Self-insuring is routine for large employers, and a growing trend for smaller plans. Listen in as Mark Schmidt and Michael Ciarrocchi of Meritain explain some fundamentals to smart change management, the value of interchangeable point solutions, and where this TPA fits in the larger CVS Health and Aetna strategies.
Well, Sharon, we have two special guests with us today. Delighted to have with us, , first of all Mark Schmidt, who's the President and CEO of Meritain, , a division of Aetna. , you know, Mark is from Tampa, Florida. He has five children and two grandsons. We're delighted to hear more about that later on maybe if he so chooses. But he was educated at DePaul University. , Mark has, , about 37 years’ experience in this industry, so he's quite a veteran. , he's been with Aetna for about 14 years. , prior to that, spent about 13 years with CoSource, , 10 of which he was the President there.
But in his, , role, , today with, , Aetna, it's really over a, a, a group of companies including Meritain Health, American Health Holding, , First Health and Aetna Signature Administrators, , , among others. So, , we're delighted to have Mark on board today. Mark, glad you're with us.
Thanks for having me.
All right. Great. Also, his colleague, also from Meritain, is Michael Ciarrocchi, who is the Chief Marketing Development Officer at Meritain Health. And his responsibilities, he's really, , , got both a, a growth strategy and business development responsibility as well as some oversight on client teams. But he has been with Aetna in various capacities for over 21 years now. And, , has been with Meritain since 2011. And he's from Hartford, Connecticut. So, , Michael, welcome aboard.
Thanks, Don. It's great to be here.
All right. Great. Well gentlemen, , you know, I'm excited to hear and learn a little bit more about, , what you guys do in the marketplace today. It's such a, a fascinating market we're in. You know, a- as time marches on, cost becomes a bigger issue. And we're going to talk more about that later. But first, before we dive into all that, I want to understand, , you know, essentially where's Meritain coming from and how did Meritain as a company, , makes its way into the Aetna family of companies. , Mark, would you give us a little briefing on that?
E- e- sure. , back in 2011, , Aetna bought Meritain, , for what, at the time, we thought would be a lower cost solution on a self-funded basis. And as Michael and I both have shared with, , many colleagues over time, which- what m- what Aetna actually bought was a more flexible self-funded platform that's tailored for the TPA marketplace. And so if you have clients that are looking for a more flexible solution that brings in a best in class from their - perspective, that's what Meritain sells.
In the past, Aetna had been selling into that space, but basically we were selling a round peg into a square hole. And now, basically, what we have is a round hole and a round peg that fits better. And our success has been demonstrated by our growth over that period of time.
But that's, that's basically when, , Meritain joined. And it was back in 2011. And so we're coming up on our tenth anniversary.
That's great. So, , suffice it to say that, you know, if you go to a typical insurance company, you're going to get a, packaged up solution. And what Meritain's presenting the marketplace- place with is, you know, the ability to, to interchange different components of the plan essentially. I got that straight?
W- yes you do. That, that's correct. And so when we look at it, , and Michael can probably expand on this a little more, but we look at Aetna self-funded solution as an integrated solution. And we look at Meritain's as an integrating, where we take what the client wants us to do or what they perceive meets their needs or best in class. Michael-
Yeah, Mark, that's, that's exactly right. A- and the great thing for, for our customers is that they really do get the opportunity to select which of those different self-funded platforms makes the most sense for them. So they could decide whether or not they'd like to be, , in that sort of fully integrated model, , with the great solutions that we provide on the Aetna side. Or, from the Meritain perspective, we find a lot of customers who want to have very customized plan designs, who want to integrate other point solutions, , who want a, a tremendous amount of control over their data. And so if that's the opportunity that, that, that cl- that fits their and their organization, , a little bit better, then that's certainly something that we can support, , in, in either capacity.
That's great. And it- it's great to have both options under the, you know, the CVS umbrella, both Meritain and the Aetna solution. So I know we want to circle back to kind of how we relate up to CVS. But before we jump into that, Don mentioned in the beginning that medical plan costs just continue to rise. And it, it continues to be a top concern for plan sponsors and employers all over the country. And I'm curious if you have, , any insights or, you know, thoughts around why costs continue to grow faster than we see inflation.
Y- well certainly the- our observation is, is certainly the same and certainly business as they, , look to, , mitigate those types of costs are dealing with those realities as well. So, so certainly that is true. You know, there's a number of different factors and some of them sort of ebb and flow, , on- in any given year. But generally speaking, generally speaking, , number one, we certainly have to acknowledge the, , right, the impact of, , of, of lifestyle. That certainly does- that is certainly one of the things contributing to, , to the, , to the increase in those costs.
, but also, , we're also seeing, , the high cost of treating chronic illness, chronic disease. Arthritis, cancer, heart disease, et cetera. , those, , are, are- the ways that we are, , treating those and the incidence rates that we're seeing around those is, is certainly rising as well.
And then finally, we're certainly seeing the impact of, , high cost drugs. , prescription drugs with new, , with new medications coming out. And obviously, there's, there's a, there's a real challenge there in that on the one hand, , the ability to make meaningful progress in, in, , health outcomes i- is certainly something that we need to embrace. And also recognizing that the cost of dealing with that treatment, , also creates, , challenges for those who are trying to find ways to, , to, to finance for that.
So, , the, the other thing that we've noticed, in particular recently, is that historically, , you would deal with, , medical costs that might've been increasing, , a- a- above the cost of inflation. But what's unique about kind of the environment we're in- we're in right now, is that not only is it general healthcare costs that are so expensive, but it's, , in many cases, it's the very, very high cost, , , drugs or the very, very high cost, , , claims that are driving that increase even more.
So, , before, , when you would look at, you know, very e- e- very, , the rare types of cases, right, you might see 600- $700,000 that, that in extreme case, that would be as big as a claim gets. Well now in, in sort of catastrophic circumstances, you could see them at five, six, seven, , north of $8 million, , for those types of things. And so, the reality is, is it's not just sort of the underlying, , cost of that care. But in some cases, the extreme costs of, , a very limited number of those types of catastrophic illnesses as well.
So, yeah. That's fascinating I- and makes a lot of sense. I think, , you know, many of our listeners, - you know, that message will resonate for them as to what they're struggling with in terms of controlling their cost. Wondering, , guys, could- would there- what c- what would you suggest in terms of maybe some of the levers that a plan sponsor can pull to help with, , you know, controlling cost? What are some of those things you guys focus on in the business?
Well, one of the things that we think is particularly important is, , making sure that you avoid strategies, , that are really- that really may look enticing to address one component of your costs of your plan. But, as it turns out, many of those solutions, you end up just squeezing one end of the balloon and just sort of causing other costs- causing other costs to, to rise. So for instance, a- a number of times we will see, , very well intentioned, , consultants or, or customers who will want to try and reduce their exposure around prescription drugs. , unfortunately, what a lot of times happens is that that creates challenges down the road with the underlying medical costs as, , members are unable to get access to the, , preventive type of care and the, , the types of medications that keep those types of chronic conditions at bay.
And so, , one of the things that we encourage is to take a wholistic a view as possible, , in, in terms of mitigating those costs. And, and that's certainly something that we strategize with our customers on a day to day basis.
The other thing that I would, ... One of the other areas that I would e- encourage people to think about is, , test and adjust strategies. So for instance, , the a- your, your ability to cu- to, , to manage some of co- some costs in many cases w- could involve disruption to your membership and to your employee base. And so one of the things that we try and encourage our customers to think about is think in terms of three years and any kind of major change that you want to apply. And try to use that first year really trying to educate your population.
And then we think about the second year being more about offering reward for the behaviors that's- that are improving the members' health while reducing total cost of care. Before the third year, to make other types of changes, , that, , that sort of incorporate both that carrot and stick approach. So, in that your way, you're, you're working with your population to help balance their need to improve the health outcomes, while as a, as an organization, reduce the, , reduce the total cost of care for them as well as for the, , those financing it.
Okay. So, so am I catching this right, Michael? You're basically saying, you know, you'd have like a, a, you know, when you're rolling out that strategy you'd want to, you know, take a period of time to educate people, get them familiar with the concept and then a period of time to set up a reward system to get them kind of buying in. And then, after you've done those two steps, that's when you would hit with maybe more, - aggressive types of incentives both in terms of carrots and sticks, essentially.
That- that's exactly right, Don. And, you know, while we tend to think about these things in terms of, , benefit strategy, it's not that different from the way we would think about any other type of corporate strategy that you would want to employ. Right? Change management matters. And the way that we communicate with our teams matter. And so the ability to over communicate and overeducate on the front end to explain the why, the reason behind those types of changes. And then, right, we look for the types of behaviors that we want to reward and incentive. We, we look for those and we try and celebrate those near term before we get into that, , into that, , into that stage of, of, , making that, , that the, the support structures, , are, are there to not just reward but, , again, put that stick approach in if necessary, , only after that period of time of education has, has thoroughly worked itself through.
That's great. That's super helpful to understand. And when you're putting together these comprehensive strategies, you know, that are typically on a three-year timeline ... When you're putting those strategies g- together for your employers, are you plugging in any kind of additional vendors or point solutions? , you know, are there any vendors or point solutions that the customers should be considering as they are trying to make that s- you know, make a strategy, , lower those costs?
The- yes. A- ab- absolutely. And so one of the things that we try and do is sort of scan the environment of, , of the healthcare space to look for those who are doing things that are innovative. And, , who are looking for, , whether it's a navigation firm, an advocacy firm, firms who are doing things, , relative to second opinions. , those types of, , those types of solutions, we're certainly looking for them. And, Mark, right, fair to say, we're also ... One of the great things about being part of the CVS family is that, , not only can we pull in external solutions but we can also pull in some of the, , some of the solutions that our parent company has made available to us as well.
Oh, clearly, without question, Michael. I mean, when we think about our PBM solutions that we offer with CVS being the, the lead one we have there. We think about even companies such as American Health Holdings from a care management side. , these are ones that are proprietary to us and we have great knowledge of and can help them solve for the rising costs. And additionally, there are folks, the niche solutions that are out there, that we can incorporate in, whether it's an advocacy play or something like Simple Pay which is one that we found, , recently, which helps members and guides members to the right cost solution inside.
It's an all of the above solution, is really how we go at it. And there are no perfect ones. But I think Michael would agree that we want to make sure we line up the right solution based off the client and the culture they have and what type of company they have. Because some of the solutions would be better off, for example, with, , folks that are a little more tech savvy, , versus a little- some need a little more pa- paternalistic touch. And so, Michael, maybe you could touch on that?
But we try to guide them to the right solution for their company.
Yeah, n- no that's true. So f- I'll give a for instance. We have, , some very large tech firms. And, , they would very much like to make sure that, , they're spending, , as little interaction, , as possible, , with, , with phone calls. And so for- in situations like that, , many of the solutions that, , that we work with, for instance, , will ensure that, , customers and members who want to know on average where they can, , get, , their healthcare and to understand the pricing of it, which is a continual challenge, , we make sure that, , we provide both an app, , and online services so that, , so that members can be able to see that, , o- o- on their screens in whatever sort of mobile platform they'd like to see.
Another- in other situations we have certain, , in some cases public entities, , those who serve older populations and, , while they are absolutely becoming more tech savvy, it- it's vi- just as vital for that population for us to be able to have a full suite of phone-based, , solutions for them as well. And so whether they're accessing it in a mobile environment, whether they're accessing it at a- at a desktop, whether they're accessing, , in a phone call environment, it's, it's really important for us, , to be able to support those customers at whatever point of that journey that they're on. , otherwise, you're, you're, , you know, frankly you're missing out on the value of being a third party administrator, which is what we are. And, and, and the flexibility and the nimble-ability to- for customers to sort of tailor whatever that service experience is going to look like for them is kind of missed.
So we do really value that DNA, , of a TPA and, and look to find ways to continue to support that for the benefit of our customers.
Yeah. I would add one last thing. And I think we, because we're so close to it, assume it. But the reality is the one thing we don't want to do is leave the member stuck in the middle somehow. And so, you know, with the pressure on cost that's out there, we see lots of solutions that come up that expose the member to costs or to outcomes that may not be idealistic. And so one of the things that underpin all of our solutions is the Aetna network. And the value of it. And how it takes care of the member and make sure they're not exposed. And I think, you know, that's one of the things we try to guide our plan sponsors away from, which are plan ideas that might leave their members exposed.
While they may save a lot of money, at the end of the day, you know, that one member is going to- could get exposed and be left with financial hardship. And we, we work very hard to ensure we work with plan sponsors that, you know, are aligned with us on that. And as well as we try to coach them away from it.
So guys, you know, this is very fascinating to me. You know, like all the parts and pieces you guys have put- got to put together. And, and Mark, one of the things that occurs to me, you know, you've been in this business for almost four decades. And, , so you've got a wealth of knowledge and experience. And, you know, I'm thinking about, as you just mentioned, Mark, , you know, trying to mitigate that risk, , to the individual consumer. , that's got to be paramount in your thinking. But what I'm wondering is, you know, you've got all this knowledge and, and experience with the management of risk. And I'm wondering if you could tell us, or tell our listeners a little bit more about some of both the benefits and the risks of self-insuring. I mean, there's upside and there's downside potentially. , can you help walk us through that?
Sure. And I, I, I know Michael will fill in the gaps. Because when you've been around for four decades, there become gaps. So-
... anyway, so, ... You know, I think the biggest advantage, , two advantages for the self-funding are the flexibility where you get to set your design and, and really tailor it to what you believe are the right answers as a plan sponsor. And the other piece of it is really the elimination of administrative costs. You know, they tend to be a little less expensive. You're not paying for lots of overhead. , and you get to pick the best in class solutions and not one that's bundled together.
Now, there's- that's just self-funding in general and a little bit on the TPA side. one of the risks are, if your company is, you know, per se in financial hardship, even though it may be cheaper, there's volatility in the risk that you have to cover. And so you may be better off with a fully insured plan where you have an absolute, you know, per member, per month cost that you know that's all it's going to be. And so, you know, from my perspective, those are the, the two elements that I would balance off, right? You get the, the savings and the flexibility with some uncertainty over how the plan will actually perform, versus, on the other side of the house, you can get absolute certainty but you may not be getting the optimum expense outcome. But it depends on the situation that the plan sponsor's in at the time.
And I think, you know, years ago it used to be, cases were on the, the higher end above a couple hundred members but- , per, per plan- per case. But now I think with the tools that are out there, we're able to go downstream and provide the security that the smaller employer may need. , so, that's how I would weigh it out. Michael, what's your reaction?
Yeah. You know, fundamentally the, the- I would say the biggest shift that we've seen is, you know, when, when, when Mark, when Mark started and, and certainly when I started in the industry, the idea of self-funding below, you know, several hundred employees was just sort of unheard of. Right? There was, there was no need to do that. But, , a- as, as medical costs continued to rise, , as, , insurance i- the regulation around insured business, , became more and more significant, , employers felt like their ability to sort of tailor a plan that fit the needs of their populations, other plan sponsors and associations, et cetera, felt that a lot of those needs were really sort of, , they were really handcuffed for doing for their populations the unique things that they wanted. Which is, which is why I think self-funding, , continued to sort of expand past those edges.
And the interesting thing now is that, , even though, as we talked about in the beginning, there are, there are, there are greater risks with high cost claimants, the financial mechanisms to transfer risk from a self-funded plan sponsor are so much more vast than they used to be. And so whether it's traditional stop loss or a captive arrangement. , and, , even in the case of Aetna, , our- our parent company even makes available, , self-funded plans, , that are- that go down to a much smaller employee sizes and, , you know, even that sort of single digit employee size because there are enough ways now of transferring that risk in a self-funded way back to protect the customer, while at the same time making sure that, , that the overall cost advantages of self-funding, , still exist.
So, , it, it really has been sort of a remarkable shift, , over the last five to 10 years just in terms of the, , the fact that customers who historically would never consider self-funding, now can give it much more thought, , , from a, from the perspective of, of having that, , that protection without compromising, , the- all the benefits associated with it.
Interesting. Yeah. That's, that's fascinating. And I'm wondering, so Michael, what I, what I think we've heard earlier in, in your, , in the discussion here is that there's, there's naturally some great pluses and minuses that you guys are- I- well, mostly pluses, I think, that you guys are bringing to the table, , with respect to being a TPA. Like if someone's going to self-insure, why would they want to go to a TPA versus a traditional medical insurer? And I think what you've told us is that it's because you have all this flexibility to bring in all these third-party point solutions. , which makes a lot of sense.
Now you mentioned a moment ago captives.
Can you tell us, ,a little bit about ... Like for some of our listeners, and it might not be in- you know, all that up- up to speed on what that-... is.
Yeah. So, so, captives, , were traditionally the, kind of the realm of the property and casualty world. , right? You hear about sort of offshore captives and so forth. And, , not really something that was considered in the mainstream. Captives have become a lot more typical, , in terms of medical captives. And, and the way that they're used is, , at its purest level, and this is an oversimplification, but at its purest level, a captive is nothing more than sort of a micro insurance company. , and they come together to, , basically self-fund an additional layer of stop loss, or reinsurance, for, , typically large claims for that employer.
So typically what'll happen is a captive manager is going to- is going to t- , collect premium from a smaller group of members of that captive, right? So they're essentially members of that small insurance company that they banded together to form on their own. And they basically, , they basically set the rules of the captives within the, the proper legal, , construct. And, and the captive then pays- the captive then pays, , stop loss claims. Or, or the, the larger claims based upon whatever, , individual deductible levels that the captive has set and the customers have, have chosen to buy. And therefore, in a situation like that, , the- in a situation where, , in the situation where the captive has, , where the captive does not pay out in excess of those premiums, it is the members of those captives who've reaped the benefits of that.
And so, in many ways, it's like, , sharing and pooling your risk as a, usually a smaller group, , that tends to work, , that tends to work pretty well in those, , in those smaller group sizes. And again, a TPA ... , there, there are- tend to be some fairly heavy data reporting elements to it. And, , a lot of captives like to have a lot of point solutions or cost containment mechanisms that are in place. And TPAs tend to lend themselves nicely to, ... TPAs tend to lend themselves nicely to that, , to that type of flexibility.
Yeah. It makes a lot of sense. , and, you know, would it be, I would assume that it would be typical for a captive, even though they're sort of forming themselves to, to create reinsurance, they themselves would typically have reinsurance too for massively catastrophic claims. Yes?
Yeah. That's exactly right.
So typically what's going to happen is the captive is going to cover claims up to a certain amount. I'll call them sort of mid-level, , you know, mid-level, , , what we would call specific claims. So those are claims on, on individual, , claimants. And then reinsurance for those, as you say, Don, truly catastrophic events that, , that the captive is not able, and certainly wouldn't be advantageous to, , to, , to s- to, to go, , to go bare for, where they really need to have that kind of over level protection.
So again, as you see, what, what happens is this continued evolution where customers want to get, get the benefits of self-funding but trying to minimize the, the risk that people would think about traditionally occurring in that kind of space.
You know, it's such fascinating stuff. And, and it's so interesting all the different options that employers have now. And I think they're lucky to have several different options and several different point solutions that will cater best to what they need, , for themselves and their populations. So it's, it's so interesting to hear, , a- how all of these different components plug and play for the employer.
, as I mentioned in the beginning, I did want to circle back. We've talked a lot about our int- you know, engagement with Aetna and, and involvement with Aetna. , but Meritain is also now a subsidiary of CVS Health. And I'm curious what role, you know, Meritain plays in the larger enterprise strategy with CVS now.
So, , being part of CVS has been, just like when we were purchased by Aetna, it's been a great opportunity to harness, , , additional tools for the benefit of our customer. , a- and, and frankly some ones that we wouldn't have even sort of dreamed about prior to the acquisition.
, what's great about it though is, , we still have the ability to maintain our flexibility to leverage, , not just our customization but our ability to meet our clients where they are in terms of some of the outside solutions that they have. So, , again, when it comes to freedom of choice, our customers have the ability to decide what makes the most sense for them, whether it's, , leveraging the, the sort of CVS Health assets, the Aetna assets, the Meritain assets, , or bringing in some of their own solutions. So w- again, really sort of embracing that TPA DNA.
Well, , gentlemen, this has been a fascinating discussion. You know, I've learned some, some things here. What I've picked up today is that as a, , , a specialty solution within the CVS Health and Aetna families of, , companies, , we- you've got a, a, a unique value proposition in that you're, , basically positioned as a TPA where you can go out and help clients put together the best self-funded insurance program, , using various point solutions, some of which could come from within the family of CVS Health and Aetna and some from without. , you- you've got the ability to, , put together captives as you described very elegantly. , and, and really service employers to a smaller s- you know, smaller scale employers, smaller employers and s- , and smaller groups of employers than has ever been done before because of some of the unique, , you know, products that have been developed over the years.
, I've heard you talk about, , the importance of managing cost and that re- really fall into three big buckets. One would be, , lifestyle choices that the consumers are making. Another would be chronic illnesses. You're trying to help manage. And then thirdly, high cost prescriptions. And, you know, one of the things that we heard from you today was the importance on avoiding those sort of myopic strategies where, , y- you might, , go into a plan and think to tweak one thing, not realizing that it's going to affect another. So you really have to have that experience and vision to look at the- what the overall impact of those things is going to be.
And, and we've heard you describe the importance of, , you know, when you do come up with a, a medical strategy and a cost reduction strategy, that you, you go through a- sort of a process over a period of time to, to get employees engaged through education and then help them, you know, buy into the concept of rewards. And then finally get to the more full-fledged, , incentives that you want them to have. But you sort of- it, it's very difficult, I think you've described, to jump into that all at once and, and expect everybody to respond well to it.
So all that experience, I think, has been, , very fascinating learning. , Sharon, , what have I missed?
Yeah, Don, I thought that was a great summary. I think the only thing we'd love our listeners to know is how they can learn more about Meritain Health?
Well certainly, , a- a- a, , a broker consultant should be able to help any, any, , any plan sponsor employer, , who wants to learn a little bit more about TPAs and certainly through Meritain Health. , but you could also go to our website at Maritane.com. That's M-E-R-I-T-A-I-N.com and learn a little bit more about the types of solutions that we have. We've got some YouTube videos on there. We actually have podcasts of our own, which Don, we'd love to have, , you all join us for as well, , and learn a little bit about how, , not only we're trying to help some of our customers, but some of the thought leaders who are coming with some of- pretty creative ideas in, in the health space, , in order to help our, , our customers improve the, the outcomes for their members while reducing total cost of care.
Well I sure hope, gentlemen, that we're able to, , get some of our listeners interested in talking with you. , Mark, and, and Michael, thank you so much for your time. And, , , hopefully, again, we're- our hope is that all of our clients on Be Swift, , all throughout the country can find the best solutions for their needs and, and perhaps some of them, , will turn to Meritain for those solutions. So thank you very much for your time today.
Great. Thank you.