The Insurance Ranch with Ed Jacobson – Part I

The Insurance Ranch Part I - with Ed Jacobson

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Ed Jacobson:
I would love to say that I had it all thought through before I became a TPA, but that's not exactly how it happened... 

When the American Stock Exchange-listed employer got a rate increase, the broker I worked with asked me to participate in designing a self-funding plan. In the process, I asked:

"Wait a second... Why can't they partially self-insure?"

...even though there was legally no such thing back then. You were either self-insured or fully insured. You were either regulated at a state level, or at the federal level. 

What I did was I went out, and looked for a high deductible health plan. And high deductible back then meant $500-$1,000, because every employer had a $100 deductible plan (that was considered industry norm). So I went to a couple of carriers, and they came back with a quote. And to go from a $100 to $500 deductible back then - the rates were reduced by 55% !!!

I'd like to say I was a genius - but I wasn't. All I did was I looked at the spread, and said: 

"If we were to reimburse 80% after $100 to get to the $500, that would be a maximum reimbursement of $320 per member in any calendar year deductible." 

So I divided $320 into the savings, and I actually had to have more people get sick than existed in the group. It was a no-brainer. 

Together with a broker, we presented this offer to the employer. It was the CFO. He said: 

"God, I love these numbers. The logic is unquestionable!... I don't want to do it. I don't want to be the person to deny a claim. I don't know how to pay claims. We build apartment complexes, that's what we do. "

Spur of the moment decision, I suggested:

"What if I performed that function for you?" 

"Have you ever paid a claim before?" - he asked. 

"No. I never have. But I can hire somebody to do that." 

And then, finally, he asked me the CFO question: "How much are you going to charge me to do that? I need a number." 

"$5 an employee a month." 

"You're on. Starting October 1." 

So within a matter of less than a month, I became something I later discovered they called a TPA. In Feb of 1976, I went to the first SPBA meeting - which is a Society of Professional Benefit Administrators. And that's when somebody said to me: "Oh, you must be a TPA." 

By this time, I already had 6 accounts. It was an extremely difficult sale. Why? Not because it was illogical, not because the numbers didn't work... It was difficult because I was the only one doing it."

Explore the full episode and get insights on: 

 Throwback to 1975 health insurance;
 The real reason why employers move to self-managed plans; 
 How your competitors can help you in growing your business

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