAPTURE LOST PROFITS