17. Phil Holowka: Leveraging Health Insurance Captives To Drive Cost Savings

Foreign.

Welcome back to the Broker's Voice. I am excited today because I am joined by Mr. Phil Holoka with complete captive management services. Phil, welcome to the Broker's Voice.

Thank you, Randy. I'm delighted to be here.

So let's start here. First question I often pose to folks who join me on the podcast is most of us didn't get into the industry by design.

And I don't think you got in by design either. At the beginning. Talk about your journey from. From where you were Phil HOLOKA, you know, 15, 20 years ago, to Phil today running the Captive. Talk about who. Who is Phil Holoka?

Oh, boy. So, as I mentioned in other stories, my career path is zigzagged through the evolution of insurance as nothing else in the world. But anyways, I started.

My journey in insurance after I got out of the emergency medicine world. So I was a paramedic for 25 years.

And one of the skills that being a paramedic brought was the. The quick, agile, ability to think and respond to something that was in need. And this captive, which the insurance product, was something that was in need.

So talk about that. What, you know, how did you. I'm really curious because emt, being an EMT and running a captive are two total, totally different worlds. How did you. How did you come upon the captive concept?

So I was the executive director of an ambulance association, and those members joined my association for group purchasing of medical supplies. And we also had a retirement plan in the mix. And at the time there was another workers comp group, Captive, that was growing, it was developing. And those members said, well, Phil, retirement plans are good and we're saving money and thank you for that, but we're really bleeding from insurance. We're bleeding from health insurance. Can you figure something out? So those association members said, we need to figure out a solution. So I went to the market, the insurance market asked a bunch of carriers, what can you do for us? Because we had thousands of belly buttons in our. In our group. And they all came back and said, nah, we've got the business already. Thanks for your interest. Go, Go play now. Right?

So we took a page out of the group captive model that this workers comp program was doing, which it's still around today, very successful, and we implemented it for medical stop loss. And that's how med trans insurance was born.

Well, I want to get into that because I'm actually intrigued by the steps you took. Like, okay, cool, now, you know, it's time. I'm gonna. I'm gonna build My own. Let's talk about the steps you took to actually build it. But before we get there, you're joining. I'm curious. You're joining us from Pittsburgh, Pennsylvania.

Right.

You're actually. You're actually housed inside of a law firm.

Yes.

Are you born and raised in Pittsburgh?

I am, yes. Yep.

You are. Okay. So I'm a baseball guy, as you know. And I don't know if you're a baseball fan yourself, but I gotta ask, what's life like being a Pirates fan?

Man, It's. I try not to be a fair weather fan, but it's. They make it hard. Okay. You know, my. My friend McCutcheon was let go, and my son, who is a baseball player, loved him, so it's tough.

Well, I'll. I'll tell you, being a Brewer fan, we now have Mr. McCutcheon.

As I argue, long after he peaked. He's at more at the sunset of his career. But I will say this, though, I have never been. I've been told PNC park is one of the most beautiful ballparks in baseball.

It is fantastic because you're in the stands and you have a visual of the whole. The whole city. And it is. It is a nice visual play on. You're right on the river. You hit a home run. It's almost like it goes into the river. Some balls do go into the river, so it's nice. Yeah.

Well, we're gonna. I'm gonna have to invite myself to Pittsburgh someday. So we can go to a game. Go to. We'll go to a Pirates brewers game. Okay, let's get back into the captive. So you were sitting there running an association in the emergency medical space. You saw the problem, that health insurance was the issue. You went to your carriers, they kind of patted you on the head and said, phil, we love your concern, but you know what? Go away.

Yep.

What did you. When you said it was time we got to build this, how did you start? Because this is a complicated.

Solution.

Well, it is entirely a complicated solution. And at the time, we were. We didn't even know if it was going to end up to be a captive because there were me was multiple employer welfare arrangements. There were just a trust that you could do. But at the end of the day, our members wanted to have control. So I wasn't smart enough to build a captive of my own. So we had to invest in service providers. And what a lot of people don't know is.

The cost to even investigate if it's the right option is $100,000. Done. It's because you got to hire the attorneys. You got to. You've got to hire the actuaries, you've got to hire.

The CPA firm, everything. And those people want paid up front because no one takes goodwill as a deposit. Right? So.

We investigated the options. We went back to the members, we got their feedback, and ultimately we landed on. The members wanted to have their own captive. They wanted to have full ownership of it. They wanted to control and govern it. And at the end of the day, Delaware was the state that we had a group medical stop loss captive. We received our license, and the investigation process was about 16 months, and then the last four months, because we got our license in March of 2010. That last 90 days is when everything was going 100 miles an hour. So.

So question. Oh, keep going, keep going.

No, no, no. I was just gonna say that. That last 90 days is when you start sweating, because that's when you write the checks.

It's about time, right?

It's go time.

Yeah. So at the beginning, did it start as a captive, specifically for companies in the emergency. Emergency medical space?

It did. So we had ambulance companies that said, I like that idea, but I want to let him try it first. Okay. Or I want her to be the leader and I'll follow her. And that's what makes you sweat, because I signed the checks for these service providers, and these ambulance companies promised me that they were going to join, and they ultimately did. Right. But it wasn't in March, it wasn't in April, and it wasn't even in May. We got our first member in August. So. But it's a tough thing to start. And as the captive manager now, I sometimes think all of these consultants want to have their own captive. And I say, good luck to you, because that's like hurting Cat.

Well, and I think what you learn, because I see it, too, is you. Even if you share an idea with your association, like you did in the, you know, in the medical emergencies industry, people are like, yeah, that's what we need. And then it's like, okay, all right, guys, start signing up. And now you get. Now you'll find who. Who's willing to put their money where their mouth is. Because you're right, most people are not early adopters. And so they're going to sit there and go, well, I'm going to let some people enroll first before I am willing to dip my toe in this. And here's what I love about what you did, though, Phil. I want people to hear this. You actually Built this by solving your own problem. And it wasn't even a problem your clients were having. This was your problem. You were running this association.

Watching your members get killed by health insurance costs and increases every single year. And so you took it upon yourself to step into a very complicated product and launch something which is appropriately called Med Trans. Right. Which is not actually just for medical emergency companies anymore. Correct.

Correct. We have graduated into a heterogeneous type of structure for medical stop loss.

And I want you to go there because I even, you know, here we are, we're talking on March 21, 2022. I think there's still brokers out there who haven't done enough homework on a captive and what it is and how it works. For those folks who could be listening, why don't we take a minute just to talk about what, conceptually, what is a captive?

Yeah, so. So by definition, it's a private insurance company, which means the captive itself can only issue policies or get engaged with a participant or an owner of the captive. Okay, so my captive can't write a policy to the andinary business of, you know, business leaders of the world. You would have to join or participate in our captive. So what makes us different in the market space is not only are we owned exclusively by the members. My role as a service provider, as a captive manager, I could be terminated. And that's important to me because the members of our captive, they're the owners, they want ultimate control, which means they control the service providers, they control my role. I'm beholden to my members and the board of directors.

So even if you're not performing, literally, you feel Holoka is not performing, those members. That's right. Could determine to let you go.

That's right. And that's the way it should be.

Yeah, no, that, that's. That's pretty cool. Talk about, you know, I was just down in Savannah at your, your annual symposium, which was a, which was a great event. You know, when you think about the companies that are currently. The members that are currently a part of the captive, and I'm a broker listening, what kind of company is an ideal fit? I don't have to be a medical emergency company anymore. This is a hetero genius captive. What.

What kind of company would be a great fit for this program?

So it's not so much about size, it's not so much about sophistication. It's all about. Do you, do you fully comprehend the.

The mindset of what it's involved to own your own insurance company because I see it all too many times that an employer looks at a market meme or they look at the guy down the road and said, hey, I'm in the captive and I get to go to, you know, Cayman every single year for my board meeting. Yay. Hey, well, that's window dressing. The business needs to invest in this and if they're going to jump into this program with both feet, this is no different than investing in a, you know, a business down the road because you're going to be owner of your captive insurance company. So I don't necessarily care if you're 50 employees or 5,000 because our captive structure allows for both of those. What I'm more interested in is the employer is going to do what it takes to be a successful business owner. And they probably already demonstrated that with their own business if they're evaluating this option.

That's a great point. Talk about.

Not all captives are the same. I think that's that, you know, when there are plenty of captives out there today in the health insurance space.

Talk first about that. You said, what does it mean, you know, an employer's got to be a good business owner within this captive. Define that a little bit. That, that now I'm, now I'm a company, I'm a member of the captive. What makes me a good business owner within this captive, in your opinion?

So it boils down to a single question answer. What's in it for my business?

Every business decision revolves around that. So if I own a widget company, if I join a group captive, what's in it for my business? Well, in a group captive per se, there's us, there's an ecosystem of us. In our model, each employer gets their own single parent captive. Okay? So that, that captive is owned by no one else besides my corporation. So there's entirely the thinking of if it's my captive and I'm paying premium into my captive, the success of my captive, my business is the roots of everything. That's the common bond that separates us from the general group captive as compared to my single parent captive structure.

Great point. If you don't mind, take a minute. I've heard a couple terms. Again, let's think about the advisor, the broker, who hasn't heard about it, hasn't really delved into the captive world. Yeah, you talked about heterogeneous homogeneous. Define that and then two, you just mentioned single parent. Yeah, so let's talk about heterogeneous homogeneous first. What does it mean to be a.

Heterogeneous captive So a heterogeneous captive is any class of trade. You could have an asphalt paving company and an ambulance service. The thing about medical stop loss is cancer does not know the difference between asphalt and ems. Okay? It's all age, gender driven, so that's heterogeneous. A homogenous captive is only ambulance companies. And that's what Medtrans was. And that's what I still think is the plot to grow a captive. Because even though cancer doesn't know an industry.

An asphalt producing company really wants to do business with other asphalt producing companies. There's more, there's more conversation to be had there.

Great point. What about, what about single parent?

So does that mean. So single parent is. If I'm the corporation, I'm the sole owner of my captive. My captive is one tax ID number. It files a tax return. No one else owns it besides me. In a good captive, that captive is one tax ID number and it has multiple employers that subscribe to it or participate or own it.

Big difference.

The optics. The optics is everything. And the single parent structure has other advantages that strengthen the bond of parent, child, business, sub everything. That makes our structure kind of unique.

I like that. Go into detail because I mentioned it a few minutes ago. Again, not all captives are created the same. And if I'm an advisor looking for the right captive, what should I be looking for in a captive program?

Oh, boy.

As the consultant, you need to have comfort in ownership. You should have comfort in full disclosure of expenses.

Because quite frankly, a lot. I've seen a lot of consultants not get in a. In a granular investigative mode with captives. You know, there's things out there like the border row reports, the fronting fee, the administrative fee, all of these things.

My mission is to educate consultants on that because that makes them a better consultant. But all too often I see consultants drinking the kool Aid, so to speak. And maybe not, maybe not being. They don't even know what a border row report is. So how do they ask for it?

Yep. Okay, great. Great point. What about. What about the employer? I'm going to go back to the employer right now. You mentioned that one of the unique features of your captive is you can actually be fired. Right. If they don't want Phil Heloka to be a part of the program anymore, the owners, the members of the group, the cap, the single parent captive can elect to let you go. Yes. In a group captive, because yours are more single parent captive programs. In a group captive, can a company and a member employer get kicked out?

There is different degrees of what that looks like. The captive itself may say, andy, we're not going to issue you a medical stop loss policy because you're. That you don't get it. And that effectively is getting kicked out. Okay, it's tough to say, andy, we're going to kick you out, but we're also going to withhold your equity. If you bought into that captive. That's an equity position. How can the captive manager not say you can't have your equity anymore? And there are some captives out there that say that. They say if you leave, you lose your underwriting profits or your equity in the business. I'm not sure that's right. The other way is if you don't do what's needed to control your risk, your policy is going to be underwritten in a more conservative way manner, which means your rates are going to be high. So then the natural response is the employer has to look out for their best interest and go to the market and see what they can buy.

Got it. Yeah, I like that. That's well said. You know, it's. Thank you for, for, for clearing up some things. I think is as we both agree, captives can be a very complicated thing. Oh, and. But here's what I want to tell the advisors listening in. Don't feel like you have to be the expert. You know, there's plenty of experts like Phil out there who know and understand their captives inside and out. And this is. I'm going to give you a chance here, Phil, to, to pitch, to come with your elevator pitch. Again, being in a world where brokers, advisors, consultants, whatever you want to label them, love to commoditize things, we know not all captives are created equal. If I said fiddle, what makes you, your program unique.

What would you say?

Well, I like to think we're the shiny new toy in the market. Med Trans was a fronted reinsurance captive when it first started. We were beholden to our fronting carrier, which was a commercial stop loss carrier. And our members. Now I'm a little biased here, Andy, but they're the best in the business. Okay. They get it. And they said, you know, we joined this create, we created this captive because we want more control. But we don't ultimately have control. The fronting carrier underwrites us, they take all of our money and then the, the crumbs at the end of the year we get back through the, the underwriting of distributions or the underwriting profits. What makes us different is our members are sophisticated business owners and they understand that there's no home run in this game. There are singles and doubles but at a much frequent, at a much more frequent level. Our levers are were developed because we, we understood what a fronted medical stop loss captive was and then we could do better.

So go ahead.

No, no, keep going. I like this.

It's. I take a holistic position to say the group captive or the captive in general. If it's going to be run right, it needs to be run by the members and it needs to be owned by the members. And whenever there's someone behind the scenes who is profiting.

And maybe there's a buyer out there for that, but that's not our buyers and that's okay.

And what I heard you say because you used a baseball analogy. So you're speaking my world.

With some captives you can hit a home run every once in a while, but you're going to strike out a lot.

Yep.

Some of the best hitters in the game of baseball who are in the hall of fame were singles and doubles hitters. But they hit a ton of them.

Yep.

And so your performance, I mean what I'm hearing you say is over time the performance in the med trads captive is going to far out seed many who may have a great year but that's going to be followed by a couple really bad years as well. And I've seen that with so many captives.

Yeah. Our structure visually is like a hotel hotel room. Every employer gets their own hotel room which is a captive. Every one of our captives, Andy, is profitable. And what that means to me is they paid something into their captive monthly premium. They have equity in their captive. Every single one.

That's awesome. Last two questions and I'll let you run because you've. This has been phenomenal. And if you're an advisor listening and I hope you have a much clear picture what a captive is. If you came into this episode not quite knowing exactly what it is. I talked I asked you about the ideal employer, Phil. Let's talk about the ideal advisor. You know, what traits do you look in for a benefits advisor that make them him or her a great fit to offer your solution to his or her clients?

You know, the, the best advisors we work with, they say, phil, I don't know what you're talking about.

Okay. Because those advisors are open to understand and learn what they don't already know. Those advisors that come to me and say no, I don't like captives or I deal with the captive here, that's fine. But our captive is not so much a structure that it's common out there. It's a risk financing structure, which means the advisors that take the time to actually learn and understand the benefits of our structure, they love it. And we, as the captive manager, we invest in our consultants to make them.

Better positioned to tell a better story.

Well, and that's what, you know, if I can share this for a second, you had me down.

In Savannah to do a workshop for your member, for your advisor members, and one of the goals was how to tell that better story. And so you're absolutely right. I think one of the challenges advisors have is they may not fully understand what a captive is, how it works, or more most importantly, how to tell the story. Therefore, they don't talk about it or when they do, it's just communicated in a way that comes with very little interest from the employer.

That's right.

So last question. If you have an advisor listening in right now is like, okay, I've been looking for a differentiator for my clients, maybe even an opportunity to go out and win some new business. I really like what Phil's has to say about his Med Trans program. What is the easiest way for an advisor to get a hold of you, Phil?

Oh boy. LinkedIn as, as you proclaim, is the single best source of my friendship circle known to man. So look me up on LinkedIn. You can look up, you know, complete captive. Our website is complete captive.com med trans. You can Google Med Trans insurance that will pop up, but LinkedIn's where it's at, my friend. Thank you.

Going like this, Phil, if you don't know how to spell Phil's name, it is sitting right here. So go ahead, type it in, connect with him today, schedule a call, learn more about the Med Trans captive. It's doing and creating amazing results. So, Phil, want to thank you for joining. I know you're a busy man, so thank you for taking the time to be here.

Yeah, my, my pleasure, Andy. I love sharing our story and you do it well.

And for the advisor listening in, if you, if you're looking for a differentiator. Yes. Sometimes you got to step outside your comfort zone. Quit doing what you've always done. The Med Trans captive is an amazing opportunity for you to create that differentiator for your clients and your future clients. So get a hold of Phil. You know what happens. I say this every time we end the episode. Phil just gave you some clarity on what a captive is, how it works, and why you need to get a hold of them. Clarity creates confidence when you mix the two, you take massive action. So go take that massive action today.

And, Andy, that's what you've been telling me since. Since day one. So you're on to something, my friend.

You got it, Manic. Thank you for taking the action. Take care, everybody.