April 18, 2022

How to reduce Rx costs for employees and employers

Pharmaceutical costs represent 35 to 40% of your total spend (and even a higher percentage for many of your employees) AND drug costs are increasing 15 to 25% per year so they represent the obvious component to understand.

If you have a fully insured plan, this will be a painful read. Odds are very high that you don’t have the information on what your employees take, where they buy it (CVS or mail order), if they are price conscious and what your total spend on drugs was for last year or last month. But, read below and perhaps you can get some information from your broker or ask HR what employees are complaining about.

If you have a partially or fully self insured plan, you have the information to do the following analysis. People fixate on free generics vs low cost generics but that is not your top priority. Look at the monthly prescriptions that people take every month because they represent a huge opportunity to reduce the cost to the employer AND the cost to the employee.

Pharmaceutical costs represent 35 to 40% of your total spend
Two Situations:

Ever watch the drug commercial and wonder the following comment“if you are unable to afford XYZ super drug perhaps abc manufacturer is able to provide this drug at a low cost or perhaps free!” works? The ad or announcer says just enough to confuse you. These are the Manufacturers Assistance Program-an outcome of the Affordable Care Act-that was supposed to reduce the cost of healthcare. Bottom line is that about 300 monthly prescription drugs have MAP programs that allow employees who have taxable income under a certain level (frequently 80 to 100k per year for a couple filing jointly) to receive these drugs at no cost or perhaps 5 or 10 dollars per month These prescriptions generally cost the employee 100 or more in copay per month AND cost the employee over 1000 per month. HUGE savings AND I bet your broker never explained this best practice to you BECAUSE they don’t want you to bypass the PBM supplier since that is how they get paid their commission and bonuses! Maybe some of your employees investigate with their doctor but most just get hammered by the copay and then every year you decide to increase their copay when you get the plan renewal increase.

Here is a real life example. Happened to one of our CFOs in NJ with an employee with Hepatitis C.  The treatment is an 84 day/ 84 pill regimen and it works but it is not cheap. 84 pills with 84 prescriptions at 1000 per day with usually a 200 dollar a day copay by the employee.   So the employee pays 16k out of pocket and the employer pays about 45k (after discount). But, our advisor ran the numbers (employee earned about 65k) and he received the pills for F R E E and the employer’s cost (fee paid to advisor) was about 15k.  Employee saved 16k, employer saved over 30k and the spend was not via the plan SO it was not included in the three year spend base. Win Win (but a lose for the broker whose commission declines!). REMEMBER the fiduciary requires that the CFO has a plan that is in the best interest of the employees.  A fully funded plan is NOT in the best interest of the employee and the CFO is at risk. If you don’t understand the role of a fiduciary AND the impact of Sarbanes Oxley regs on your personal exposure, get educated and manage your risk. Just for chuckles-ask your broker if their plan protects you by assuming the fiduciary responsibility.

The best practice is to engage an advisor who handles those prescriptions for your employees-they get their prescription at a zero copay which means they take the drugs and don’t cut pills in half to save money AND the employer has NO COST. Never hits your plan so there is no three year trailing cost stack and you pay the advisor a percentage of what you would have paid the PBM!

For those employees who do not qualify for the economic assistance of an MAP program, consider buying the same prescription from a Tier One (fully FDA approved) source from Canada where price competition is alive and well. The surprise is that all of the major pharma manufacturers have factories in Canada that have to meet FDA standards and have distribution networks that serve Canadian pharmacies. Canadian pharmacies can ship to a US customer if you have a partner that knows how to get your prescription to them.   Keep in mind, your employee could do this and probably purchase the drug below their copay costs in some cases but they have no incentive to do that until they retire! Provide this service and the employees get their drugs in their mailbox for zero copay AND the employer generally saves at least 50% and often as much as 80%.  Thank the second largest lobby industry for that control-teachers unions have more lobbyists than pharma but that is a different topic (and we don’t have a best practice on that challenge). Bottom line, two more best practices that a partially self insured healthcare plan can implement to reduce the total cost of healthcare, reduce the cost for their employees and save a lot of money in the meantime. If you don’t understand partially self insured healthcare and don’t understand risk minimization with stop loss coverage, it’s time to talk to one of our partner advisors.

Since you love examples, here are three common drugs-first is a blood thinner, second is a Type 2 diabetes treatment and third is a stress/ personality treatment.

Xarelto   

PBM Plan Cost: $16.30 per pill daily (some portion paid by employee)
Best Practice Cost: $5.29 per pill (68% savings + zero cost to employee)

Januvia

PBM Plan Cost: $15.55 per pill daily (some portion paid by employee)
Best Practice Cost: $4.11 per pill (73% savings + zero cost to employee)

Latuda

PBM Plan Cost: $44.70 per pill daily (some portion paid by employee)
Best Practice Cost: $4.42 per pill (90% savings / over $1,200 per month)

Again, whether partially self insured or fully insured, ask your broker what you can do to reduce costs of high cost maintenance prescriptions. Let me know what they say.

Glad to provide information-we have examples of almost every drug that is offered in the MAP and in the International Sourcing programs. For you skeptics on international sourcing, Ohio shifted to international sourcing for all of their plans joining many large employers who have been offering it for years. It is frequently offered as an elective for the employees to reduce their costs while continuing to offer the base plan-and strong conversion happens “naturally within a couple of years”-all it takes is knowing that co workers are spending less than you are!

Finally if you happen to have a legacy dinosaur plan (fully or partially self insured) that allows a working spouse (with access to coverage but prefers to remain on “your plan”), we have a brilliant, proven solution for that-and it is a painless incentive that encourages the employees to elect to have the spouse exit your plan AND they are extremely happen to do so.

If want an analysis done-no cost/ no obligation OR if you want to chat about other best practices, give me a call at (215)421-8291. Renewals are a few short months away so analyze now, get educated and get ready to provide a health care benefit instead of a healthcare plan that no one can afford to use.
June 7, 2021

Views From the Stream – Let’s Go Fly A Kite

When I was young, my parents took me to a wonderful, magical movie called Mary Poppins.  It starred Julie Andrews and Dick Van Dyke with award-winning music from Richard and Robert Sherman.  It had wonderful songs, such as A Spoonful of Sugar (Helps The Medicine Go Down) and Chim Chim Cher-ee, the latter of which won the Oscar for Best Song.  And with Julie Andrews’s magical performance as Mary Poppins, not only did she win the Oscar for Best Actress, but the songwriters Richard and Robert Sherman won the Oscar for Best Music Score (Original).  And, with the wonderful performances on all sides, the music, magic, and dance of the movie transformed the audience and was greeted with universal acclaim.  This acclaim reflected the uplifting message of the movie in which the father and the children are transformed from a proper, prim, distanced group in early 1900s London to a close-knit, family.  The movie ends with the rousing song, Let’s Go Fly A Kite, where the father takes his children to the park to fly a kite and Mary Poppins, having reunited the family, opens her umbrella and flies off to save the next family.  

For those watching the US Economy over the past year, something magical has occurred.  From the grim lockdowns put in place during the Spring of 2020 to combat the Pandemic, to the reopening of the economy over the past few months as vaccinations put the Pandemic to rest, the American economy underwent a mystical metamorphosis.  Whether one looks to the restaurants, filled once more as people reclaim their lives, or at the beaches, with wall-to-wall bathers lying in the sun, the US economy continues to hit its stride.  As the following chart demonstrates, Nominal GDP already hit a new high:

And, when measured in “Real Dollars”, which adjusts for inflation, Real GDP appears headed to new heights shortly:


In fact, at the end of Q1 2021, it stood less than 1% below the previous high in Q4 2019.  And thus, as indicated in January, Real GDP should exceed its prior peak level in Q2 2021.  

Other indicators of the economy continue to demonstrate strong underlying growth.  Industrial Production through March, despite the massive freeze in February, already recovered 80%+ of its drop during the Pandemic:

Forecasters project IP to exceed its prior peak before year-end.  Single-Family Housing Starts stand back at their levels from the late 1990s and at a new high for this Housing Cycle.  These levels were only exceeded during the Housing Bubble:

And New Single Family Home Sales continue extremely strong:

They were only exceeded from 2003 – 2006.  

On the public side, Real State and Local Government Expenditures stand within 0.5% of their peak early in the recession:

And lastly, Real Investment into the US economy stands at record levels, what economists would call Gross Fixed Capital Formation:

With all this data flashing Green, the US Economy appears headed up and to the right.  And as the 11% of the economy related to leisure and travel continues to reopen, another whole layer of growth will add to the above data.  

For the US, it appears a short, harsh winter has given way to a long, beautiful spring, replete with numerous flowers in brilliant bloom with dark green leaves on the trees.  The heat of the summer, that will fade the blooms and the leaves, stands far away.  And with the nourishing rains of spring in place, from both the US Government and Federal Reserve, rapid Economic Growth will continue.  With all this in place, the US continues to metamorphosize from the dark greys and blacks of the Edwardian era to the bright colors of the Roaring ‘20s fashions.  One can almost see the final scene of Mary Poppins, with its colored kites flying in the sky, and hear the rousing chorus of its final song rising as the family is reunited as one, singing together: 

Let’s go fly a kite
Up to the highest height!
Let’s go fly a kite and send it soaring
Up through the atmosphere
Up where the air is clear
Oh, let’s go fly a kite!

Music and Lyrics by Richard M. Sherman & Robert B. Sherman
Music Written for Mary Poppins, 1964


Vaccination Passports To The Rescue

Last month we asked the following questions.  “With Americans getting vaccinated at a rapid rate, the question seems: where are you going?”  And then we pointed out that the true question might be: “Where can you go?”  Well, given the number of those vaccinated, it appears governments in Europe and the US are moving to salvage the summer tourist season.  For a country like Spain, where visitors to the country totaled 84 million in 2019 compared to a population of less than 47 million, this cannot come soon enough.  The miracle solution appears Vaccination Passports.  These would be verifiable government documents that would validate that someone was fully vaccinated and thus posed a low risk to get or transmit COVID.  They would enable tourists to avoid 2-week quarantines and a variety of other rules imposed by governments to address the Pandemic that makes a tourist feel very unwelcome.   From a practical standpoint, these rules ruin a vacation.  Imagine arriving in Italy on a 10 day holiday, only to find out you were confined to your hotel for 2 weeks and could not see the Vatican in Rome or Michelangelo’s David in Florence while you were there.  It might make more sense to travel within your own country than bother going to Italy.  With this in mind, the US and EU continue to work hard to fix the problem and put a system in place at light speed.  Thus, it may be only a matter of weeks until a British tourist can enjoy an Aperol Spritz on the Costa Del Sol in Spain.  With tourists exhibiting a bad case of cabin fever, it appears a strong prescription of Vaccination Passports are coming To The Rescue, enabling all to regain their normal lives and bust out of the mandatory lockdowns citizens have endured over the past one and a half years.  

Sell In May and Go Away

For those of us involved in the markets for many years, there is an old saying on Wall Street, “Sell In May and Go Away”.  This saying originated in the old-time brokerage firms whereby the wealthy would retreat to their summer homes in the cities in order to avoid the summer outbreaks of disease in the cities, such as polio.  They would return in the fall when the weather cooled down.  However, this phrase also relates to a curious seasonality in the Equity Markets.  From November 1 to April 30, the market tends to rise strongly, while from May 1 until October 31 the market performs much less strongly.  Even though the former period outperformed only 63% of the time since 1950, the average outperformance over the entire period totals 5.47% per year.  Given the almost 28% rise from November through April this past year and the tendency for strong performance to then see a period of digestion in the Markets, as the real economy catches up, for long term investors in the Equity Markets, it may truly become a year to “Sell In May and Go Away”. 

Upcoming Speaking Events

Our “live” Public Speaking continues to accelerate in 2021 as groups have adjusted to the Zoom and Skype dominated world.  Recent appearances include several private investor groups and associations.  Upcoming appearances include a number of C Level Executive groups, industry associations, and investor groups.  Having received our first shot and scheduled to receive our second shot on April 12, we looked forward to appearing live at the United States National Strategy Seminar in June in Carlisle, PA.  Unfortunately, despite vaccinations accelerating, the event will now occur via Zoom and not live.  However, we look forward to the fall and getting up in front of a large audience once more.  As to speaking for your group, either Zoom or live, please feel free to contact us.  We would be happy to accommodate your needs.

Monthly Letter Preview

This Month, we provide perspective on the Commodity Markets and a further installation in our Great Game of Power Series:

  1. Commodities: Thank You for the Green Energy Driven Boom – We take a look at Green Energy and how the wholesale move to these technologies likely will create a commodity boom.  These technologies are surprisingly commodity intensive and thus, with their rapid adoption, they create a Demand Shock for a variety of Commodities.  With mine exploration and development taking years, such a Demand Shock will likely produce a multi-year period of Supply chasing Demand.  
  2. The Great Game of Power: The Cuban Missile Crisis, The South China Sea, & The Contest for Global Dominance – The South China Sea continues to heat up.  China, since the change in US Administration, continues to ramp up its challenge to the U.S. as a test of the Biden Administration.  This comes in the form of rising violations of Taiwan’s airspace and increasing encroachment into The Philippines territorial waters.  With the US possessing a Mutual Defense Treaty with The Philippines and an obligation under the Taiwan Relations Act “to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan”, a potential confrontation with China, similar to the Cuban Missile Crisis, could erupt at any time.

As always, we end the Monthly Letter with Economic Observations on the US Economy through Interesting Data Points that provide color on the happenings in America.  The link to the Monthly Letter is:

https://greendrakeadvisors.com/views-from-the-stream-may-2021/

Should you have any questions on how the above issues or the items discussed in our accompanying Monthly Views From the Stream Letter impact your family’s financial position or your business’s future as well as the potential actions you could take in response, please do not hesitate to contact us.  We welcome the opportunity to discuss this with you.  

Yours Truly,

Paul L. Sloate

Chief Executive Officer

November 12, 2020

Who Was Prepared For This? – Property Insurance and Civil Unrest

For November are featuring an article from Best’s Review.  Reach out to keep the discussion going.

Who Was Prepared for This – Best’s ReviewDownload

Civil Unrest

Who Was Prepared for This?

 

With civil unrest on the rise globally, insurers are rethinking how they underwrite risks of riots and civil commotion and looking closely at aggregation risk. Record losses this year in the U.S. and last year in Chile illustrate the growing severity of events.

KATE SMITH – NOVEMBER 2020

RIOT RECOVERY: Cleanup begins in the streets of Minneapolis after protesters damaged and looted businesses in the wake of George Floyd’s death on May 25. Floyd died while being restrained by Minneapolis police officers, sparking nationwide protests and, in some locations, riots.
AP Photo/Julio Cortez

 

Key Points

  • Mass Discontent: More than a quarter of the world’s countries saw a dramatic rise in protests last year.
  • Record Losses: The riots following George Floyd’s death caused more than $2 billion in insured losses, a U.S. record for civil disturbance.
  • New Criteria: Underwriters are paying close attention to election cycles and whether businesses are associated with anything unpopular.

On Day One of the riots that followed George Floyd’s death, Dawn D’Onofrio’s company received a multimillion-dollar claim. Then came another one, from a completely different city in a completely different region of the country.

“That really got our attention,” D’Onofrio, the president and CEO of WKFC Underwriting Managers, said. “The claims were absolutely staggering. There was no way an underwriter would have foreseen those circumstances.”

2020 has been full of unforeseen circumstances for property insurers. There was the start of a global pandemic, more hurricanes than alphabet letters and West Coast wildfires so vast that their smoke tinted East Coast skies—not to mention derechos, tornadoes and convective storms.

On top of that, there were more riots and civil commotion than the United States has ever seen.

Between May 26 and June 8—the two-week period following Floyd’s death while in custody of Minneapolis police officers—demonstrations and protests erupted in more than 40 cities across 20 states. Some of them turned into riots. Insured losses from those events surpassed $2 billion, topping the 1992 Los Angeles riots as the costliest civil disturbance in U.S. history.

“Who was prepared for rioting and protesting as we have witnessed throughout many cities in the U.S.? It has been unexpected and extreme,” Brenda Austenfeld, president of national property for wholesale broker RT Specialty, said.

While the United States has seen riots and looting over the years, such as Baltimore in 2015, none rose to the magnitude of 2020. Violent demonstrations spilled into the summer and carried through to the fall. And with U.S. elections slated for this month, there is no end in sight.

“We see the election as a point of interest relative to riot and civil disorder risk; roughly half of the country will be angry either way,” said Tom Johansmeyer, head of PCS, a Verisk company.

The troubles are by no means confined to the United States. Violent demonstrations are on the rise globally. According to the 2020 Verisk Political Risk Outlook, 47 countries—which equates to more than a quarter of the world’s countries—saw a surge in protests in 2019.

“If the early 2000s were marked by the global war on terror, the 2010s by post-crisis economic recovery and the rise of populism, the 2020s appear set to become the decade of rage, unrest and shifting geopolitical sands,” Verisk wrote in its report.

France, Hong Kong and Chile are among the most notable examples of recent costly protests. The French “yellow vest” protests caused roughly $90 million in insured losses, while protests in Hong Kong cost $77 million and unrest in Chile cost $2 billion, according to Allianz Global Corporate Specialty.

“The magnitude of the events is increasing,” said Bjoern Reusswig, head of global political violence and hostile environment solutions for AGCS.

In the United States, PCS declared the post-George Floyd riots the first multistate civil disorder catastrophe. By contrast, the L.A. riots, which occurred in the wake of Rodney King’s arrest and beating by Los Angeles police officers, were contained to one city. That event cost the insurance industry $775 million ($1.4 billion in today’s dollars), according to the Insurance Information Institute.

Loretta Worters, spokesperson for the III, said this year’s riot-related losses pale compared to hurricane losses. But when viewed in the context of an already challenged property market, they are significant.

“It’s the confluence of events,” Worters said. “It’s not just riots. It’s not just a pandemic. It’s not just a hurricane. It’s not just a wildfire. It’s that all of these issues are coming into play at the same time for property insurers.“

The riots are one additional pressure point.

“It’s been death by a thousand cuts for most property insurance carriers in 2020,” Rick Miller, U.S. property leader at Aon, said. “That’s the environment property insurers are doing business in.”

Dawn D’Onofrio WKFC Underwriting Managers

The amount of work an underwriter puts into an account is, by far, more than double than it was a year ago. …They have to underwrite the city, the municipality, the town, and know whether the police are responding to calls or the fire departments are not going out to fires.

Dawn D’Onofrio
WKFC Underwriting Managers

 

 

 

U.S. Market Changes

In the United States, losses from strike, riot and civil commotion are typically covered under property insurance policies. Though these are well-known—and named—risks, they have not been a high priority for property underwriters.

“A couple years ago, riot was likely not at the top of an underwriter’s checklist when they were reviewing a particular account,” Miller said. “Now it is.”

The widespread unrest has caused U.S. property underwriters to pivot. They are asking more questions, reviewing different information and doing more legwork to determine clients’ exposures.

“The amount of work an underwriter puts into an account is, by far, more than double than it was a year ago,” D’Onofrio said. “They’re looking at crime scores, looking at migration of the homeless, vacancy rates. They have to underwrite the city, the municipality, the town, and know whether the police are responding to calls or the fire departments are not going out to fires.”

Some fire departments, she said, have chosen to let buildings burn rather than risk firefighters’ lives by sending them into riots. “The day-to-day underwriting has increased exponentially since a year ago because we have to consider all this new information.”

Property underwriters are also examining whether mobs might target particular insureds.

“If there’s a storefront or an office building with an attractive business or name on it, that is a definite attraction to a mob,” Miller said.

In the commercial property segment, underwriters have taken a targeted approach, identifying accounts and risks deemed to be most susceptible to riot, such as a large pharmacy chain or a large retailer with products that could be attractive to looters.

“It’s not just about whether you’re in an urban area,” said Patrick Mulhall, executive vice president of commercial property for U.S. insurance at Sompo International. “There are industries that are more vulnerable to these perils than others. Commercial real estate comes with some of that. There’s retail and subsectors of retail—pharmacies, specialty clothing companies, high-value merchandise stores.”

With the 2020 riots, most of the impact has been on retail and real estate risks with urban risk concentrations, Miller said.

That was particularly true in the riots associated with Floyd’s death. In that event, “one-third of the industry insured loss so far has come from three national retailers,” Johansmeyer, of PCS, said.

The effect, however, has been felt by “all size business,” RT Specialty’s Austenfeld said. “It’s just a matter of how significantly.”

Even at the mom-and-pop shop level, premiums are rising.

“Across the board we’re seeing rate increases,” said D’Onofrio, whose program insures 8,000 policies of Main Street America-type businesses. “In certain areas where the crime scores are higher and there’s a known riot exposure—for instance in high-profile metropolitan cities—we can name our pricing and terms, if we are comfortable insuring the risk.

“A year ago, we would have freely written metropolitan business all day long. Now we go in very cautiously and we tell businesses, ‘We can do it, but it’s going to cost significantly more and you need to have skin in the game.’ They have to have a very high deductible and take ownership of protecting their property.”

Aon’s Miller said some markets have looked to exclude SRCC (Strikes, Riots and Civil Commotion), but that’s not rampant. “The biggest change,” he said, “is on the retention or deductible front for businesses deemed to be at higher risk.”

Austenfeld said the excess and surplus (E&S) segment has seen an increased flow of business as standard lines tighten terms and insureds look for greater flexibility in building coverage.

“Many times an underwriter, especially in the E&S world, will increase the deductible specific to this segment—rioting, civil commotion or malicious damage,” Austenfeld said. “We can be more creative in the E&S world with freedom of rate and form in the nonadmitted arena. If there is a single peril causing more frequent losses, we create a solution for our retail client trading partners by a specific deductible area versus changing the entire coverage for an insured.”

Brenda Austenfeld RT Specialty

Many times an underwriter, especially in the E&S world, will increase the deductible specific to this segment—rioting, civil commotion or malicious damage. We can be more creative in the [excess and surplus] world with freedom of rate and form in the nonadmitted arena.

Brenda Austenfeld
RT Specialty

 

 

 

International Affairs

Outside the United States, strike, riot and civil commotion coverage typically falls upon the specialist market, with coverage often coming through political violence policies, Reusswig said. Until recently SRCC was a secondary concern, behind terrorism, for those underwriters. That’s changed over the past two years, though.

“Fortunately those big-scale terrorist attacks are going down in number and in severity,” Reusswig said. “So now we have to change our approach because we see, on the one hand, sizable terrorist attacks going down, but SRCC events are definitely going up.”

That shift began in late 2018 with the French “yellow vest” protests, which originated in response to higher fuel taxes. In 2019, a proposed extradition bill spurred demonstrations in Hong Kong, which quickly escalated to violence. And in Chile, a 4% hike in public transportation fares kicked off months of riots that caused billions in damages.

As in the United States, international insurers have responded to the uptick by increasing rates and changing terms, particularly for certain sectors and geographies.

“The one thing that stands out about Chile and the U.S. is the disproportionate impact the retail sector felt,” Johansmeyer, of PCS, said.

A chain of supermarkets in Chile, for example, would now pay much more in premiums than a few years ago, Reusswig said. And certain retail businesses will have a harder time finding appropriate limits.

“If you are a retail chain or a high-end retailer, which makes you attractive to looting, then there will be capacity and pricing issues,” Reusswig said. “If you’re a Chinese bank in Hong Kong with retail offices on the ground floor, you will have issues. If you are a Chinese investment bank with offices on the 52nd floor of a high-rise building, you probably won’t feel the impact on the pricing or the capacity side.”

Underwriters also are examining new factors to their evaluation of a risk.

“We now pay a lot more attention to elections,” Reusswig said. “Elections are one of the main contributors to public unrest. We look at whether a general election or federal, state or municipality-level election is coming up in specific countries that have a track record of protests following elections. That’s now absolutely part of the underwriting process.”

They also look at whether clients are associated with anything unpopular. “There was a Chinese cell phone retailer that was completely looted in Hong Kong,” Reusswig said. “And there was a non-Chinese cell phone retailer directly next to it that didn’t have a scratch on their windows. The fact that the company was associated with China was enough for it to be raided.”

 

Aggregation Risks

Across the globe, the rise of civil unrest is causing aggregation concerns.

While underwriters long have looked at aggregations regarding natural catastrophes, riots are now in the consideration mix.

“If you are a large national retailer with multiple locations in a particular city, underwriters will review that risk accordingly,” Miller said. “You are now looking at the possibility of multiple facilities being impacted by the same event, making it more of a catastrophe versus risk event.

“A risk event would be a fire, which generally would impact a single location. Riots might not be quite as widespread as a hurricane, but they can involve multiple locations of a schedule of locations. Going forward underwriters will view the risk of riot differently. Losses and the causes thereof, change how underwriters review accounts and impact what an underwriter is willing to offer and charge for assuming that risk.”

In addition to controlling aggregation on this peril, experts also are looking for ways to better predict events. Some say the Gini coefficient, which measures the disparity of income in the country, is helpful. Others say the perceived corruption index is a good benchmark, as displeasure with government is a main contributor to civil commotion.

“You could easily find another half dozen indicators,” Reusswig said. “But combining them, and being confident that the countries coming out of this process are those that you actually should watch going forward, that’s still an ongoing process. No one has found the golden goose yet to solve this issue.”

Kate Smith is managing editor of Best’s Review. She can be reached at kate.smith@ambest.com.

May 21, 2020

5/21/2020 Covid-19 Update – Return To Work Incentive IF YOU DID NOT Receive PPP

A few days ago I shared the possibility of the WOTC for employees that you rehire as your business recovers.

The traditional WOTC regulations prohibit the WOTC for previous employees however there is strong and growing indication in Washington that WOTC may be temporarily approved to incent employers to hire back employees asap.  At this point, WOTC relief is not approved but the point of the message was to make you aware and to have you consider applying for WOTC for each employee that you rehire and bring back to work from furlough.  It may be a waste of time but there is no cost to do the application and the application must be processed promptly.  Harrisburg may reject it but there is a 28 timeline from the date of rehire.

Alternatively, if you did not receive PPP, the ECR (Employee Retention Credit) credit is approved and ready for your application.   Read the summary here.

Many thanks to HIREtech for keeping us informed on these types of best practices.  Work through Mike McCorkle at HIREtech to get the preferred pricing.

May 19, 2020

5/19/2020 Covid-19 Update – Hiring or Rehiring Furloughed Employees

All    This may be very valuable to your firm especially if your firm furloughed employees and are now hiring them back.

There are tax credits for hiring new employees-known as the Work Opportunity Tax Credit (WOTC) and worth $1,000 to $2,450 for each qualifying new hire.  A candidate will likely qualify if they have been eligible or received state unemployment compensation in the last year, been on Food Stamps, been on a similar welfare or welfare to work program or a recently Veteran.  There are some other possible qualifying factors-such as working part time jobs with no career future or no healthcare.

One SME partner is HireTECH-a Texas based firm that is leader in the firm for these services AND they work on a contingency/success fee basis.   As a referral of CFO Solution, their fee is capped at 15% and it is payable ONLY if your firm receives a tax credit.

I just spoke to our contact, a Director with HireTECH, and they advise that all employers register anyone they hire OR REHIRE from furlough.   Each state will make the decision is a rehire is eligible-current thinking is that states are doing whatever they can to incent employers to hire and rehire so there is a fair probability that the states will approve the application.

Contact me and I will introduce you to our contact (so your firm receives the rate discount).

Process is fairly simple-an engagement letter explaining roles and the 15% success fee paid out of the approved credit.

Each employee is registered with two weeks of rehire-they answer a few questions-on line (phone, tablet or computer) and the application is processed to the corresponding state office SO this works for multi location employers. HireTECH takes care of the getting the application to the right state office and expediting review and approval, and in some cases, arguing for approval if the credit is denied.   Credit letter authorization, or denial, is sent to company contact and to HireTECH and the credit, if approved, is processed.   Then the firm is invoiced for the 15% payment.

Some of our firms have praised HireTECH for efficiency, professionalism and intervention assistance.

IF you want to know more, let me know.  THIS IS VERY TIME SENSTIVE-TAKE ABOUT A WEEK TO GET COMPANY ENGAGED AND ACTIVE AND THEN EACH EMPLOYEE APPLICATION MUST BE RECEIVED IN THE CORRESPONDING STATE OFFICE WITHIN 28 DAYS OF THEIR START DATE.  NO TIME TO WASTE AND HIRETECH IS VERY BUSY.

Honestly an HR department can apply for WOTC credit on their own but it is easy to mess it up and really easy to allow the state office to find an error or reject it.  Miss the deadline and the application is rejected.   For 15% success fee, use the expert! (obviously the best practice)

This can work for one employee hire (I just enrolled my engineering firm) or for hundreds across the country.   These are for full time positions with reasonable minimum wage requirements-generally 12 dollars or higher so worth applying.

Let me know your interest.  We did a zoom call two years ago on this topic and some of you engaged. Slides can be found HERE. Now everyone needs to consider it.

Let me connect you as Tim is no longer with HireTECH and you will get charged 25 or 30% fee.

SHARE THIS ACCORDINGLY with other employers-in any state.

PS   Some states have state or local credits for new hires that HireTECH will also file for.  New York does and I am trying to get a list of the other states that have additional credits.

May 18, 2020

5/18/2020 Covid-19 Update – Special Request

Our friend, Steve Gergar, asked if I would share this request.    I can think of no better “give” right now.   Please consider if you or one of your organizations can assist Miller Blood Bank.

Please do what you can to assist this sincere request.  Feel free to share this request.

Thank you from me and Steve.

You may have seen our Miller-Keystone Blood Center appeals lately for blood donations throughout the Lehigh Valley.  The effect of the Coronavirus combined with our hospitals reopening to do elective surgeries has caused our blood supply to drop to dangerously low levels at Miller-Keystone, as well as across the country.

I attached a couple of recent press releases above and a short YouTube video below that describes the current environment and issues we are facing. We have 4 local Donor Centers located in Bethlehem, Allentown, Easton, and Reading.

I was wondering if I (or you) could forward this email to our CFO Forum members to help reach potential blood donors at this critical time.

Thanks

Stephen A. Gergar
Vice President, Finance and CFO
Hospital Central Services, Inc./Miller-Keystone Blood Center
2171 28th Street S.W.
Allentown, PA 18103
Office (Direct):     610-295-1637
Fax:                       610-791-2919
Cell:                       484-357-0460

May 12, 2020

5/12/2020 Covid-19 Update – Cost Savings Are Now Crucial And We Can Help

We are all getting back to work and dealing with reduced demand, delayed or cancelled projects and supply chain issues in the event your demand has remained strong.

As one of our elected officials once said “Never waste a crisis” and now could be the time to analyze every dime of spending and make some changes that typically you would not have made.

It is not unrealistic to change some travel policies, benefit policies, demand price reductions from suppliers and change work rules(whether unionized or not) or anything else you have been dying to change!  Change can be good IF you are managing it and the CFO should be the Chief Change Officer!

It is now crucial to save every dime and dollar and, as usual, anyone you ask in Procurement is going to tell you that we are getting the best prices and terms from our suppliers and there is nothing more that they can do.

Realistically-how would they know if they are getting the best price and terms on everything that they buy ?

Procurement usually spends 95% of their time on the key and strategic materials, components and services and the rest of the spend, typically 35 to 40% of the spend, is subject to subtle price increases, shorter terms, evergreen and automatic renewals-with an increase, insertion of adders for delivery, packaging or special orders.

We have several best practices to offer AND they can make the CFO and Procurement heroes in the battle to save money.

We have partners who can provide focused review of “almost any line item or purchase” and they provide their assessment on a performance based cost sharing model.

The “worst” case is that our experts can find zero savings.   IF that was ever determined, Procurement would be one less thing that the CFO has to worry about.

The best case, and what we normally find, is that Procurement does a great job on the key purchases and we find savings of 15 to 20% on a lot of the other purchases.   That is found money and although CFOs hate to write the check (out of the savings) to the contingency experts, smart CFOs realize they just found savings that will continue AND probably learned a bit about spending analysis, cost stacks and opportunities for savings.

We are glad to chat with you to determine if you want specialists or a sourcing expert to do a strategic sourcing analysis.    You determine the scope and they report back to you.

Many of the expense reduction franchise guy are sharks and to a degree unethical (as most of us know).

We have vetted our partners and they realize they work for the CFO and have to provide real savings AND that the decisions remain with the client.   No phantom or “could have saved more” savings calculations and invoices!

Couple of points for you to consider:

  • Does procurement know that certain costs are semi regulated AND that price increases over a baseline could result in 36 months of savings?  Telecom, certain utilities, trash hauling, haz mat disposal are semi regulated and I suspect that Procurement does not know that and does not track increases versus the baseline.
  • Do you have a comprehensive spend analysis and a process to review increases, vendor performance (quality, on time delivery, product development, pricing, shipping terms, payment terms) that you can review?  I suspect Procurement and Finance are focused on watching a few key items and that the others don’t get much attention (or you don’t have a lot of knowledge on pricing in those items and services).   We are glad to offer a strategic assessment.
  • An example-we all have software annual or multi year agreements and we are conditioned to 4 or 5% increases per year, perhaps more.  IF IT needs it, they will approve the renewal and not challenge the increase or negotiate.  It is not their responsibility and Procurement rarely understands software and service agreement pricing.  Our experience has shown that you can negotiate decreases on these IT spends.   Same applies to hardware purchases.   One of our experts focuses on this and his savings will startle you.  His expertise has saved our engineering firm significantly in the last two years since he opened my eyes!
  • Let us know how we can help you reduce your expenses.  We can help on:
    • Benefit costs—25% savings have been realized.
    • Hiring costs-10 to 20% savings have been realized
    • Operating costs-material, components, shipping, services, utilities (cost and efficiency best practices), property taxes (in some cases) as well as insurances, legal fees, bank fees, etc.
    • IT spend-software, service agreements, hardware, line costs (and capacity design/ utilization reviews), etc.
  • Cap ex-equipment, installation, and related costs are purchases that Procurement rarely makes and the savings can be really significant also.

Give me a call and we can discuss your concerns and outline a plan.   Then I will handle the introductions.  You have nothing to lose!

May 8, 2020

5/8/2020 Covid-19 Update – Return To Work Best Practice

As we all yearn to get back to work, many practical questions that we never had to think about now have to be dealt with.

Thanks to Scott Palochik of ESPI for sharing these blueprint to get back to work.   IT is worth reviewing.

Find the PDF HERE.

Some other back to work, PPP, business insurance savings and unemployment info will be shared in the next day or two.

Remember our May face to face sessions are cancelled.  R&D tax credit session via ZOOM next Friday.   June sessions to be determined.

April 30, 2020

4/30/2020 Covid-19 Update – Follow Up To Last Week’s Update On Reducing Taxes

I have to share a couple of comments.

1—“I never had the time to do the R&D tax credit but I decided I will never have more time than right now!”.   I was really surprised to learn that your partner Mike has a process that makes gathering all the data very organized and much easier than I envisioned.   That is why I “never had the time” and now I am kicking myself.   The other great news is that we can capture 2019 and FOUR previous years by using your partner firms (most firms can only look back three years).    I owe you at least two beers for your insight.  Reminds me that we will schedule a happy hour as soon as we are allowed to collapse the social distancing 6 foot rule!

2-Another CFO reported, after reading your update, I thought of using ADP to do the R&D credit since they advertise that they do R&D Credits since they have all of our payroll info.  When I looked into using them, after reading your blast last week, I realized all they do is take payroll and use parameters that are acceptable to the IRS to “not trigger and audit” and that all documentation, submission and audit liability would be mine.  I would be crazy to use ADP and not a best in class partner.   Thanks for the introduction.    He added “  I guess I could do my own root canals since I could look them up on You Tube but I wouldn’t do that myself so why should I do an IRS version of a root canal by myself!”   (Nice to find a CFO who is smart and has a sense of humor) –but he should have done this credit a few years ago but better now than never doing it!

3-On cost seg, we just did an estimate for a guy with a little building-bought a small office building last year for one million dollars.   “don’t think it is worth it but give me an estimate-he was stunned that his first year (2019) benefit is over 100k and that we can do the analysis within 4 or 5 weeks so his CPA can file the 2019 without a payment due to the credit.   When we told him the cost, he was stunned,KPMG charged him 4 times more!   That was why he didn’t think it was worth it.  Now he wants us to look at his commercial businesses and review the work that KPMG did.

4-A major local employer, with a great CFO and a great Tax department does their own R&D credit work.  They asked us to take a quick look at it and we discovered they missed 50% of the qualifying expenses.   They don’t want to amend their previous work but going forward they now know what qualifies.   They paid a small consulting fee to double their R&D tax credit.  Frankly, not sure if the tax guy keeps his job!  He was doing the right thing BUT doing it poorly!

5-Finally, another R&D credit quip.   A client who does the R&D credit updated 2019 but didn’t want to bother the CEO and staff to update their time spent on qualifying work so he told us to eliminate the exec portion.    We showed him that they would lose 25% of their credit and he made a few phone calls, decided to keep the allocation the same as 2018-which was a bit conservative but a hell of a lot better than ZERO.   Their credit increased over 2018 and all it took was a phone call with Mike and with me to figure out a reasonable path forward to get the 2019 credit done.

Just thought I would share these comments.     IF you are sitting at home and wondering how to pay taxes and still conserve your taxes, these tax best practices are NOT intimidating if you use a best in class partner! Mike D’Alessandro has been a frequent speaker to our group and his firm are experts in this so reach out to him (on the cc line above).

Same for cost reductions and a lot of other improvements.  You have the time, we have the best practices and partners who can make you look like a genius!

CFO Solution – Best Practices – Taxes Presentation

April 28, 2020

4/28/2020 Covid-19 Update – Did Your Insurance Broker Call You Today To Save You Money?

Just a quick sharing of a best practice.

My insurance provider (a fee based advisor NOT a broker) called me today to assist me to update our revenue and labor cost estimates used for our general liability and work comp coverage since our revenue and wage and salary costs will certainly be below our forecast which was used to calculate our premiums.

Obviously I could wait and get a credit after the year end audit but I would rather have lower costs (and keep my cash) now instead.

If your broker did not make the same suggestion and assist you, ask yourself if your broker works for you OR the carrier (who pays them!) that is why we recommend fee based advisors for business insurance and healthcare instead of brokers who work for their respective carriers.

Keep in mind, your employees working from home will likely be classified at a much lower rate-especially if they are field sales people, people associated with engineering, research or factory overhead since they all carry a higher cost risk category rating.

Make sense?  If not, give me a call.

We will be sharing other best practices on cost reductions as we all prepare to get back to “normal”-whatever that is!

We will keep you advised on our CFO Forum meeting schedule.   At this point, we are assuming that face to face meetings will NOT be held in May.  Zoom is a possibility-especially for the R&D tax credit meeting planned for Friday May 15.   I just reviewed the list of firms applying for the credit and a lot of you appear to be leaving an opportunity untapped.