What’s the outlook for STM vs ACA? How will pending legal action impact this? How big an impact will ICHRAs have? Scott Lingle discusses thought-provoking ideas and his path navigating through a massive shift in product mix, this week on Insurance Innovation with Alan Edgin.
Scott’s two companies - ISG (an Amerlife company) in the individual space and Remodel Health in the group spaces - and his industry expertise lend broad perspective and deep insight to share with you.
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Episode Transcript:
Narrator
Welcome to e123’s Insurance Innovation podcast, where you'll hear tips, tricks and techniques for improving sales, improving profits and achieving operational excellence. Each episode features an executive guest with a perspective to share, an interesting story and great examples for you to think about. Please give us feedback on the show or talk to us about your distribution management system needs on our website at e123insurtech.com. And now, here's our host, Alan Edgin.
Alan Edgin
Welcome to Innovators Circle, our new series that focuses on the core issues of how to innovate, how to use data to innovate, and what the future holds. Today's guest is Scott Lingle. Scott is the co-founder and owner of two different insured tech businesses in the health insurance industry. One is Insurance Specialist Group, which is a tech-enabled FMO in the under 65 individual health insurance space, primarily serving national call centers and online distributors. Scott and his partner successfully sold this business to Amerlife in 2021, and they still operate it today. His second business is Remodel Health, which is an employee benefits insurance software platform primarily focused on the ICHRA market.
Remodel Health is a three-times Inc. 5000 company with approximately 75 employees based in Indianapolis. Prior to building these two businesses, Scott served as the VP of Sales for UnitedHealthcare for many years. Scott, let's get started balancing time across many different parts of the businesses. What landed you on the mix of businesses that you operate today?
Scott Lingle
Yeah. Great question, Alan. So, I always knew I wanted to be an entrepreneur, but it took me a really long time to pull that trigger. I had kind of entrepreneurship in my blood. Folks were entrepreneurs and went to work for Golden Rule Insurance way back in the day, and they got bought by UnitedHealthcare. And I spent about 20 years at UnitedHealthcare, kind of worked my way up to the VP of sales. But in doing that and working for the number one brand, I built their FMO channel. And in doing that, I was able to meet all the top distributors all across the country and built incredible relationships, which was easy, working for the number one brand.
And then finally, at the age of 44, pulled the trigger and instead of building one company, for some crazy reason, I think we were trying to hedge our bets. We thought we'd heard all the stats about how many companies fail, and so we said, hey, let's build two. I had two different partners, and so we built two. But the key there is they're both leveraging the under-65 individual health marketplace. That's what I know. That's what I learned all those years at United Healthcare. And so one, as you stated in your opening, is kind of a tech-enabled FMO serving a lot of call centers and big distributors all across the country.
With U 65 Individual Health products. That business is called Insurance Specialist Group. And the other one is Remodel Health. And again, leveraging the ACA marketplace - under 65 health products, we actually serve the employer group market in that respect, and we do that via kind of an ICHRA platform that we've built. So again, going back to my roots, everything I do is in the individual health insurance market.
Alan
Did you have both of these concerns before the Affordable Health Care Act was enacted?.
Scott
We did. We actually got started in 2015. So the ACA market had already been established. It was a little rough and rocky in the beginning years. If you recall back, I think like United, Aetna, and Humana Cigna went in early and they all pulled out within a couple of years. And so it was a rough sledding. And so really we thrived with ISG - started early with a lot of affordable alternatives to the ACA marketplace.
And so those products were like short-term medical, fixed indemnity, ancillary products. And that's really what the whole marketplace was focused on because ACA was not really tried and proven at that point in time. So that's kind of how ISG started out with Remodel Health. We were leveraging the ACA marketplace. We struggled along the first few years because the ACA really wasn't proven yet. But it's picked up a ton of traction over the years.
Alan
So speaking of the ACA, let's talk about last year's open enrollment period. And how did you read the market ahead of the open enrollment, say, this time last year? Or, say, even the spring of 22?
Scott
Up until that point in time, we had about a seven-year history with Insurance Specialist Group (ISG) of, again, focusing on those affordable alternatives, short-term medical, fixed indemnity, ancillary. And that really was our bread and butter and where all of our revenue and profits were coming from. So we weren't thrilled with making a huge pivot. But what we started seeing signs of, if you recall, back in March of 2021, Biden passed this bill - there was a stimulus bill by the name of America's Rescue Plan. ARP.
And what happened in that bill is he essentially doubled all of the tax credits or subsidies that were available for folks that were in the individual health market, the ACA market. And so when that occurred, we started kind of doing all of our analysis and running the math, and what we quickly figured out is the clientele, the client base that we were serving. If we were going to be fair to them and do the right thing, all of a sudden, instead of about, like, 60-80% of the market being a really good fit for these affordable alternatives, all of a sudden, that shifted and really flipped the other way. And, like 60-80%, now, we're much better fit for the ACA market. And so we decided, okay, we could go one of two ways. We can keep doing what we're doing and not make clients happy, not keep customers on the books, or we could try to do the right thing and shift this thing. A huge pivot. Because at that point in time, in our space, kind of this call center space with a lot of large distributors, virtually nobody was selling ACA products.
Compensation was super low. There weren't tons of big brands in that space yet. United was just coming back. Cigna was coming back. But you had a situation where nobody was selling it. Primarily, I would say the main driver was compensation. All of these call centers depend on, one, pretty decent compensation. And number two, they all needed what we call advance commissions. Takes a lot of money to run and operate a call center. And they were all kind of dependent upon this third party coming in and doing what we call a six-month advance. And that did not exist in the ACA market. So we went to school and kind of did all of our analysis and said, hey, if we want to remain vibrant and have a strong, growing company, we really need to make this pivot. So we reached out and started trying to find partners. We found one in health care funding partners, and we literally built the first ever six-month advance product.
For the ACA market, which was no easy feat. We knew how much cash it was going to take. We thought it was going to be in excess of $100 million. And so we found a partner in Healthcare Funding Partners. They actually went and found a hedge fund to back them. And last year, we went to market and built a six-month advance product for ACA. And then we had to go out and educate all of these agencies, on why they should sell ACA instead of what they've been doing for the last couple decades, which were affordable alternatives.
And what went into that? Alan a few things. One, it was all about cost per acquisition. We were able to figure out that by shifting from affordable alternatives to ACA, we could lower that CPA from about $300 cost per acquisition down to under $100. So that was one huge driving factor. And then number two, the volume. So by selling the right products, instead of jamming these clients in the wrong products, we found that you could literally four or five X the amount of volume per agent per day.
So instead of selling, like, one or two short-term medical plans per day, we could now jump that up to about five or ten, believe it or not, in one single day. Closing ratios went through the roof. And all of that led to what we focus on here, and that's LTV or lifetime values. And so we said, when you look at all the math, we believe we can drive lower CPAs, higher lifetime values. And so we had to go out and reeducate all these call centers, and it worked. And so last year open enrollment, we successfully sold about 120,000 ACA plans across all of our different distributors. And since we thought, well, this thing's going to slow down in a big way, what we found this year in ‘23 is it has slowed down, but I think year to date, we sold over 100,000 ACA plans, even in the off-market in the SCP season. So it has been a very robust marketplace for us.
Alan
Yeah, that's amazing. Congrats on that. What metrics do you have to look know to make your model work? And I would think one of them would be the persistency of those ACA products. Obviously, if you're advancing six months, you expect for it to persist longer than six months. What kind of data points were you looking at, and what kind of data have you found as a result?
Scott
Yeah. Alan, you're spot on. So by shifting from affordable/alternative, short-term medical, fixed indemnity to ACA and really giving the client exactly what they want and need, we found that we've been able to literally almost double the persistency in terms of number of months on the books. So we're now driving toward about a 20-month lifetime value in terms of months on the books. And previously, we were hitting, if we were lucky, somewhere around a year. And so by jumping that up all the way to 20, you can actually prove out and show these agencies how they can make just a whole lot more money and serve their clients by doing the right thing, by shifting to ACA.
The second thing that we learned is just the CPAs going from, on average, higher than $300 cost per acquisition, down to below $100. Huge factor. Closing ratios in many cases went way higher, volume of agent per day, in some cases, four- or five-X. And when you put all that in a model, even though the comp is significantly lower, we were able to educate agencies that this is truly not only good for their clients, but good for their business for all those factors.
Now, the one challenge that we're still trying to figure out is cross-selling ancillaries. And I'd say at this point in the game, you've got an 80-20 thing going on where 20% of the call centers have effectively figured that out and cracked the code. And they're doing a really nice job of not only selling ACA, but attaching a good mix of the right ancillary products, whether that be dental vision, accident, critical illness, life, but we're still learning.
And that's kind of what we're focused on this year as we head into ’23 is how can we tighten those knobs and get this thing really refined on the ancillary side.
Alan
Yeah. And what we use in the industry is a term called attachment rate. So you said 20% of those call centers have figured it out, and the other 80% haven't. Is part of your role, and we'll talk about open enrollment for ‘23 here in a few minutes. But is part of your goal to try to figure out how to get those 80% to get the attachment rate higher on the ancillary products?
Scott
Exactly right. And it's not an easy problem to solve, because there's this trade-off. During OEP. The volume of leads is insane, as you know. Alan and so you've got this trade-off of, okay, do I want to sell literally ten ACA policies per agent per day and just maximize and optimize, like, volume? Or do I want to sacrifice and maybe back that thing down to six or eight per day and attach more and more cross-selling - ancillaries? And so that's where we're really diving into the data. We feel like we're one of the leaders in data-driven details and data on making these decisions, and so we're really focused on what is the right blend and or does it make more sense to be hyper-focused on ACA during OEP and then try to do the cross-selling in the SEP season? We've got a number of call centers that are doing that and having a ton of success, because a couple of things happen there.
One, you're following up with the customer, making sure the product they have is a good fit. They've got all their docs in the network. And you're just checking in. And then you say, oh, by the way, noticed that at the time of sale, you didn't pick up a dental/vision. We've got this fantastic product and you do a cross-sell. So we're finding that in many cases, that makes more sense.
Alan
Just an old adage in the business. and, Scott, you and I have been in the business, I think, long enough to appreciate this. but it seems if you've got multiple products, insurance products with an individual or a family, the life of all of those products seems to last longer. It persists more. I would think that those that have multiple products with the ACA were going to have much better success with persisting all the products.
Scott
Yeah, Alan, you couldn't be more right, especially when you think about these. You know, they fit well for a lot of customers, especially since ARP and the doubling of the tax credits. However, not without a lot of gaps. I mean, for one average customer is getting a deductible of somewhere like $6000- $8,000. And to be able to have a gap-type product that fills that deductible, it's a no-brainer. And most agents aren't serving those clients well. And so to take the time and actually say, hey, you got a gap here, you got a gap there, and fill in those gaps is going to make for a much better customer experience.
And that's why I think they persist a lot longer.
Alan
I agree totally. So working with carriers, insurance carriers, obviously having a vast amount of experience with UnitedHealthcare and Golden Rule, you know, that part of the side of the equation. So, how easy or hard is it to work with carriers to say, hey, if you can give me some of these ancillary products, these dental products, these vision products, these other products, we can attach them to the ACA plans and it'd be good for you. Talk about that for a second…
Scott
Yeah, I think there's still work to be done here, in my opinion, for two reasons. One, I think what most of the carriers have built were products that were - they fit really well when we were primarily selling the affordable alternatives, like the short-term medical, the fixed indemnity type products. Where you had a little bit more wallet share available, you and you could afford products maybe at a $60 price point per person. With ACA, we're finding a few things that need to happen. One, that price point is probably more like $30 per person for an ancillary. So we really need to find lower price points. And then two, back in the day, when we were primarily selling affordable alternatives, all the carriers made it so easy to check the box and add any ancillary you wanted into the shopping cart, and it took seconds, minutes.
And I think we still have a ways to go for that to happen on the ACA side. So in order to be effective and efficient and get these things done during open enrollment, when time is of the essence, there's really not a super good product technology product out there that you can one click to add literally any carrier, multi-carrier ancillaries with a click of a button into that shopping cart. So I think there's a massive opportunity for whoever gets that right.
Alan
So do you guys sell any of the short-term medical, fixed indemnity or limited medical now? Or is it just purely focused on the ACA products plans?
Scott
Yeah, good question, Alan. I think it flipped. So we are still doing it. But I'd say before last year and the big pivot that we made, we were like 80-20 in favor of affordable alternatives like short-term medical, limited medical, fixed indemnity. And now we're probably, I'd say, almost 90-10 in favor of ACA. And I think with the new legislation that we just learned about in the last month, that might tilt even further. So we'll see what happens in ‘23 or ‘24.
Alan
Yeah. In fact, that's a great segue Scott - I think the Biden administration several weeks ago mentioned that they're going to basically make short-term medical products much, much shorter in duration and try to, as much as they can, eliminate fixed indemnity or limited medical products. So what do you think that's going to do to other people that are still focused on the short-term and the fixed indemnity type products?
Scott
Yeah, I think it will have a pretty big impact on the marketplace. One, I'm not a huge fan. I'm more of a proponent of give people free market solutions, let them make their own choices. Because I do think while the ARP shifted it, and probably 80% were probably better fits for ACA, there was still a robust marketplace of about 20% that didn't hit those income levels. And they were much better served by some of these really rich, affordable alternatives, either a three-year short term plan or really rich fixed indemnity plan that many of the carriers I felt like were nailing it. And so this kind of takes those off the table, potentially, depending on how you interpret the laws. And so I think that will shift.
While there will be a market for short term, it'll purely be the folks in between jobs. Maybe they retire early and they only have a four-month window. So it effectively takes short-term all the way down to four months instead of potentially three years. And I think what you saw in the marketplace last year is probably, if I had to guess, maybe half of the very large call centers and national distributors were focused on ACA. They were probably more focused on the affordable alternatives. While they did ACA, it was not their focus. I think what you're going to see in ‘23 open enrollment and into ‘24 is you're going to see the majority now probably 90% - they're going to focus on ACA and then only use these other products when they fit, which I think is going to be reduced down to like 5% or 10%. That's my point of view.
Alan
So. have you talked to any you know carriers, that that are changing their mindset because of short, say, a UnitedHealthcare who writes a ton of short-term medical and has some fixed indemnity or limited medical? Have you talked to any carriers and what they're thinking about?.
Scott
Yeah, I talked to tons of carriers. I won't name any by names, but I can tell you I think there's a huge shift in focus toward this ancillary market. And I think that's a wise thing to do. I think this thing is shifting. Not only is it going to grow in terms of I think today you got a marketplace of about 15 million Americans who are on ACA. I'm a big believer that ICHRA, which passed in the last couple of years, which is the Individual Coverage HRA, I think that has not tilted yet and has not really taken off. But I think that's got potential to double the size of this ACA market.
So if you think about Alan, the individual health market in general is about 15 million Americans, maybe more like 20, if you factor in all the affordable alternatives that are out there. But then you look at the group market, so all the folks that get coverage through their employer, that market size is somewhere around 150,000,000 Americans. And a lot of those are small businesses. And small businesses anywhere, from 2 all the way up to 500 employees - this ICHRA law, most of them are clueless. They're unaware that it even exists.
Essentially what it does is it says, as an employer, I liken it to the shift back in the day, everybody had a pension. And then we got wiser. Over time, we said, hey, that didn't really make any sense. Let's go to 401K plans. And effectively all that happened there is the employer said, hey, I'm going to put money aside and you can use it however you wish, and you can invest in whatever funds you want to invest in, but we're not going to choose for you. And I think it makes all the sense in the world in a free market like ours, that why is the employer making that decision. That makes a ton of sense.
Why not just set money aside, throw it in a health reimbursement account? It's all pre-tax and say, hey, listen, we're going to keep helping you pay for it - you know, there are plenty of great options out there. Now you go buy your own plan, whatever fits your needs. If you want a low deductible copay plan, great. If you want a high-deductible HSA plan, great. It just makes too much sense for it not to happen. And so that's where my other business fits in.
We built Remodel Health to kind of leverage that and we believe that the smart carriers out there are realizing, okay, this thing's about to shift and tilt in a big way. And the more we can start figuring out how to build the right ancillary products to couple up with those ACA plans, I truly think that's where the future is.
Alan
I couldn't agree more. Just as a sidelight, I talked to a head of a carrier the other day and asked the guy, I said, how are you reacting? Because they write short-term and fixed indemnity products. And I said, how are you reacting to this? How are you going to pivot? And he said, well, he said, we've been talking to our key lobbyists in D.C. And what they're telling us is that while Biden may enact this rule, a lot of the DOI’s, the Department of Insurance in the states, who typically are the ones that run the day to day operations of insurance products may ignore the Biden enactment and continue to allow for them. So I thought that was an interesting thought process and I don't know what will happen. We'll see, obviously, what happens when/if the federal government is going to trump excuse the pun, the state DOI’s. But I felt that was pretty interesting.
Scott
No doubt. Very interesting take on that.
Alan
Yeah. So just to wrap up the open enrollment for this coming upcoming season, you said that you found the sweet spot. You think the sweet spot is around $30 for ancillary? Are there any other things that you guys are gearing up for for this open enrollment season?
Scott
Yeah, I would say we've perfected - I told you earlier, Alan, about how we rolled out that six-month advance product, which is super. I can't stress how critical that is for the call center operator. So I'm talking folks that do a lot of volume. They've got huge overhead, lead costs are huge. Running the operations, expensive, paying all the agents, expensive. And so it's kind of a must have in that world to be able to have upfront financing that enables you to have a little bit more cash flow.
And so what we've done is we've really perfected how we're doing that. There's a lot of nuances in how that gets paid out, how we do our forecasting around that to make sure it's staying on the books, how we're doing our vetting to make sure that we're picking the best call centers that are going to do it the right way and keep it on the books for a very long time. And then also in the off-season, picking the very best ancillary providers and trying to build that full suite of products with the right tech, are kind of all the things we've been working on as far as ISG and my AmeriLife partner. And then on the Remodel side, it's really just fine-tuning. Right now, the big issue for ICHRA is it's a massive change, the change management. When you go in our average client size, somewhere around 50 to 100 and they've already tasted, they've been on a fully insured group plan. And so to come in and say, hey, listen, first thing you do is you cancel the group plan, freaks people out, and then they shift to the ACA marketplace.
And if you don't have really good tech and tools, first thing client goes to they go to the marketplace, they pull up their demographic and their state on whatever tool they might be looking at, and they see, oh, I got 462 options. And literally their head blows up. And they're like, are you kidding me? I used to have two or three choices, and it was really easy and clear. And so what we've done with Remodel Health is we built the right tools so that we want the open enrollment experience when they're onboarding, say, their 100 employees, to be better than what they've ever seen on the group side. And that's what we've built for the last eight years, is a software platform that makes that change management really simple and easy and maybe a better user experience than they ever had on the group side. And so that's what we continue to work on.
Alan
So what, in your opinion, could carriers do that would make that much more efficient and more effective for you guys?
Scott
It's a great question Alan, and I think I'm not holding my breath that the carriers are ever going to crack the code on this. Personally, I find this is where the players like e123 and the Health Sherpas are probably always going to outshine the carriers because they are so much more agile and nimble. And just like this legislation coming up, I mean there's going to be a massive pivot. If you're a massive corporate carrier, you're like a Titanic. Getting them to move quickly is just tough. I mean they've got challenges and headwinds. If you're a small player and your focus is technology, you can move on a dime. So one, I don't ever see that changing where carriers are going to dominate the tech scene, but certainly, I think they should make a ton of enhancements and improvements when it comes to making it so much more efficient to add on the right ancillaries to ACA. I haven't seen anybody clearly winning that game yet and I think there's a massive opportunity for whoever gets it right first.
Alan
So this has been a great conversation, Scott. Really do thank you for spending a few minutes with us today. It's been enlightening for me, and I'm sure it'll be enlightening for the audience that's listening to this. So thanks so much for joining us.
Scott
Thank you, Alan. Really enjoyed it. Honor to be on.
Narrator
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