Alliant’s EBITDA Lift Calculator: How Self-Funding a Medical Plan Saved an Employer over 30% In the First Year and Increased EBITDA by Nearly $700,000

The portfolio company had consistently received double digit initial increases year over year, being fully insured with a national carrier. After negotiations, the average increase was in the 8% range for the previous three years prior to Alliant’s engagement. Given the lack of transparency, the employer had limited options to negotiate without moving carriers every few years. As a result, there was significant disruption to the employees, premium increases, decreased benefits, and changing carrier networks.

The Private Equity firm recognized that staying on this track was unsustainable, and worse, the benefits were not viewed favorably by the employees, contributing to 25% turnover year-over-year.

Alliant M&A worked with the private equity firm and the portfolio company to run their program through Alliant’s EBITDA Lift Calculator, a proprietary analysis to show how simple tweaks to funding and health and welfare program design can increase EBITDA. The analysis suggested roughly 12% in savings by implementing the following solutions:

1. Self-fund the medical plan with a Third-Party Administrator (TPA).
   
   
2. Make self-insurance more palatable and viable by utilizing a stop loss captive.
   
   
3. Implement a quality navigation solution that would include:
   
   
   • Concierge services for employees (“Doctor in the Family”)
     
     
   • Quality navigation to only high-quality facilities and physicians
     
     
   • Integration with solutions to help employees manage major chronic conditions, such as cancer, diabetes, MSK, etc.
     
     

4. Carve out Rx.

   • All rebates passed back to employer vs. carrier

   • 40% savings on Rx in the first year alone

The portfolio company experienced a two-year savings of $1.1M.

Year 1: 30% reduction in cost, or just shy of $700k vs. staying fully insured
Year 2: Savings in the $430k range vs staying fully insured

The graph below shows actual costs in 2021 and 2022 and projected costs forecasting out through 2024 using Alliant’s proprietary claims predictor. We predict that it will take four years to get back to what the portfolio company would have spent in 2021, had they stayed fully insured.

Alliant M&A is a leading advisor to the private equity community, comprised of a team of approximately 100 experts/professionals nationwide, focused on delivering solutions for private equity firms from Letter of Intent to Investment Exit, including the following disciplines focused on pre-close advisory and portfolio management solutions:

• Insurance/risk management
• Employee benefits/human capital
• Human resources consulting and staffing
• Transactional risk (e.g., representation and warranty insurance, tax insurance, litigation insurance)
• Cybersecurity, technology and privacy consulting