[S2E24] The Kaiser/Non-Kaiser Death Spiral: What Employers Need to Know

It's almost renewal season. Covered California just posted a 10% average rate increase, and small groups could be looking at 10 to 15%. But the number on your renewal isn't the real threat to your plan. Kaiser might be.

Vincent Catalano, founder of CLEAR Healthcare Solutions, spent years as one of the top three Kaiser brokers in the Sacramento region with thousands of Kaiser members in his book of business. In this episode, he breaks down a pattern he watched play out again and again: employers who offer Kaiser alongside another carrier, without the right contribution strategy, slowly and unknowingly starve that other carrier of healthy membership. He calls it the death spiral, and once it starts, it's hard to stop.

Vincent walks through exactly how the mechanism works, why it's almost never caused by anything malicious, and the one counterintuitive move most brokers won't tell you to make.

Inside this episode:

• Why Kaiser's historically lower premium quietly reshapes your enrollment
• The moment adverse selection turns into a full-blown death spiral
• The contribution strategy that protects your non-Kaiser plan long term
• What to do if you're already at 60, 70, or 80% Kaiser
• Why some employers are better off going 100% Kaiser, and how to know if that's you

This episode offers practical, direct, and exactly the kind of strategic conversation most employers aren't having with their broker.

ABOUT VINCENT: Vincent Catalano is an independent employee benefits consultant and strategic advisor with over 20 years in the industry, and the founder and CEO of CLEAR Healthcare Solutions. No carrier ties, no commissions, no hidden incentives. Former SVP at Arthur J. Gallagher. He hosts the CLEARly Beneficial Podcast and serves on the boards of the Crocker Art Museum and the Sacramento MetroChamber.

CONNECT: If Kaiser is part of your plan mix and this got you thinking about your renewal, reach out to Vincent at vincent@clearhcs.com. He's not looking to replace your broker, just to bring the strategic conversation most employers aren't having before they sign.

DISCLAIMER: The views expressed are those of Vincent Catalano and CLEAR Healthcare Solutions and are provided for general informational purposes. This content does not constitute insurance, legal, or financial advice specific to any organization's circumstances. Vincent Catalano and CLEAR Healthcare Solutions are independent, with no carrier ties, no commissions, and no hidden incentives.

Music licensed through Soundstripe.
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Transcript

Vincent Catalano 0:00

And that is, I call it the death spiral. And and in particular the Kaiser Permanente death spiral, because they're frankly the cause of it. You know, so when I was a broker full time and doing the dance, you probably had, you know, I had thousands and thousands and thousands of Kaiser Permanente members underneath uh my book of business. I was probably one of the top three Kaiser brokers um here in the in Northern California, Sacramento region. And uh and almost every single one of my clients had a component that was Kaiser Permanente. And listen, Kaiser is one of those things, you love it, you hate it, people are born there, they die there. I mean, it's it's it's a lifelong relationship, and they know that. And so when it comes to making decisions around your plan, and Kaiser is part of the mix, you have to pay attention to some things that you may it may not otherwise be obvious to you. Hey everybody, happy Monday. Um here we are, end of July. And uh by now, many of you who are in uh HR and finance are uh pondering your uh 2027 uh health insurance renewals for uh this this coming open enrollment season. And um, you know, it's never an easy time. I I think there's nothing that uh strikes more fear in the hearts of uh HR folks than hearing the words renewal time. And um I know this year is probably very difficult for a lot of organizations. Um I saw the other day on TV that uh on average Covered California, for example, will be experiencing a uh a 10% um rate increase for uh most of its plans on average. And uh wouldn't surprise me that you uh in small group that that translates to you in small groups uh throughout California, and then large groups, you know, depending upon what's going on with you, could very well be looking at 10 to 15 percent rate increases. Um and so uh it requires good decision making, it requires thoughtfulness. Um but also keep in mind, you know, you're gonna be under a time pressure right now to make a decision. And you don't have a lot of time really, you know, and and don't make a bad decision. I mean, sometimes maybe you take the renewal as is, and and then as we go into 2027, you know, we partner together and we take a look at uh what a real strategy for the next five years looks like versus worrying about the next renewal. Um but today what what I wanted to really cover is um something that uh I think few people really talk about, and that is uh I call it the death spiral, and and in particular the Kaiser Permanente death spiral, because they're frankly the cause of it. You know, so when I was a broker um uh full-time and doing the dance, um I probably had you know, I had thousands and thousands and thousands of Kaiser Permanente members underneath uh my book of business. Um I was probably one of the top three Kaiser brokers um here in the in Northern California, Sacramento region. And um and almost every single one of my clients had a component that was Kaiser Permanente. And listen, Kaiser is one of those things, you love it, you hate it, people are born there, they die there. I mean, it's it's it's a lifelong relationship, and they know that. And so when it comes to making decisions around your plan, and Kaiser is part of the mix, you have to pay attention to some things that you may it may not otherwise be obvious to you. You know, and and the first part of it is what is, you know, how do you choose to, you know, charge your employees for the premium associated with Kaiser and the other carrier? Because usually there's gonna be Kaiser plus one, or in certain regions, it could even be Kaiser plus two. You know, the Sacramento region is a little unique because we have two local HMOs that um, Western Health and Sutter Health Plan, that we call it the triple play. You can have Kaiser, Western, and Sutter. And generally the three of them, you know, I hate to say this, but match and mirror rates, you know, pretty well with each other. Um but in some cases you can't match and mirror next to Kaiser, especially if the other carrier is one of the large nationals, UHC, Signa, Aetna, Anthem, or locally in California, Blue Shield of California. So you you can't really um you know um easily play a triple play in those situations. And so what happens is, you know, Kaiser historically, and and this is true, historically, they have been the one with the lower premium. So that's that's that monthly number that you're gonna pay on behalf of an employee. So that lower premium could be 10%, 20% lower than the non-Kaiser carrier. So what does that generally mean? You and your finance team and your HR team, you know, you all decide to um move forward with your renewal, and then you price the plans to your employees based on the premium that you're being charged. So that honestly is is uh an old strategy. It's been used for years, but it also creates this notion of um adverse selection to the non-Kaiser carrier because as premiums have increased over the years, and and they have increased. I mean, you know, back in the day, I remember the days uh 20 years ago when you know insuring one employee per month was 150 bucks. Now we're pushing 800, 900, 1,000 bucks to insure one employee per month. And so as you've shared cost shared with employees, as you've increased the cost share for employees, um, and you've priced those sharings along with the price of the premium, and the Kaiser plan has been lower, you've noticed probably that employees walk with their wallets. They may have been a died non-Kaiser person, but then they take a look at their paycheck and go, man, the Kaiser bit's much lower. I'm gonna buy that for me and my family. So what happens over time is that the Kaiser enrollment with your group increases, increases, increases. The non-Kaiser carrier loses membership, and that creates what we call the death spiral. And so, how do you protect yourself from the death spiral? Okay, the the first thing to do, frankly, is to look at your plan from a holistic perspective and say what is the total cost of my plan? And whether the premium is $800 per month to you from the insurance company or Kaiser, or a thousand bucks to you from the non-Kaiser carrier, for example, you should work out your finances such that the employee is not penalized for anything, meaning they should have a cost share, but they shouldn't pay less for the carrier that costs less. Now that may sound completely counterintuitive, but what you're doing here by making that a strategy is you're protecting the health of your plan long term. Most people ignore this, most brokers won't tell you to do this, but it's part of the most important things you can do. Because if you don't, all right, over time you're gonna see leakage, okay, from the non-Kaiser carrier to the Kaiser. And as that leakage occurs, the non-Kaiser carrier loses membership, they take a look at their math and they say, well, the math ain't mathing. And so we need to increase the amount of money we charge you. So you start to get begin this divergence. Okay? The divergence is the non-Kaiser carrier starts giving you a higher increase. The Kaiser, they sit there because they'll take whatever membership they get and they're gonna play whatever game they want to play, but they're always gonna try to position themselves as a lower cost play with the organization that you're working with or your own organization. So the key is to take a look at the cost, overall cost, and then from there decide on a premium that's equivalent so the employee can pick Kaiser or not Kaiser and pay the same thing. Okay? That is probably one of the best strategies you can you can work on. Now, people might grumble, oh my God, Kaiser costs less, I should be charged less. That's not the point. The point is keeping that health plan, the other health plan, healthy over the long term. Because at some point, that other health plan is going to come across with an unreasonable renewal, and I've seen it happen. They'll come across with a 40% renewal, literally just to get rid of you. Okay. So what happens then? So now you get now let's pick on Anthem for a second. Anthem gets rid of you, okay? And now you're stuck with a handful of others in the marketplace that are capable of insuring your population. Okay? So now what happens is Unite Healthcare, Blue Shield, everybody throws a price into the mix, okay? And one of them will come in with a competitive price for year one, with the hopes, right, that they will gain enough membership to withstand the pricing of the situation. Okay. So if you're in that situation and that occurs, you know, another strategy to consider is actually just freezing the Kaiser membership. Oh my God, you can't do that, right? Oh my God, my employees will freak. Not the employees who currently have it, but any new hire coming into the situation, being hired by the organization, should not have access to Kaiser. They should have access to the other thing. Okay, because you have to look strategically, you have to look long term. And you want good partners. Okay, at the end of the day, insurance companies know that you've gone to market every year, that your broker has gone for quotes every single year, and they don't look at that favorably. Most insurance companies like stability. You should like stability, and therefore they will price things out in a way that benefits them, but also how they mind the risk to themselves. So as you are making decisions, you know, it's not an easy one because people have very strong feelings about something like Kaiser Permanente. And what I've told clients in the past is well, you know, you've gotten to a point where you know you're 60% Kaiser, 70% Kaiser, sometimes 80% Kaiser. I've seen one organization do this to itself. And then, you know, it was almost impossible to find another insurance partner to play ball with them. And so um at that point, just go all Kaiser. That's an option, okay? Kaiser's got reasonable plans for plan selection choices. Um, they're innovating in many, many ways. Um they don't know how to price their PPO. I mean, that's just insane. But it is what it is. And in the aggregate, um, it still may make economic sense to to do something like that, especially when you need to ensure out-of-area people. So going 100% Kaiser may not be the worst decision in the world, but if you're not gonna go 100% Kaiser, you have to protect yourself, okay, from the death spiral because it'll ultimately catch up with you. So if this strategy is something that resonates with you, um give me a call or shoot me an email at vincent at clearhcs.com and let's have a conversation. I'm not looking to replace any broker or a relationship that you currently have in place. I you know, I don't want to do that. Um, but what I can do is bring you a level of strategic conversation that you're not currently having with your broker. They think they might be doing it, and you might think they're doing it, but they're not doing it. Okay. So the role I could play is as an arbiter, as a as a strategic advisor, as someone who can give you better ideas about how to use your health plan and health insurance renewals, because I strongly believe that there's two tracks. There's the renewal hamster wheel, and then there's a strategic hamster wheel. And I'm gonna help you be very effective on that strategic hamster wheel. So be in touch, let us know how we can help, and continued good luck during this renewal season. Take care. This podcast reflects the personal views of the host and guests, not their employers or sponsors. See you next time.