AH079 - Capital Equilibrium, a New Level-Funded Pharmacy Plan, with Mike Miele, FSA, MAAA

Transcript

Lightly edited for clarity.‍

[00:27] Justin Venneri: Hello and thank you for joining us for another episode of Astonishing Healthcare. This is Justin Venneri, your host, and joining me in the studio today is Mike Miele. Mike has been a guest previously on episodes 55 and 61, most recently that was for Stop Loss and Hours Banking. We've got a bunch of new products here at Capital Rx. And Mike, you've been kind of lead or working on most of those, so thanks for taking the time to come back and talk about another one.

[00:51] Mike Miele, FSA, MAAA: Hi Justin. It's my pleasure.

[00:53] Justin Venneri: This episode's going to focus on our level-funded program, which is called Capital Equilibrium, right?

[00:59] Mike Miele, FSA, MAAA: That is correct.

[01:00] Justin Venneri: All right, so before we jump into that, for anybody that hasn't heard you on the show before, doesn't know you, maybe give us a quick 30 seconds to a minute on your background. You're Senior Vice President of Insured Services. What does that mean?

[01:11] Mike Miele, FSA, MAAA: It means that I do the insurance programs for the company. So, I'm a health actuary by training. I wouldn't say I'm a PBM person. I started my career as a health and welfare actuary, and I've worked in and out of the PBM industry for most of my career. And now I'm at a PBM. So that's a first for me. Before this, I was at Arthur J. Gallagher for 12 years.

[01:33] Justin Venneri: And this level-funded concept, explain it to me like I'm five.

[01:37] Mike Miele, FSA, MAAA: Okay, so a level-funded program is kind of halfway between a self-funded program and a fully insured program. So self-funded means the employer takes, you know, 100% of the risk and whatever claims come through, it's their responsibility.  

On the other end of the spectrum is fully insured, which tends to be more attractive for smaller groups, and they just pay a monthly premium, and they never have to worry about whatever the claims are. But the insurance company takes care of everything.

Level-funded is kind of in the middle of that, where you are not interested in taking the entire risk yourself, you'd like more budgeting certainty. But the way a level funded program works is it's a self-funded program with a stop loss program. So, if anybody's heard my podcast about stop loss, this is one of the use cases for this program. So, this is a pharmacy only level funded program.  

But I'm not doing a very good job of explaining this like you're five. So let me try a different way. Let's say I'm a township -- and I'll pick New Jersey, my home state -- and the school district, they have a pharmacy program, they have a medical program for their employees, and they're in the state plan for medical. So they basically are in a fully insured arrangement on the medical.

[02:52] Justin Venneri: Everything's bundled together, right?

[02:54] Mike Miele, FSA, MAAA: Everything's bundled together, yeah.

[02:55] Justin Venneri: Okay.

[02:56] Mike Miele, FSA, MAAA: But they decided for whatever reason not to be in the state program for pharmacy. And we get that a lot for this type of product. They say, well, the state's program has a closed formulary, and they really only have three choices of co-pays. We want a little bit more flexibility than that. We don't want to cover these things, but we really want to cover those things. And so they need a custom solution. Like, great, well, just go self-funded. We'll design a program for you, and you can have whatever you want. Oh no, no, no, no. I'm a township, I'm a school district, I have a fixed budget. I need to know exactly how much this is going to cost me. So that's where a level funded program for pharmacy works so well.  

So they're in the state plan for medical, and on the pharmacy side we guarantee that they will not pay more than $2 million for their pharmacy program.

[03:41] Justin Venneri: So it's a carve out with a guarantee.

[03:43] Mike Miele, FSA, MAAA: Yeah. There's a lot of benefits to having a level-funded arrangement with somebody like Capital Rx, and we're not the only ones that do this. There's actually companies that specialize in this market. What I think is really unique about us is we're combining the transparency of Capital Rx with the power of coupling it with insurance. If you're in a fully insured pharmacy program and you say, hey, I hear these things called pharmacy rebates. How much do I get? Well, good luck getting that out of your insurance company. They generally won't tell you. They say, well, that's built into the numbers. But in our model we're very transparent about rebates.  

So when we underwrite the program and quote the actual fees, we show you, here's what you're spending now with insurance company A, here's what we think the costs will be, and oh by the way, here's what we think the rebates will be, which will be a deduction in your premium - you know, the amount that they pay every month.  

So we've been doing this since January of 2025. We kind of had a soft launch just to make sure that we had everything working the way it should. And now we're ready to launch to the market. So we're letting people know now -  this podcast reaches a lot of people - so attention municipal markets. Capital Rx in the pharmacy level funded business.

Related Content

• AH071 - A Look at What's Really Driving Drug Spend, and How it Impacts Us, with IQVIA's Michael Kleinrock
• Pharmacy Benefits 101: Pharmaceutical Rebates
• AH067 - Aligned Health Benefits and the Freedom to Unbundle, with Kristin Begley, PharmD
• How to Manage Pharmacy Benefit Spend in a GLP-1 World

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[04:56] Justin Venneri: Without being too salesy about it. Thanks, Mike. We have this product but in general this, this isn't new to the market.

[05:03] Mike Miele, FSA, MAAA: There's a handful of companies that deal in this market. But what I've been finding when I talk to brokers that specialize in this, they were very, very receptive to, wow, there's only like two or three places I can go for this type of a benefit in my home state. So what states are you in? And we're basically in all states.

[05:23] Justin Venneri: Got it. Similar to carve in versus carve out, why do that, does it create more work? What are some of the questions or considerations that an employer, whether it's a municipality or school, what are some of the considerations that they would say? Like obviously more transparency around rebates is interesting, right? That would be attractive, I would think. But what are a couple other things that are pluses of going with a level-funded plan? The certainty sounds like it's really attractive in terms of total spend.

[05:47] Mike Miele, FSA, MAAA: Why do they want level funded? It's because of budgeting certainty. And why do they pick us versus somebody else? It's 1000% based on price. So this is a very price sensitive product. So oftentimes when you're in the self-funded world - and we've talked about this at length, Kristen and I talked about this on the procurement podcast - it's challenging to figure out what the best deal is on the self-funded side because PBMs tend to make things overly complicated. But if I'm charging $120 a month and the other bidder is quoting $140, I'm better.

[06:21] Justin Venneri: Yeah.

[06:22] Mike Miele, FSA, MAAA: There are no caveats in these programs. It's you pay $120 a month and you know -- I'm saying for a single rate; we would quote a whole rate structure for single plus a spouse, a family coverage, o the rates would vary based on that. But it's very, very price sensitive.  

Now there is another use case of this product. So now I'm talking to the self-funded market that is a little frustrated because they thought their PBM was going to save them 20% and their costs instead went up 20%. And their consultant said, well when I told you you would save 20%, it was a theoretical savings, it was a point in time analysis. And what I'm finding is there are quite a few self-funded groups that are saying hey, that level funded thing, can you do that for a self-funded deal? And I said why yes you can.

So that was not what we had built the product for. The product was built for the insured market, but it can be used. And what I love about that is when again there's tremendous savings that can be had when you switch from a different PBM to somebody like Capital Rx that is very transparent, passing everything through, and then we're essentially able to lock in those savings with a stop loss policy.  

So again that was not what it was built for. It was built for the municipal market, but it works just as well in that market. So now I'm talking to the self-funded brokers out there. If you would like to see a level-funded quote, we'd be happy to put that together, it's no trouble. We would do our normal bidding and then separately we would price the insurance policy on top of that.

[07:56] Justin Venneri: So it works like a traditional RFP in that sense.

[07:58] Mike Miele, FSA, MAAA: Yes, we would just add that as a policy rider if you will.

[08:02] Justin Venneri: And stop loss fitting into the picture. Just to expand on that a little bit. Now obviously GLP1-s have driven up everyone's costs dramatically. What sorts of things - you mentioned million dollar plus claims are up substantially year over year for the last couple of few years - what sorts of things are go into that where stop loss can be helpful. How does that work?

[08:21] Mike Miele, FSA, MAAA: Well again stop loss can be used to provide a ceiling, if you will, to the employer on how much they're going to spend next year. So what I find is in the municipal markets, let's say you propose a budget of $2 million for your pharmacy program and hey, bad news, it came in at $2.5 million. Well that would be a real problem for a township. It's not like they can go back to the taxpayers and say hey we need a little extra money. Their budgets are fixed for the year. If they need more money in the future, they would have to raise taxes, and that's not an easy thing to do in a township.  

But I think that translates to the employer self-funded market just as well. I mean, I've met people that own hotels and they've had really high claims experience and said, “oh my God, we're going to have to close one of our hotels down. This health stuff is killing us.”  

So it would be a useful tool for them as well to say, look, this is my budget and it's more fixed. But there's still benefits to a level funded program over a fully insured.  

Take pharmacy out of it. Let's say I have a risk, and the insurance company quotes me $2 million a year. Well, if I don't have any claims at all, I don't get a refund from the insurance company. They said, well, it was a winner take all deal. You paid $2 million and we took a risk and it worked out for us, so tough. But the way level-funded programs work is if the experience comes in better than expected, the employer receives a dividend, a refund. Maybe we don't refund the money, but we give you a 0% increase for the following year. There's a whole bunch of different ways that we can work it out with the employer. So that is a true benefit.  

And again, because we're so transparent, we're not hiding anything. So if rebates come in the way we had projected and experience is more favorable, then that passes back to the customer.

[10:05] Justin Venneri: And forgive me if this is a silly question, but the full service PBM solution, that's just the same any self-funded employer would get, you know, using Judi®, the customer care team.

[10:16] Mike Miele, FSA, MAAA: So the way I like to explain it to people, and I'm kind of being a wise guy, so I'm running Capital Equilibrium, it's this new division of Capital Rx. So we quote the premium and the customer would pay us that monthly premium. And then I found this little PBM called Capital Rx to be my PBM. So the contract is actually between me and Capital Rx, and the customer's arrangement is with Capital Equilibrium. But everything is the same.  

So Capital Rx bills Capital Equilibrium for the claims and the member services and the PAs, all that stuff goes through this separate risk bearing entity. And this is not based in Switzerland. We're not doing this to like hide anything where it's the way insurance works. We are a captive insurance company domiciled in Tennessee and Tokio Marine is our reinsurer. So we're not taking all of the risks, we're taking some of the risk and Tokio's taking some of the risk as well. So, we're very happy to have them as a partner.

[11:18] Justin Venneri: And those are the kinds of questions I assume people ask when they're vetting these.

[11:22] Mike Miele, FSA, MAAA: They should. I mean, remember, an insurance arrangement is a promise. It's a promise that if things go bad, your insurer will pay for everything. So you want to make sure you have an A rated insurance company behind you. And I'm sure everybody that's listening to this podcast has heard of Tokio Marine before. They're big in this market, but this is relatively new to them as well. They normally don't do pharmacy-only reinsurance programs, but they did this for us, and we're just really thrilled to be working with them.

[11:51] Justin Venneri: That's exciting. Okay, one more question and then of course my finishing question for you. So I hope you have a good, surprising, astonishing story ready, or start thinking about one now if you don't.  

Along the lines of what other questions folks should be asking, what pain points are out there where someone would need to potentially look at running an RFP to switch? Is it really just all, as you said before, very price sensitive? Is it we want to offer richer benefits, costs are running away from us because of covering weight loss or something else? What's the catalyst to have a discussion here?

[12:23] Mike Miele, FSA, MAAA: It's generally when the employer is facing a very large future increase. And for those of you who know anything about the New Jersey market, the state insurance program has been having a tough couple of years. So they've been announcing 25% increases, and that's freaking people out because when you're a township or a school district, 25% increase is hard to absorb into the tax base. So they are looking for other solutions. And oftentimes we can come in considerably below the state.  

And again, it's because it's such a price sensitive market. That's where it really, really happens. Generally people don't move. If you've got a good insurance program and you're getting 3%, 4% increases every year, they tend to stay where they. They're not constantly bidding the business. But when you're faced with a double-digit increase, it does make you want to look around.

[13:14] Justin Venneri: It's funny because it's math and it's just compounding against the payer in this situation. Right. Even if it's 3%, 4% or 7% or 12%, 25% is obviously seriously problematic for a fixed budget. But when this is year after year, it becomes an issue. So if someone's forecasting or being told like this is your increase, it's probably time to look around.

[13:34] Mike Miele, FSA, MAAA: It is. And this is a new market. You had said earlier this is not a new product, and you are correct in that. But there are new players in the market. There's a number of stop loss carriers entering this market and I'm excited because it's going to make it for a better, more competitive environment for employers. More choices are always better than less choices.

[13:56] Justin Venneri: And last question. Since we've started this earlier this year, or just since you've been an observer of the level funded market and products like this, what would you say is the most astonishing or surprising thing you've seen? That's safe to share, of course - always got to put our compliance hats on and make sure that it's safe to share. But tell us a good story to send us off.

[14:14] Mike Miele, FSA, MAAA: Oh boy. Well, most astonishing thing that I've seen, Justin, is the impact that GLP1-s have had on future trend. It's considerably more when GLPs are in play. And so I just caution employers that are thinking about covering GLP1-s for weight loss that it has a very long-term effect on the financials of your program.

[14:34] Justin Venneri: And just curious, a quick follow up on that. Your gut, Mike, as an actuary and someone that's been in this industry for a long time, if there are no net-new approvals for GLP1-s for new indications and things, do you see the potential for competition to maybe bring the price down and help moderate this a little bit? Or is it something that you're concerned about for, you know, two to three to five years?

[14:53] Mike Miele, FSA, MAAA: So there's two things that are gonna happen. There are gonna be more indications and there'll be more people using it. I think I heard the other day there's a hundred GLP-1s in the pipeline. Now that shouldn't scare plan sponsors. You should welcome that, because that will create a race to the bottom, and at some point, these drugs become generic as well.  

So we don't have another 10 years of this in front of us. We probably have another three to five years of maybe some scary times. I see the price dropping per pill, per injection, but I see the use being bigger. So it's probably going to be a wash, but it is more expenditures than if you didn't cover it.

[15:32] Justin Venneri: Got it. Mike, thank you so much for taking the time today and explaining capital equilibrium and sharing your outlook. Hope you have a great rest of your day.

[15:38] Mike Miele, FSA, MAAA: Oh, thanks Justin.

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If you would like to learn more about Capital Equilibrium or Capital Rx’s full-service benefit administration solutions, including our clinical programs, CLICK HERE to get in touch with our team.

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