#133: Mike Schroeder (Roundstone Insurance)

Mike Schroeder (Roundstone Insurance) [00:00:00]:

I think we're the only one. When we sit down and ask ourselves a strategic question, the first consideration is what would the employer want? And it's like, come on, Mike, that's not a differentiator I mean, that's so obvious, that can't be something unique, but because the incentives are so screwed up, it is a differentiator. We truly are one of the few, if only, company that makes decisions based on an outcome of the employer.

Jeffrey Stern [00:00:31]:

Let's discover what people are building in the Greater Cleveland community. We are telling the stories of Northeast Ohio's entreprenuership builders and those supporting them. Welcome to the Lay of the Land podcast, where we are exploring what people are building in Cleveland and throughout Northeast Ohio. I am your host, Jeffrey Stern, and today I had the absolute pleasure of speaking with Michael Schroeder. Mike has served as the founder and president of Roundstone since 2003, when they launched the first group Medical captive of its kind and have since revolutionized the entire self insurance industry. Roundstone's captive approach to insurance allows small and medium sized businesses to take advantage of the benefits of self funded insurance that historically only larger enterprises could take advantage of, such as plan, flexibility and control, transparency and cost savings. By banding smaller companies together in a shared risk community, those companies become protected from the volatility and can be rewarded with extra savings. In practice, since its inception, Roundstone has distributed over $72 million back to its captive participants, money which, in contrast to the fully insured model, would be pocketed by the insurance carriers. Instead. This idea, which began with an entrepreneurial vision of creating a better life for his family and for his employees, has since evolved under Mike's leadership, into a thriving 140 person company with more than 700 employers participating in Roundstone's Group Medical Captive saving participating companies 20% on average, relative to their traditional insurance plans. With more than 25 years of management experience and recognized by Ernst and Young as a finalist for Entrepreneur of the Year in 2022, mike has a proven track record of growing roundstone with a 30% compounded annual growth rate. Over the last two decades, which has earned Roundstone recognition as one of the fastest growing companies in America by inc 5000 for five consecutive years, as well as a Northeast Ohio top workplace, all while remaining a fully independent and family owned organization. In our conversation today, we explore how Mike's experience as a practicing attorney and property and casualty insurance expert inspired his application of self funding and captives to employer health insurance. We talk about what captives, land, self funding even are and how they compare to traditional and fully insured coverage. We unpack the biggest challenges in the employer healthcare system today and how misaligned incentives and cumber attempts to solve those very challenges land importantly, how Roundstone is trying to explicitly align those incentives. This truly was an amazing and wide ranging discussion. Mike is a formidable builder and leader and has built an inspiring organization with Roundstone based here in Lakewood, Ohio. So with that, please enjoy my conversation with Mike Schroeder after a brief message from our sponsor. Lay of the Land is brought to you by Impact Architects and by 90 as we share the stories of entrepreneurs building incredible organizations in Cleveland and throughout Northeast Ohio. Impact Architects has helped hundreds of those leaders, many of whom we have heard from as guests on this very podcast, realize their own visions and build these great organizations. I believe in Impact Architects and the people behind it so much that I have actually joined the personally in their mission to help leaders gain focus, align together and thrive by doing what they love. If you two are trying to build great, Impact Architects is offering to sit down with you for a free consultation or provide a free trial through 90, the software platform that helps teams build great companies. If you are interested in learning more about partnering with Impact Architects or by leveraging 90 to power your own business, please go to IA layoftheland FM. The link will also be in our show. Notes so over the last few weeks I have been talking to everyone I know about medical captives and when I first learned about the through my interactions with you mind virus probably is not the right word given the negative connotations of virus. However, it does feel like that because once you know about medical captives, it is very hard to unsee them and not think about them. And the idea itself seems to spread pretty organically, especially knowing how flawed the traditional full insurance alternative is for so many companies. But what I realized is that for the average person, and I would wager the majority of people, very few of them know what medical captives are in this context. And so I might go on to explain what they are and that there is this incredibly innovative company here in Cleveland called Roundstone which has evangelized this group medical captive concept from inception to mass scale adoption over the last 20 years, saving companies many millions of dollars in the process. Land addressing some of the most severe structural underlying problems of our healthcare system, all while building an impressive business around it. And from there, everyone would like to understand more. So all that is to say, I have been very much looking forward to having you on the podcast because I know you have an incredible story to tell here and will be a significantly better steward of Roundstone's Vision land mission than I can be to have the most productive conversation here. Knowing. Most people are not experts in the world of group, medical captives and self insurance. I think we will need to do some stage setting and definition of terms, which also will let us explore what the world of insurance looked like before roundstone and some of the primary problems that you experienced which inspired you to start all of this in the first place. So to start though, what is the simplest way you would describe know very.

Mike Schroeder (Roundstone Insurance) [00:06:41]:

Broadly and generally we're a health insurance company. We underwrite employer group health insurance, and we do so throughout the United States.

Jeffrey Stern [00:06:52]:

And what would you say are the biggest challenges facing employers that Roundstone works with today?

Mike Schroeder (Roundstone Insurance) [00:06:59]:

Yeah, so employers today, and particularly the middle market, are really confronting escalating costs. I mean, that's the biggest challenge. The price that they're paying to provide their employees with health benefits is rising dramatically. And what I mean by that, like putting that in context, their costs are going up by 20% a year in some cases, in some cases more. And so they're really in a difficult place because in the employment market, they have to recruit and retain the best employees. That's getting more challenging with full employment today. And the they have to provide attractive benefits or else they're going to be differentiated from other employers. And yet those benefits are costing more. So they're really looking for ways to better manage their benefits spend. And what even adds to the frustration is the vast majority of the middle market. Two thirds is in a product, a fully insured employer health plan. They buy from a traditional insurance company where very little information about what's driving the cost is provided. And so that adds to the frustration of the predicament they're in.

Jeffrey Stern [00:08:18]:

So when we think about the landscape that Roundstone is operating in today, and some of these terms that folks may be somewhat less familiar with, can you just lay out for us what is self funding? What does it mean to be fully insured? What are captives and layering on top of that, roundstone in the context of these ideas and the consortium of players that are good?

Mike Schroeder (Roundstone Insurance) [00:08:47]:

When you think about health insurance, people in our country access health insurance in a couple different ways. One is through the government and the government programs like Medicare, Land, Medicaid, we're not in that space. Another is through individual coverage, where they buy a policy of health insurance for themselves only or their family only. And then the third, which is the vast majority of folks in this country, they access health insurance through their employer. That's called employer group coverage. And the employers deliver that health insurance in really two ways. One is they buy it in what's called fully insured coverage from an insurance company. They pay a premium, and that company takes on the obligation of providing the health benefits to the employees and their family members. Another way that employers buy or provide health benefits to their employees is known as self funding. And in that approach, the employer is responsible for delivering the health benefits to the employees. But they don't do so themselves. They go out and they engage a claims administrator, or what's called a third party administrator, a TPA. They engage a network of caregivers or providers. They engage coverage from what's known as stop loss insurance for claims that are very large and they self fund. Interesting enough, large companies almost exclusively self fund. If you have more than 1000 employees, 99% of the time you're going to be self funded. And you might say, well, why don't those companies buy fully insured coverage? And the reason is, self funding, they recognize, is more efficient. You gain access to more data, you gain access to more control. And when you don't spend, you have an influence with that control. You have cost savings and you keep that savings. It doesn't stay with the insurance company. So along comes Roundstone and we come up with an idea that what if we could take a lot of these smaller middle market companies, 25 employees to 1000, and turn them into a larger Fortune 500 company so that they could self fund too, and overcome some of the reasons that they have historically not self funded? If everybody recognizes self funding is a better mousetrap, why is the middle market not doing it? And it's because historically it was too volatile. Year over year, claims would move around too much, the cost of stop loss insurance would move up and down too much. It maybe was a little complicated to find the right TPA or network and so on and so forth. So Roundstone said let's enter the employer market, let's provide a self funding solution, let's do so for the market, and let's overcome those historical objections that they've had so that they can access what everybody knows is the most efficient way to fund your health benefits. And that's how Roundstone came about. Now, the quote secret sauce or the innovation that allowed us to do this was this entity known as a captive, which is a rough name, but a captive is an insurance company that's owned by its insured, by its members, and it acts as a reinsurance company to the stop loss insurer. But what it really does here is it smooths out that volatility for the employer and allows that employer with only 100 employees as an example to self fund, gain access to their data, gain control. So I like to refer to it almost like a bumper on a car. The captive kind of makes things a little easier year over year for that middle market employer land. Now they're comfortable self funding.

Jeffrey Stern [00:12:41]:

So how is it that and what kind of space were you operating in that allowed you to understand that this was a problem that you could solve? Again, knowing that a lot of people aren't even necessarily aware of these alternative ways of doing insurance.

Mike Schroeder (Roundstone Insurance) [00:13:00]:

Yeah. So I've been in insurance my whole career and the first part of it was property and casualty. And I've always kind of found myself in self insurance strategies, whether that was self insured, workers compensation pools, or group captives in medical malpractice or group captives in auto liability exposures. So from that experience, I knew the value that a group or a shared risk pool of employers could provide. It could provide some stability, some insight into claim trends and it also could reduce costs and reduce volatility. So I knew that worked on the PNC side and thought, hey, it might work on the health insurance side. Now, when I first developed the product, the marketplace was not in as much pain as it is today. The costs today are going up dramatically, double digits for most employers on their health insurance costs. But when this first product was first launched back in five, that environment wasn't quite there. And so it was a better mousetrap than what they were doing, but they didn't have the pain to cause them to really look at it. And I would joke that for the first six years of our business, I was a street corner evangelist and I would say how great this approach was. But until healthcare reform came along and caused people to look for better ways, alternatives to traditional fixed cost health insurance and before the cost started skyrocketing, it was just a neat idea. But now it really has become for the middle market a better alternative to what they traditionally have done.

Jeffrey Stern [00:14:46]:

And just practically how do you think about those benefits? Land communicate them to folks who might be considering it or have been part of the captive.

Mike Schroeder (Roundstone Insurance) [00:14:56]:

Yeah, it really falls into three areas, all of which are made possible by that risk pooling of the captive. And that is we provide you with information. You have the data now to know what's driving your costs. We provide you with control to do something about those costs and we work with you, we don't force you to do it, but we give you solutions that you can bring to bear and offer to your employee population. And then lastly, when you do not spend the money, when you don't spend the dollars that you funded, you keep those savings. And so year over year, when you're keeping the money in the pocket and the insurance company is not taking it, you reduce your volatility and over the long term you will come out better because you're keeping the savings. Now, all three of those ideas are traditional self funding ideas and that's what the large companies recognize. But they're only accessible if that middle market can eliminate the year over year volatility and have some control that I know that I'm going to have a maximum cost this year of this much. I know that I'm participating in this risk pool that will send profits back to me even when I have a bad year myself. And so we kind of are the platform or we open the door of self funding to the middle market by use of this captive pooling mechanism. We have got it.

Jeffrey Stern [00:16:30]:

So to say it back, just to make sure I'm understanding it right. When you have a large enough pool, you're able to think about insurance as a problem with enough actuarial certainty to understand the risks involved and manage that for yourself. And traditionally, for smaller companies, they haven't had because they just don't have enough people employed. The ability to understand that predictability, that predictive nature to what their risk looks like.

Mike Schroeder (Roundstone Insurance) [00:17:03]:

Yeah, you said it very well. When you self insure as a smaller company, it's not predictable. When you self insure as a larger pool or group of employees, it becomes predictable, and so that volatility is removed.

Jeffrey Stern [00:17:18]:

So over the last 20 years, evangelizing group medical captives through Roundstone, I'm picturing you on the corner waving the flag, knowing the efficacy that this has, and we can talk about this later. With 20 years of data to support material savings for hundreds of thousands of people that you've been able to work with, why is it that in the industry, Roundstone land, this whole model seems to be a well kept secret. Why don't more people know about group medical captives? And what's your opinion for what's prevented the broader adoption here?

Mike Schroeder (Roundstone Insurance) [00:17:56]:

That's a great question. I don't know. I ask myself that a lot. Why is it not more viral? I think it is still new. There is history or a belief that people have an experience with self insurance prior to the captive solution that was not good. And so they just assume that nothing's changed and they don't take the time to learn that, oh, there are some new innovations that make self funding more approachable or more reasonable for the middle market. That's part of it, sort of, sort of like, hey, we had a bad experience with self funding before, it can't be any better, without stopping to say, I wonder if things have gotten better, if there's been innovations that make it better. The other thing is, health insurance is sold by intermediaries land brokers, and they have done exceptionally well in the old environment. Costs have gone up, their income has gone up as a percentage of those costs, and they have very little incentive for things to change. If you step back from the health insurance or health care ecosystem even broader, that misaligned incentives is usually at the root cause of why things don't change. And I think the adoption of self insurance by the middle market with the innovation of the captive has been slower than you might seem to think. Primarily because of misaligned incentives. It's in the best interest of the employer and employee to manage quality, affordable health care for their company. It's not always in the best interest of the intermediary to do so. It's certainly not interested in the best interest of the traditional insurance company to do so. The providers, they're kind of disconnected from it as well. And so there's not everybody rowing in the same direction. And so when you have that kind of environment where people have their own agendas. Change happens slowly. It is happening now. There's a pretty big shift towards self funding by the middle market and our company's growing pretty dramatically. But to your point, why isn't it more like flip the switch, know, Malcolm Gladwell tipping point type of environment? It isn't quite there yet.

Jeffrey Stern [00:20:14]:

So you had mentioned, know, the framing of the outcomes and offerings, things, know, a company could expect to experience through Roundstone, which transparency, control, stability, cost containment, profit sharing under those umbrellas. But even more than that, Roundstone has a guarantee, a brand promise. And in a lot of ways, one way to think about brand is that ultimately brand is a promise. And I imagine a lot of people listening in are probably familiar with GEICO's. 15 minutes could save you 15% or more kind of promise. But to me it feels like Roundstone's promise is much more powerful. Here. It isn't really a could, it's a guarantee. So for one, what exactly is that guarantee? And building on it, if something sounds too good to be true, I think it's often worth trying to understand how it actually works. And so if you were of the belief that it sounds too good to be true, what would people be missing about it?

Mike Schroeder (Roundstone Insurance) [00:21:15]:

Yeah, so we started offering a guarantee to kind of overcome that idea that, hey, this just sounds too good to be true, that just can't be real. And our guarantee is that if you are with us for five years, because this really is an approach, that is a long term approach, we will guarantee you will save money over your other options or we'll make up the difference. And that's how confident that's what our experience has shown is that an employer that self funds for with us over five years, they're going to pay dramatically less than they would if they fully insured or we're in a product other than a self funded captive. Why that is, is because there's that much waste, there's that much profit in the traditional insurance market that the employer is able to retain. If you want one independent objective measure of that, go and look over the last five years of the earnings of the big health insurance companies, the Unitedhealthcares, the Blue Cross, the Aetnas, the Cignas, you will see that they are earning outsized profits, big billions of dollars, and it's only going up every year. So if that employer can retain some of that for themselves, they're going to be ahead of the game. And what's really to me critically important here is to not forget about the impact of all of this to the employees. Because when costs go up a chunk of it, a big chunk of it, most often a third of those increased costs are borne by the employees. And that's tough for our communities where your raise is going to fund a health care cost share. That's just a really, I mean, you talk about inflation. This is devastating. And so when you look at the big picture, it becomes pretty obvious of why the savings occur. I should probably make it sound like it's harder for us to do it than it is, but to save 20% over what you're paying fully insured when you move to our product is not hard. It's just not hard. And so for me to say, if you're with us for five years, you will save money, it's not a big deal for me to guarantee that.

Jeffrey Stern [00:23:42]:

I think it's particularly interesting in the context you mentioned of the employee when you consider that typically income is the largest determinant of health. And I think it's still the case that most Americans have less than, say, $1,000 in savings, and most plans probably have a premium minimum of a few thousand dollars. And so when your savings are less than your deductible, you're functionally uninsured to a degree.

Mike Schroeder (Roundstone Insurance) [00:24:12]:

Yeah. Whether you look at how many people cannot afford a $3,000 deductible, they're basically one bad event away from being bankrupt. I was involved with an employer that they gave their employees a 3% raise, and then their healthcare came back with a 23% increase. And so I was running the math for the employer saying, essentially you didn't give a raise to your employees because when you pass along that premium cost share of 23%, it eliminates the raise. And so when they sit down for dinner at night at the kitchen table with the family, they're taking home less money. And so if you're not going to try to fix this instead of just sending that money to the fully insured carrier, then there's ways. And again, the part of your question earlier, like, why is this not more? No. And that's the part that eats at me, because there are ways to not have that happen to that employee. We have a solution that works. We offer the guarantee. I take our own company, Roundstone. Our employees for the last eight years have had 0% increase in their cost share. So every raise they've received over the last eight years has stayed with them, and their income has gone up. If they've been an employee of Roundstone, we can do that for employers throughout this country. But we have to reach them. We have to get to them and let them know these ideas are out there.

Jeffrey Stern [00:25:42]:

So, again, in this context, in an environment where you have these misaligned incentives from those who would be in a position to help advise companies about what options might be out there, you have even potentially, from the perspective of an employer, some kind of pushback, whether it's the educational process involved, to understand what this actually is and how it works. They might be confused knowing that Roundstone today is operating at a scale of a very large scale. Right. How is it, though, that you actually got this started and in a place where you could begin to grow the number of employees that you're able to cover.

Mike Schroeder (Roundstone Insurance) [00:26:27]:

Yeah, like a lot of businesses, we were a problem solver. So there was probably a block of business that was just going through tremendous cost increases. I think one of the first ones was transportation companies in the agricultural market. And they were being confronted with do we provide benefits or we don't? And so they were basically saying, we have an open book for bringing in a solution. And they brought us in and we said we could help them. And we did. They saved a lot of money. And so the initial business startup was really solving problems for blocks of companies that had really not a lot of options. And then when you start solving the real difficult problems like that, you start getting opportunities with the more simple one off deals. But yeah, it was just you deal with the people that were in a lot of pain. Land really didn't have we're in a bad way. And that's how it got started. And then refine them. The message is a good message. I mean, most middle market employers want control. They want stable pricing. They want to know if it is going up, why. And so they just need to get comfortable that it works and that they've got a partner that's going to help them implement it, that they don't have a bunch of additional work for themselves and we're able to touch all those bases for them.

Jeffrey Stern [00:27:52]:

So when we first met, you gave me a book called The Founders Mentality, which I've since read and tried to learn what I can from. And at a high level, it sets its own stage with this paradox of growth, where growth creates complexity, and complexity is then the silent killer of growth. And from there it kind of reveals the founder's mentality as a way to address that exact paradox. So we can go into more detail on what that mentality consists of. But I'd love to understand of any book you could gift, why is it that you have chosen this one to have readily available to give away at all times? What is it that resonates so strongly about it?

Mike Schroeder (Roundstone Insurance) [00:28:35]:

Because I think it answers the questions for employees. Why is it that this founder wants me to behave a certain way? Or what is it that this founder is doing that's different than me? Or how can I be like this founder? I want to sort of apply what they're trying to say. What kind of behavior can I exhibit that would have me aligned with this founder? And so this book essentially says this is the mentality, that this is the approach of our company, this is the philosophy. When we confront a problem or a challenge, let's look at it with this perspective. And this is our guide. So that's really why I think it's a really good way for a founder and entrepreneur and the employees of that firm to get on the same page and lock arms and work together. That's the roadmap for doing it.

Jeffrey Stern [00:29:38]:

The most salient question that it made me want to ask you was and it's because it talks about the internal strength and the vitality of young companies which allowed those startups to take on larger incumbents in the first place. Declines as those companies grow and succeed because you're adding process and structure which kind of detracts from the personal intimacy in the earlier founding years. How is it that you have approached that exact problem? Because I think it's something when you reflect on roundstone and where you are today and where you were, the company has grown quite significantly.

Mike Schroeder (Roundstone Insurance) [00:30:17]:

Yeah, it's those three elements. The one, you got to have a mission. And they talk about an insurgent mission. And I think if you don't start there, if you don't have a business that really is trying to change something for the better, it's going to be tough. So you need that and you need to remind people all the time of what that is. And for us, that's affordable health care, quality, affordable health care for all. So you got to have an impact. You got to do something that has meaning. You got to be relevant. And so you need that mission and you got to communicate. It the one thing, though, as you talk about growth and scale and the one component of this founder's mentality is called a frontlines obsession. And boy, that's one of the elements that I just like so much because there tends to be companies, as they get so big, there tends to be a focus. Well, this company is so big and so successful because of leadership. To me, that's a fallacy. Companies succeed because of the people on the front line, the people that are taking care of the customers every day. And you need to put those folks on the pedestal and you need to recognize that they're the ones that is making this work. And if you lose sight of that, the customer is really important, but also the people that are taking care of that customer, that front line, that's when you get a disconnect and that's when you lose your mojo as a company. And so having that as a constant reminder that what's most important is our customers and how we are taking care of them and who is taking care of them.

Jeffrey Stern [00:32:01]:

So you've built roundstone here in Cleveland and intentionally chose Northeast Ohio to start a business. What was your reasoning for doing so?

Mike Schroeder (Roundstone Insurance) [00:32:13]:

I think a lot of people in Cleveland are here for similar reasons. I grew up here, my family's here, mom, brothers and sister. I like it. It's convenient. It's affordable. I started my family here. So it's the easy button in terms of where to live. It also happens to have a lot of insurance talent because of other large insurance companies here. It happens to have a populace that is well educated and can do the tasks that we need done. So you put all that together, affordability educated populace some experience, affordable, that kind of thing. It's a good place to start a business. Not any real downside at all to doing so. There are certain skill sets that maybe aren't as prevalent as others in certain markets, but we've been able to overcome that, and we're overcoming it even better all day. We're bringing in people from other parts of the country now for certain skills like technology that make it easier for us. That's why I'm a Clevelander, I'm a Browns fan and all the teams, and I'm proud of the fact. Now, I left for ten years. I went away to school, I worked other places, so I've kicked some tires of other locales. But this is a pretty darn good place to start a business and live and raise a family. I would do it again.

Jeffrey Stern [00:33:40]:

When you think about the business of Roundstone, and I think when generally people think about insurance, it's probably not the first thing to come to mind that there's technology involved. It feels somewhat anachronistic and kind of an older process. You had mentioned technology earlier. What is the role of technology in this world that you're operating in, and specifically in the context of Roundstone and how you think about the work still to be done?

Mike Schroeder (Roundstone Insurance) [00:34:14]:

I think it's no different than any business. I mean, technology gives you efficient access to data to detail on what's happening with your business. Technology makes routine tasks more efficient, communication among departments more efficient. It allows you to scale in a more economical way because of those tasks being automated. It really just helps you to technology is all, to me, all about communication. It just helps you relate and connect and communicate better than you can without it. Besides marketing technology, land marketing are in a head to head horse race for who's going to get the bigger investment from us every year.

Jeffrey Stern [00:35:01]:

I think it would be cool to understand in practice a little bit what this looks like because I would imagine some of the when we talk about pushback you might get from a company considering working with Roundstone is the fear of how much work might be involved in what at a high level is running your own insurance relative to what they're used to, where it's essentially outsourced. And you've mentioned a few of those parties involved from the agencies and the third party administrators and the pharmacy benefit managers and the coordination of all these things. So, soup to nuts, what does this look like for an employer? And when you think about what Roundstone is offering in terms of some of that cost saving analysis as well, what would an employer's experience?

Mike Schroeder (Roundstone Insurance) [00:35:53]:

You know, the employer now is receiving more information than they historically, you know, at first blush, you might say, oh boy, this looks like a lot more work, but you're not undertaking the tasks. It is important to have a good TPA partner who's managing the payment of your claims. I know some employers say, am I going to have to write checks to doctors? The answer is no. That's all done by the, you know, our TPA. You have data platforms that makes it easier to understand what's happening. That's another place where technology can help out. But you do need good partners with the pharmacy benefit manager and the network land the TPA and all that. So that's what Roundstone does. It coordinates and makes sure everybody is working together. And then after a while, it's interesting that those initial objections of, wow, this seems like because of all this added information you're sharing with me, this seems like more work. And then once they get over that, then it's funny, they become like they want more and more information. Now it's not work. Now it's opportunity to better manage costs. And it's funny how there's a switch that goes off when that happens. But yeah, initially it seems like, well, it's a lot easier if I just write a check every month and it's like, yeah, but that check is getting kind of expensive, isn't it? Now you write a check, you still do that, but now with that check, you're going to get some insight into where that check is going and why.

Jeffrey Stern [00:37:26]:

So when you think about the traditional insurance model, and correct me if I'm wrong, but as I have understood it, these companies make money because they pay out less in claims than the took in premium, and they retain that profit and it's not passed back to the company. How is it that Roundstone makes money?

Mike Schroeder (Roundstone Insurance) [00:37:49]:

So we are paid on a portion of the stop loss premium, that catastrophic insurance coverage that sits above the retained risk of the employer and the pool. We're paid from those excess reinsurers for underwriting, for adjudicating the excess claims, for issuing the policies, and basically doing the back office insurance company work that you come to expect. That's how we're paid. We could, but we do not take revenue shares from ancillary support companies like Telemedicine or the pharmacy or a variety of other cost containment solutions that are available in the market that might be appropriate for our customers. We do not revenue share with them. That's intentional. One, we want to keep the fixed costs low so that the savings stay with the employer. But two, we think there's a better alignment when we don't that we're able to say, hey, you could really benefit from a diabetes management program, but we're saying so because we're letting the claim data drive that decision. We're not making that recommendation because that diabetic management firm is paying us a fee. So we think there's a better alignment with the employer in reaching the objection of managing their health plan cost effectively.

Jeffrey Stern [00:39:18]:

So as this model more generally has gained traction in the market. Have other captives come to bear as well? And when you think about competition at this point, is it mostly versus the traditional way of doing it? And if not, as other captives have come to exist? How do you think about Roundstone's differentiation?

Mike Schroeder (Roundstone Insurance) [00:39:43]:

Yeah, so there's a handful of other captive stop loss providers out there. I think less than five. I guess technically they are captives because there's on occasion we'll compete against them for an opportunity. But we really view more of our competition as the traditional insurance market. Two thirds of our business is leaving a fully insured traditional Blue Cross UnitedHealthcare name and coming into our solution. So to us, that's really more of the competition land. Once we get an agent or broker advisor aware of our solution and how it works, then the start showing our solution to more employers as an alternative to those fully insured solutions and we get many more opportunities because those solutions are not working for the middle market, they're going up too high. But it's tough to get that broker, that agent at times to try something different. But yeah, so that's our competition. Our competition is the full insured, the other handful of captives. In one way they're just with us kind of educating the market. On occasion we'll compete against them, but it's not very often.

Jeffrey Stern [00:41:02]:

When you think about the future of healthcare in the US. Overall, I think one of the interesting dynamics is that roundstone is bringing to the table a better solution for companies as it exists today. If you could wave a magic wand and design the ideal structure from scratch, I'm just curious, in this hypothetical world, what does that look like?

Mike Schroeder (Roundstone Insurance) [00:41:28]:

Well, you would step back and ask your question on every element of the solution. How can we get the interest aligned? So let's start with the providers. The providers are taking care of the patients, the family members and the employees. How do we get those folks aligned? So the outcomes are quality and affordability. And I think the closer we can get the patients to these doctors, without all these intermediaries, without the network, without the insurance company and the broker and the pharmacy, the better chance of that alignment we have. So my solution would probably involve taking a few of these participants, like the networks and getting rid of them because they're not providing a lot of value. They came about supposedly to make sure providers existed or there was enough of them that you could access. They came about because of access, and then the came about, they said, arguably because of cost, but they're not doing a good job at either one of those things. So I'd eliminate them, the networks, and I'd have the members able to go to the providers directly without barriers or walls of a network. I do believe that a solution like ours is aligned. And so I would suggest that we stick with a solution in which if you undergo cost containment efforts, you reap the benefit of those savings. I think that makes sense. I think that alignment works. And then I would make sure that the consultants, the brokers, the agents that are explaining these products and these solutions have compensation that is aligned with the employer's objective of managing costs down. That can be done in a variety of ways, including getting paid as a fee, a flat fee, as opposed to a fee that goes up when costs go up. So if we just did those three things, throw the networks in the garbage can, cause the intermediaries to be aligned with the employers in their compensation, and then have a solution that rewards the employees and employees when they deliver cost savings. The I think you go a long way of fixing this problem.

Jeffrey Stern [00:43:54]:

It all surrounds incentives. There's that munger quote, show me the incentives, I'll show you the outcome.

Mike Schroeder (Roundstone Insurance) [00:44:01]:

There's no doubt about, really. It's funny, we sit back a lot when somebody asked me, what differentiates your insurance company from others? And I said, you know what? I think we're the only one. When we sit down and ask ourselves a strategic question, the first consideration is, what would the employer want? And it's like, come on, Mike, that's not a differentiator I mean, that's so obvious. That can't be something unique. But because the incentives are so screwed up, it is a differentiator we truly are one of the few, if only, company that makes decisions based on an outcome of the know our rationale. So know you don't think we need to be canonized as saints is, listen, we're competing know, you talk about Malcolm Gladwell land his David and Goliath. We're competing against our country's largest companies and some of these health insurance companies. If we don't do things from a point of view of trying to help these employers, we don't stand a chance. And so the way I look at it is, yeah, maybe I could make more money by getting paid a PBM or owning a PBM like the large insurance companies do, or maybe I could if I took revenue share from cost containment ideas. But I don't think I'm going to have as much of a value traction as if I just say, man, every one of your customers, Mike, is saving money because you're delivering on your objective of controlling their costs. So I think we'll grow quicker this way. And I'm not worried about the fact I may be leaving some extra revenue on the table by going about this approach.

Jeffrey Stern [00:45:48]:

So when you think about that growth trajectory and where Roundstone is going, what does success mean to you in that context? What does it look like for roundstone, and ultimately, what is that impact that you're hoping to have?

Mike Schroeder (Roundstone Insurance) [00:46:02]:

Well, certainly success is defined by the number of customers we have, by the number of employers that we insure and the employees they have. So we keep close track of that. I don't know why, but I like the billion dollar premium goal. If we had 1% of the employer marketplace, we'd be a billion and a half dollar company. And so over the next eight years, that's what our goal is. Perhaps I'm underestimating, maybe 1% is too low, but we want to take care of at least 5000 employers in this country and that's what we're going to try to do first. And then once we do that, we'll go take care of 10,000. It reminds me, I was just looking, there was just an article about the largest companies in Cleveland and Progressive was the largest. And I think it has $44 billion now in premium. And when I was in the PNC market, I had some folks, some colleagues that worked at Progressive, they recall a meeting in which that leader, Peter Lewis, when he took over that company, it was a couple of hundred million dollars and he told his team that they were going to become a $4 billion company. And the people that attended that meeting, who I knew, several of them, told me they thought he was crazy. They thought, oh my gosh, this guy has lost his mind. But now you look and if you would have asked him the question you just asked me, what did he feel that Progressive could grow in their idea, that they could have a non standard auto insurer and he would have told you 4 billion. And now today's 44 billion he's passed on. But his company is the way I look at it, is yeah, today I say we want to be a billion and a half dollars in the next eight years. We want to have 5000 customers. But let's fast forward 30 years. There's no reason why we couldn't be sitting on $50 billion company. The marketplace is there. That's not even 10% of the marketplace.

Jeffrey Stern [00:48:18]:

I think one of the other ideas I wanted to explore with you and it also stems back to the founder's mentality, but is generally this idea of culture. And if you are to build and grow an organization like that to that scale, the culture is something that is kind of critically important. How is it that you think about culture at Roundstone?

Mike Schroeder (Roundstone Insurance) [00:48:42]:

So we have our mission land. We articulate and preach that mission of quality so everyone knows what is the goal, what we're working for. And then we have core values that we publicize and we live by. And for us we have four of them. One is what we call live well, take care of yourself and bring a positive energy. Another one is productivity or get things done. And another one is own it accountability. If you make a mistake, own it. And then the last one is always be learning or intellectual curiosity. So those are not something that just goes on a wall somewhere in the building. We talk about it, the reviews reference it for every employee. And what I love about it is when we're going off track or things doesn't seem to be working or there's a conflict or disconnect, you usually can point to at least one and probably two of these values that are not present in the exchange. And so culture is where everybody is aware of those values. Everybody understands that the should be trying to live those values. And that, to me, is what culture is about. Once that seeps in throughout the lay at Roundstone, we believe you've got to take care of yourself. We believe you need to learn all the time, and we believe that mistakes happen, but you need to own it. You got to be accountable. And then lastly, we got to get things done. You got to be productive.

Jeffrey Stern [00:50:18]:

If you fast forward a few years into the future and kind of track relative to that goal, 5000 companies, if Roundstone hasn't achieved the kind of progress that you're hoping to, what are the things that you think have gone wrong? Land what are the biggest challenges you think the business faces, and how are.

Mike Schroeder (Roundstone Insurance) [00:50:38]:

You approaching know, building out leadership is, to me, our biggest challenge. Building out training, employee development. Those are the two leadership development and employee development. We're getting great employees. We have great employees. But you got to constantly be learning, training, those two things. Land then I guess the third one I would tell you is if we swing and miss on the technology, we have to do a good job on technology, and we're investing a lot in people and systems. But I guess the thing that causes me pause is I really want my team, both my executive leadership team and the leadership throughout the organization, I want them to be better than me, so I want them to use the systems we have better than I do. And so it somewhat causes me pause when I'll go to a meeting and interact with folks. And then I'll hear, this is the best meeting we've ever had. Things got cleared up. But I really don't want to hear that because it's not good that I need to go to a meeting to get something back on track and actually outperform what has been happening. I want my managers and my leadership to be doing a great job. Won't it be a great day where I go to the meeting and they tell me, never come back again? That will be a wonderful day. So that, to me, is employee development. We're investing on training, leadership development, and then making sure we don't miss the ball on technology.

Jeffrey Stern [00:52:25]:

I was recently introduced to this idea of a sliding door moment, which I think references a 90s movie and refers to this parallel divergent storylines that happen based on whether or not the protagonist catches or misses this particular train. Land the concept is interesting to me and thinking about those critical moments or decisions in life that had the potential to significantly alter the course of your future. I'm curious, thinking back on your own journey, if you could recall any of those sliding door moments where something seemingly small led to a significant outcome, whether in the context of roundstone or your.

Mike Schroeder (Roundstone Insurance) [00:53:09]:

Life, later on, you do a lot of testing to say what's your personality like? I've come to understand myself a lot better and why I did certain things. But I just remember when I went to law school and I was working in a law firm, and I would ask our clients who owned businesses a lot of questions and a lot of why and what without really understanding it. I was really kind of doing research on becoming a founder, an entreprenuership, without really knowing that's what I was doing. And then one time I was actually working at an insurance company in Florida, and that founder was incredibly successful. And I was sharing with some folks about how successful he was and how cool it was that he actually had bought a part of a major league baseball team and how neat that was. And they said to me, why don't you do that? What's stopping you from doing that? And it was kind of an AHA moment. I never looked at myself in the perspective of I could be a founder, I could be an entrepreneur. And so I think it sitting there reflecting to say, you know what, why don't I try to do something like that? Now, I didn't immediately go out the next day. I actually didn't do it for several years. That was probably five or more years later. But I do recall that moment saying where someone said to me, if you want to do that, you need to try to do that. And that was big. Now I look back and I look at those personality tests, and it was like, dude, if you didn't become an entrepreneur, you'd have been in big trouble because this is what you were meant to do.

Jeffrey Stern [00:54:58]:

That's awesome. Thank you for sharing that. What advice would you offer up to other entrepreneurs?

Mike Schroeder (Roundstone Insurance) [00:55:05]:

I would say don't take shortcuts on the fundamentals. So what I mean by that is being an entrepreneur is not an excuse for not learning or not working for another company. You have to have a good foundation of the basic business principles of some experience. I find it I've been volunteering with my alma mater at Tulane, and they have a great business school and they have a great entrepreneurial program there. And there's stories of students who come up with these business ideas and literally sell them before they even graduate for astronomical amounts. And that's pretty cool, but it kind of runs counter. Like if you're going to really build a long term business, I would tell you, get that foundation, get some experience working for other folks and the don't lose sight of the mission. Make sure you understand what your company's mission is going to be, because that becomes so critical. I just see a lot of times people go the entrepreneurial route because they view it as a shortcut or end around these foundational tools you need. And I don't agree with that. I think you need to be able to read a financial statement. You need to know what marketing is or how to do it, or at least know where to hire it.

Jeffrey Stern [00:56:30]:

Yeah. I laugh only because thinking about Entreprenuership as a shortcut is pretty funny to me, knowing how difficult it is.

Mike Schroeder (Roundstone Insurance) [00:56:39]:

Yeah. Those ones that think it's a shortcut are usually the ones that don't last very long.

Jeffrey Stern [00:56:43]:

Yeah. Well, I think we've covered a lot of ground here kind of placing roundstone in its history and your journey and its place in the market. I know that there is a lot more depth that we could speak to about the nature of how it works and the product and that and I don't know if it makes sense to really do that deep dive, but I am curious of the things that we have talked about. Is there anything that we've missed that you think is particularly important to explain about roundstone or the journey and the company so far that we haven't yet.

Mike Schroeder (Roundstone Insurance) [00:57:19]:

We'Ve had a track record. When the marketplace is not doing something well, we do it. We bring it in house. And I think that's turned out to be a pretty good strategy. And so, as an example, when we first did our first stop loss captive, the underwriting was being performed by an insurance company, and they weren't doing a good job with it. We'd get proposals late, the proposals had errors. And so we brought that underwriting function in house, and we manage and develop and train our own underwriters. Similarly with claims administration, third party administration, we were just not getting great service from the marketplace that a lot of the TPAs didn't want employers that had less than 100 employees. And so we formed our own TPA and started doing and have better service guarantees and service levels, and we can do employers that have only 25 employees. And so the one thing I think that has worked well for roundstone is as you're moving through the marketplace, if you see things that are not working, do them yourself better, and it ends up being like, wow, that's innovative. It's survival. It's just doing a better job for your customers. Why did you start a TPA? Well, we wanted to take care of our customers. Well, why did you take the expense of becoming an underwriter and having to hire all those underwriters land an underwriting system and all that, when you could have just continued to outsource that to a third party? Well, because we felt we could do a better job. And we are and we have. And so I would tell anybody when it comes to roundstone or business, keep an eye on what the marketplace is not doing well, and then do it yourself.

Jeffrey Stern [00:59:10]:

That's awesome. Well, we can bookend the conversation here with our traditional closing question, which is nothing to do with insurance or roundstone, but it does have something to do with Cleveland, which is for a hidden gem, something in the area that other folks may not know about, but perhaps they should.

Mike Schroeder (Roundstone Insurance) [00:59:33]:

Oh, wow. That's a hidden gem of boy, there's there's so many. I'm a huge fan of the lake. I just love the lake. But there's a lot of access to the lake that people don't know, whether it's the rivers like Rocky River and the steelhead fishing that takes place in that river, whether it's Huntington Beach Land, the beautiful beach out in Bay Village in Huntington, and I'm a west sider, you can tell. But all the different access to the water, rocky River Park and the grilling and picnic area they have there on a beautiful lay. Wherever you are in your life, there's some fun activity connected to our water. And even if it's just there's a great ice cream shop out at Huntington Beach, and just to go get an ice cream cone and sit and look at a sunset or take a walk. One story I always laugh at is I married a lady from the east side. And right when she moved here to the west side, she invited her friends to come over and have a picnic at the lake. And being from Shaker Heights and they have lots of what they call lakes, I would call them ponds, but they call them lakes. And they asked her which lake? And it's just to this day that just kind of shows you. I don't think everybody in Cleveland realizes or how fantastic this body of mean edgewater park. I mean, that place is incredible, how fabulous it is. And I would encourage you, no matter what you like, you like to kite surf. We'll go kite surfing at Edgewater Park. It's pretty active there. So I don't know how you say a great lake is a hidden gem, but to me, I think it is.

Jeffrey Stern [01:01:27]:

I think that's a perfect one. Well, Mike, I just want to thank you again for coming on land, sharing your story. I think the work that you're doing at roundstone is particularly impactful and important, and it's been, for me, really cool to learn about it and see what it looks like in practice. And I'm glad that we can share the word.

Mike Schroeder (Roundstone Insurance) [01:01:46]:

Well, it was nice to chat with you, Jeff, and I'm glad you're a transplanted Clevelander, and I hope you are enjoying the hospitality of the big.

Jeffrey Stern [01:01:56]:

Oh, very much. If people had anything that they wanted to follow up with you about, what would be the best way for them.

Mike Schroeder (Roundstone Insurance) [01:02:04]:

To do so, just type in Mike Schroeder roundstone. And I'll come up and my email, land number and all that or go to our website, roundstoneinsurance.com. But if you type in my name and insurance or roundstone and all that, I'll come up. Awesome.

Jeffrey Stern [01:02:18]:

Well, thank you again.

Mike Schroeder (Roundstone Insurance) [01:02:19]:

All right, bye bye.

Jeffrey Stern [01:02:22]:

That's all for this week. Thank you for listening. We'd love to hear your thoughts on today's show, so if you have any feedback, please send over an email to Jeffrey at layoftheland FM or find us on Twitter at @podlayoftheland or at @sternjefe. J-E-F-E. If you or someone you know would make a good guest for our show, please reach out as well and let us know. And if you enjoy the podcast, please subscribe and leave a review on itunes or on your preferred podcast player. Your support goes a long way to help us spread the word and continue to bring the Cleveland founders and builders we love having on the show. We'll be back here next week at the same time to map more of the land.