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Executive Corner:
An Interview with Joe Nagle, President & Chief Executive Officer
― Delta Dental of Rhode Island
By Dennis B. Sullivan
This article marks a departure from our norm of interviewing
insurance CEOs and senior executives for the Interpreter’s
Executive Corner column. Due to today’s interest in the
healthcare debate currently underway in Washington, Joe Nagle, president
and chief executive officer of Delta Dental of Rhode Island, seemed a
timely choice for this issue’s interview.
Sullivan: Please tell us a
little about Delta Dental of Rhode Island, including your business and
client base. While many of IASA’s member companies are
property-casualty and life companies, those organizations are certainly
being impacted by what’s going on in the health care environment.
Nagle: Delta
Dental of Rhode Island is the leading dental insurer in our
market. We have over 720,000 members, and that includes
approximately 100,000 members who are covered by a subsidiary of ours,
which operates predominantly in Massachusetts. We are proud of
our stable of clients, which includes some of the country’s
largest employers, including CVS/Caremark, Citizens Financial Group,
Royal Bank of Scotland, Hasbro, Amica, and since you have a
property/casualty audience they might like to know that it also includes
companies like FM Global. We insure the State of Rhode Island
employees and virtually every city and town in the state, and through
our subsidiary a number of cities and towns in Massachusetts. We
insure every college and university, and at the same time we are the
leading insurer in the small group and individual market, so we’ve
got the whole spectrum covered. We are the insurer of choice, and
are currently about six and a half times the size of our next largest
competitor. We are a member of the Delta Dental Plans Association.
I’d best describe that as a franchise arrangement where we are
allowed to use the Delta Dental name and, more importantly, the national
network of dentists. In return we have to comply with membership
standards. Delta Dental plans collectively are the largest dental
insurers in the country. We are roughly twice as large as the next
largest dental insurer, and that would be Met Life. We have the
largest dental networks in the country. We have more than three
out of four dentists in the country participating with Delta Dental.
Sullivan: I know from
talking with some of your executives that you are involved with
what’s going on legislatively with the Washington healthcare
debate. Could you give us your perspective on some of the key
healthcare issues that are being decided.
Nagle: Let
me talk about two types of issues, some that apply to all medical and
dental insurers and some that have a disproportionate impact on what
I’ll call “stand-alone” dental and vision
carriers. Today, as we speak, there’s a House version of
this bill and a Senate version and there’s not yet a compromise
bill that’s emerged from Congress. I can only talk about
what we see today, although I expect that what eventually emerges from
Congress will be different from the existing House and Senate
versions. Let me start with the House bill which includes, and I
think rightfully so, certain pediatric dental benefits as part of the
core benefit package. What’s problematic about it is that
under the House bill there are what appear to be some unintended
consequences. The House bill does not permit stand-alone dental
insurers to be offered under the exchange, even though today 98 percent
of the people in this country who have dental insurance purchase it
separately from their medical insurance. You could only get those
stipulated pediatric dental benefits from a health insurer. The
President said, “If you like your coverage, you can keep
it.” But that hasn’t been extended at this point in
time to be, “If you like your dental coverage, you can keep
it.” We’re concerned about that.
Under the House bill there is another provision that five years after
the outset of the exchange, plans offered outside of the exchange will
be subject to the same rules as inside the exchange. So if the
House version were to survive in its present form, which I don’t
think it will, then conceivably all stand-alone dental and vision plans
would not have a market five, six, seven years down the road. On
the Senate side we’ve been successful in getting a different
version. The Senate Finance Committee passed out of its committee
a version that does allow stand-alone dental plans and vision plans to
be offered both inside and outside the exchange. We believe
that’s the version that will survive when this is through.
That’s really the narrow issue of how dental plans are
affected. I think the bigger issue ultimately will be when you
decide how you’re going to pay for this do you still have the same
value that you have today. What we bring to the table as a dental
insurer is essentially two things – we spread the cost of
high-cost services such as crowns and bridges and implants among a
larger population; but also, since 70 percent of what we pay for is
preventive in nature, what we bring to the table is the value of our
discounts with our dentists.
What we’re seeing today in health care reform is that when you add
its costs to the existing administrative costs and other costs that you
already pay for today, it’s starting to challenge the value
proposition. By that I mean – take a small group employer
– our administrative expenses are less than 10 percent of the
premium and we bring great value. The premium also has to cover
broker commissions, which in the small group market are approximately 10
percent of the product cost. There’s a state premium tax
here in Rhode Island of roughly 2 percent, and then under the House
version there would be a federal premium tax which today is stated in
terms of dollars and is $6.7 billion. When you spread that $6.7
billion over the industry, it’s another 2 percent. So,
it’s effectively the equivalent of paying the state premium tax
twice. When I look at the stress that cities and towns and state
and federal government are under, they’ve got structural deficits
now, they’re not temporary deficits, and they’re struggling
to find out how to pay for these. They would perhaps argue
they’ve already cut to the bone on the administrative side –
that’s open to interpretation – but clearly there’s
more revenue that’s needed and I’m concerned as a dental
insurer that we might see increases in premium taxes again. When
you add all this up, at some point in time you get to the question,
“Am I still getting value if I have to pay all these taxes and all
these other administrative costs and broker commissions?
What’s the remaining value?” I and others are
concerned that we’re reaching that tipping point.
Sullivan: You mentioned the
term “exchange” a few times. Would you clarify what you mean
when you refer to the exchange?
Nagle: The
exchange is the term they’re using nationally. In
Massachusetts, when they passed their version of reform, they called it
a connector, but it is really a marketplace where you buy
coverage. Again, a lot of the details have not yet been released
or negotiated so I can’t speak as to what its final form will be,
but it’s a place for those who don’t have insurance coverage
today – individuals and small employers – to procure
it. It may be an exchange that’s designed and regulated on a
local or state basis, or it may be a national exchange. If
it’s a national exchange, there will be fewer players, and
therefore, I think less competition. The exchange is a place where
there could have been a public option but it doesn’t have to
include a public option, so it’s a place where hopefully there
will be enough competition to satisfy the objectives. I’d
just as soon call it a marketplace.
Sullivan: From a strictly
economic standpoint, are there other things that impact Delta Dental of
Rhode Island regarding how effectively the company is running?
Nagle: I
think it starts off with what we’ll call “the great
recession.” I’m 53 years old and I certainly have not
seen this in my lifetime. Locally, we’re seeing unemployment
levels that are in excess of 13 percent and nationally in excess of 10
percent. That’s only a part of the story. The other
part here is that you have the “under-employed” and those
who have stopped looking for work. When you add those back into
the equation, it’s not 10 percent unemployment, it’s really
17 or 18 percent nationally and over 20 percent locally. If you
are not employed in most cases you’re not buying dental
insurance. Companies are still shedding jobs. We’re
talking about being on the cusp of seeing an upturn in the economy, but
I don’t think we’re seeing an upturn in hiring. I
don’t think that will happen for another 12 to 24 months, and I
suspect that many jobs that have been lost to this recession are never
coming back. Companies have learned to become more productive and
efficient if they reengineer the way they do business, and they
won’t be adding jobs just because they used to have them.
Sullivan: Delta Dental of
Rhode Island was once part of BlueCross BlueShield of Rhode
Island. As a separate entity today, how do you leverage that
autonomy to operate a profitable business?
Nagle: Yes,
Delta Dental, like many of the Delta plans around the country, had its
genesis in an affiliation with a BlueCross plan. The logic at the
time was, “Why build a whole new infrastructure, a whole new sales
force when you could piggyback off the existing one?” This
goes back operationally to the late 60s and early 70s. Delta of
Rhode Island had its genesis in 1973 and for its first 20 years it was
managed by BlueCross BlueShield of Rhode Island. The split took
place in 1993 – the companies were heading in different directions
– the Delta plans had demonstrated they can attract and satisfy a
national clientele. Back then, Delta Dental of Rhode Island,
Delta Dental of Michigan, and Delta Dental of California formed a
partnership to administer the initial CHAMPUS dependent program and
invited other Delta plans to take some of the underwriting risk in that
pool. (CHAMPUS was a program that covered the dependents of
military personnel which is now called TriCare). To service that
client we created a “national provider file,” a national
database or repository, and all of the plans would feed their
contractual terms with their dentists – their payment terms
– into the central database. To service this account we
would then access that database to determine the appropriate fees.
That worked very well for the CHAMPUS program and it also allowed us to
offer a similar benefit to commercial clients. Wal-Mart was one of
the first clients added to that platform and here, locally, what used to
be known as Fleet Financial Group was the first client that we
added. The advantage of that is you have a local presence and, as
a Delta Dental plan, you can service your clients and dentists better,
and yet you have this seamless approach to servicing your national
clients. I mentioned CVS who is our largest client. As an
example, if a CVS employee in California goes to see their dentist, that
dentist most likely participates with Delta Dental of California, but
that claim comes to us directly here in Rhode Island, either
electronically or by paper, and then we access the central database to
pay it. No other plans are involved; CVS is dealing with one
entity and that’s us. It’s the best of both
worlds.
Sullivan: Many of the
nation’s largest property/casualty and life insurance companies
have been and still are being severely impacted by the economic
environment. Is there anything different that you see in the
health care environment that’s maybe unique in the way the economy
is impacting it?
Nagle:
I’m by no means an expert on the property/casualty side, but I
think there are some profound differences between our types of
insurance. Property/casualty is a big ticket type of insurance.
It’s potentially a long tail as to when those claims are incurred
and when they are finally paid out. On the dental side, because of
benefit design, it’s a much more predictable type of
insurance. For example, I’ve been involved here now for 17
years. We have been able to keep our average premium increase over
17 years to less than four percent. What we bring to the table is
predictability and stability for our clients, and that allows us to give
our clients multi-year rate guarantees. That’s very
important for all clients but particularly for cities and towns who are
trying to do budgeting and dealing with tax revenues. The dental
benefit design includes an annual maximum which allows us to predict
costs more accurately. We have a great deal of influence in
determining what fees we will pay, and utilization is very
predictable. We’re not subject to natural disasters like the
P&C industry is, so we operate, thankfully, in a more predictable
and stable business environment than P&C insurers.
Sullivan: I know you are
making technology a key component of your future strategy. How are
you looking to leverage these investments?
Nagle: We
have always been a strong advocate for using technology to the greatest
extent possible in terms of both improving service and reducing
costs. I became involved here 17 years ago. When I look at what
our administrative costs per subscriber were back then and what they are
now, they are actually lower today than they were 17 years ago.
That’s due to two things – growth and spreading out costs
over a larger base, but it’s also due to the fact that we’re
much more automated today than we were back then. It doesn’t
make sense to use technology unless the underlying business processes
are well thought out. In golf it’s kind of like buying the
greatest new golf clubs but your swing has you shank the ball into the
woods. The new clubs might enable you to hit the ball farther into
the woods, but that’s not the objective. Once you have the
underlying business processes well thought out, technology can then
enhance your performance but it can’t replace solid process review
first.
I think one thing we’ve learned about technology over the years is
that each new medium that we embrace doesn’t necessarily replace
an old one but adds to it. We’re letting older tools die a
natural death for the most part. When we started using the Web
years ago to help provide information and to process transactions, that
added a new way to get information, but it didn’t replace older
ones. Today, we still have one-third of our inquiries being
handled by an interactive voice response unit just as we did 12 years
ago. What’s different is that about 50 percent of our
inquiries are now handled by the Web. Dental really lends itself
to that because the typical interaction is between us and a
participating dental office. The office wants to know if the
member is enrolled, what benefits they have, or what’s the status
of the claim. All that information is readily available on the
website, and it’s available 24 hours a day.
I see the next challenge for us being what’s happening with all
the smartphones. Look at all the applications that you find on an
iPhone. We want to make sure we’re there when our members
and our dentists need us and we want to deal with them using the tools
they’re using on a day-to-day basis. Our next challenge will
be how to integrate great apps for smartphones, iPhones, and Droids.
At the same time, we must decide how to integrate social
networking sites such as Facebook, LinkedIn, and Twitter into our
business. We’re starting to monitor these sites to see what
people are saying about us and make sure that what’s being said is
correct. We’re also trying to figure out how we use that
technology proactively to help us grow the business.
Sullivan: You have a
franchise model, you have national exposure and national presence and
national leverage with your networks, but you can provide local service
which is critical to your success. How do you respond to the idea
that national health care can be the right solution for medical
insurance?
Nagle: To
some extent, we do have national health care today. It’s
just been doled out to smaller sub-sets. When you look at what is
currently being administered in healthcare on a national basis, you have
Medicare and Medicaid, although to some extent Medicaid is really a
local product. Both are being funded by the federal government.
I hear a lot of times that national health care would be less
expensive, that Medicare administrative costs are only three percent of
the rate (versus eight to 10 percent for private insurers), but what
those pundits fail to state is that because of the demographics of
populace covered by Medicare, the Medicare premium is four times as high
as the premium for the under-65 population. So that three percent
administrative number really is misleading. If you’re making
an apples-to-apples comparison, you’re really not seeing
administrative savings.
Another thing to consider is Medicare really has not addressed fraud and
abuse – the stories about the billions of dollars that are being
wasted in the system and not being detected or prevented. I
don’t believe this scale of fraud would happen to the same degree
in a for-profit business. There aren’t many programs I would
point to which are run by the federal government that I would say are
the epitome of efficiency.
Sullivan: Can you talk
about your management style and how, if at all, it has changed in the
last five years?
Nagle: I
don’t know if my style or our team’s style has changed much
over the years. I think an observer would say that we’re
very hands on. We set objectives for all of our employees so that
they’re aligned – we’re all marching toward the same
goals. In a lot of insurance companies you may find friction
between sales and underwriting. We don’t see that
here. It works very well because we’re sharing the same
objectives…it’s well thought out and executed. Your
management style is reflected in the types of people you hire. What
we’re always trying to do is find people who are bright,
articulate, communicate well, and have enthusiasm in what they do.
They manage the process themselves. We give them objectives that
we share and we regularly monitor our progress but we know that things
change.
We’re not wed to a particular strategy that is rigid and
can’t be changed, so I think flexibility is a key for us as well
as creativity. We’re a relatively small company in this
industry and if we don’t do things better than our competition,
we’ll be road kill. It’s important for us to do things
intelligently, and that’s what we strive to do. I think
it’s been working. As I said, we’ve grown from 186,000
members when we left the Blues back in 1993 to 720,000 members
now. We offer price stability and predictability. Our
customer service satisfaction ratings are in excess of 95 percent each
year, so by all outward appearances we’re doing the right things
with this style, but we can’t stand still. If you
don’t like to have a lot on your plate, and you don’t like
to have a lot of stress in your life, this probably isn’t the
place for you to work. But if you enjoy a fast pace and being
integral to the decision-making process, this is a great place to work
because your contributions will be noticed and rewarded.
Sullivan: So much has
changed over the last five years in the insurance environment. Is
there something that happened during this period of time that you did
not anticipate? What has been the biggest surprise for you?
Nagle: I
would say it probably goes back more than five years, but to me the
biggest surprise has been the resilience of dental insurance. I
would have thought coming into this industry that it would be more of an
elective benefit, but it’s proven to be a well-situated benefit
that’s difficult for people to give up. Looking back now it
makes sense because it’s so heavily rooted in preventive
care. What we’ve tried to do all these years is to try and
prove that there is a connection between oral health and overall
health. We have always felt that there was, but it was intuitive.
Now, we’re working on the proof and science to show that.
We’re committed to proving the oral and overall health
connection so that we can invest in the right areas and design benefits
accordingly.
Let me give you an example. One of the things that we’re
doing at this time is a clinical research project with Dr. Robert Genco
and the University of Buffalo Dental School. The purpose of this
study is to determine if the dental office is a viable setting to screen
for undiagnosed diabetes or pre-diabetes. You may ask why that
would be the case. The logic is that people on average see the
dentist several times each year and they don’t see their physician
as often, if at all. The research project includes conducting a
survey of patients with a certain demographic profile and also doing
simple blood tests that give immediate results to the dentist.
What we think we’ll find when the project is complete is that the
dental office is a viable setting to screen for diabetes but perhaps to
a greater extent for patients in the pre-diabetes stage. Patients
that are flagged would be referred to their physician for follow
up. That will allow diet, exercise, and intervention to
perhaps change the lifestyle of the patient and lead to improved overall
health and lower insurance costs. That’s an example of what
is changing in this industry for us. While we are a dental
insurer and there may not be significant dental savings that come out of
this research, there should be some improvements in overall health, and
ironically we may find that dental insurers are actually in a better
position than medical insurers to bend the curve here and change how
chronic illnesses like diabetes are managed.
Sullivan: Are there any
other things you’re seeing in consumers’ buying habits that
either the economy is driving or just the environment?
Nagle:
Dental insurance, because of adverse selection, has historically been an
elective benefit, and I mentioned earlier that Delta Dental Plan’s
association is the largest dental insurer in the country. We have
the second largest dental market share of any dental plan in the Delta
Dental system and we’re operating in the smallest state. For
us to keep on growing we had to look for other market segments, and we
were very aggressive in looking at and learning how to underwrite
individual products. Designing a benefit package where the individual
buys it and stays enrolled is the key. Letting them come in, get
whatever service they need, and opting out isn’t a viable business
model, so we’ve been very successful in keeping individuals
enrolled. I think that positions us well for this marketplace
where consumers, not employers, make more of the buying decisions.
Sullivan: As people gain
more control over their health spending dollars – via the HSA and
the pre-tax dollar plans – do you think individuals may be more
inclined to pick up dental and vision plans on their own?
Nagle: We
started in the individual market years ago when we partnered with AAA in
southern New England, which has a great franchise and a great brand
– and I have been really pleased as to how steady the growth and
the underwriting results have been with this product. We’re
continuing to see steady growth now, and this has been the eighth or
ninth year we have been in this partnership with AAA. Individuals
are weighing the pros and cons, and deciding it is worthwhile and then
they’re keeping it. It’s clear that to those
individuals who value having good oral health, using our bargaining
strength to help them maintain that oral health at the lowest possible
cost is of great value to them.
Sullivan: Using your
crystal ball, describe a framework for the future of health care,
including pros and cons. What are the key hurdles, and how would
the “public option” or some form of government control
affect Delta Dental of Rhode Island specifically and the industry in
general?
Nagle:
It’s clear that some type of reform is needed and right now this
reform is focused on insurance and not healthcare costs. I think
they’ve really missed the mark – they’ve demonized
insurers for their role, yet insurers are playing a valuable role in the
middle of this. I think what’s being missed in addition to
tort reform, which has not been addressed, and neither has Medicare
fraud, but the biggest area and opportunity is for improving
lifestyles. We have a mushrooming population of obese Americans
and the repercussions of that to our healthcare costs are so direct and
so severe, and yet nothing that we’re doing of any substance in
this reform is addressing that. I think we will realize that
– it’s staring us in the face – if we’re going
to make a dent in what it costs and create more access for those who
don’t have coverage today, we’re going to have to pay for it
by being smart about the dollars we spend. The only way to do that
is by getting people to pay attention to their health and create
incentives for them as to what is affecting their health and lifestyle
and start to change that.
This is the 25th in a series of interviews conducted
for The Interpreter by Dennis B. Sullivan, chief executive officer of
the Robert E. Nolan Company, a consulting firm serving the insurance
industry with offices in Simsbury, Connecticut and Dallas, Texas.
Mr. Sullivan conducted this interview with Mr. Nagle at Delta
Dental’s Providence, Rhode Island office. Mr. Sullivan can
be reached via email at dennis_sullivan@renolan.com.
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