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Published April 2010 in SmartCEO. To see the complete article, CLICK HERE.




If you want to keep up with Frank Kelly III, wear running shoes. On a tour of the Hunt Valley, MD, offices of Kelly & Associates Insurance Group, which spans two office buildings, Kelly walks at a swift pace that evinces his background as an athlete. That sort of stamina serves him well, given the recent volatility of the national healthcare debate.


“I think our athletic background shapes everything we do,” says Kelly, who played football and lacrosse and was an All Ivy League selection from Cornell University. His three brothers, with whom he is an equal partner in the company (along with their father), are athletes, as well. “We’re competitive, we’re used to working as a team, we’ve learned to overcome adversity and we all know that winning is more fun than losing.”


Kelly & Associates has had an auspicious winning streak. It currently serves over 13,000 clients, and is the market leader in several areas. It is perhaps the largest employee benefits administrator in Maryland, and the largest broker to both the small group and middle group markets and one of thelargest large group brokers.


“The whole benefit of what we’ve built is to create efficiencies for the carrier, for the broker, the employer and for the employee,” Kelly says. “We are basically an intermediary who creates efficiencies in the system.”


Winning Start


Kelly & Associates is currently run by Frank Kelly III and his brothers. But the company got its start with their father, The Honorable Francis X. Kelly Jr., who rose to become a Maryland state senator and is now chairman of the company. Though he’d been in the insurance business briefly in the 1970s, Senator Kelly had stepped out to pursue other opportunities when he was approached by the Baltimore County Licensed Beverage Establishments with a problem: they couldn’t get access to health insurance at competitive rates. Senator Kelly went to what is now CareFirst BlueCross Blue Shield, which expressed an interest in helping the group out as long as 100 or more lives were in the pool. Pulling from small bar and liquor store staffs, Senator Kelly and his wife, Janet, managed to gather 50 businesses, about 150 people.


“CareFirst said, ‘We’ll look at it as one big group, but you’re going to have to bill and collect the premium from all those little groups,’” Frank Kelly III recalls. “They said we could add an administrative fee and the groups would still get a better benefit at a lower rate. That was the concept of pooling.”


What started in 1976 with one small association grew to include others, with the business gaining momentum one group at a time. Soon after starting the business, Senator Kelly added a partner, Gary Chick and his wife Betty, and the company was known as Kelly Chick & Associates. The business handled everything from enrollment and billing to collecting and submitting premiums, and there was a services center where members could call in with questions. (Gary Chick retired in 1988; the company was renamed Kelly & Associates in January 1998.)


By the early 1990s, the company was well known as the association healthcare marketing and administration specialists. In 1991, they were then approached by a group of independent agents and brokers from the Harford County Chamber of Commerce to assemble and administer a plan that the independent agents and brokers could sell to small businesses that were chamber members. This step put Kelly & Associates in the advantageous position of being both a retailer – selling directly to employers – and a wholesaler for independent agents and brokers. As in the past, one chamber led to another, helping the company solidify its position of prominence. The company has evolved, integrating payroll and worker’s compensation into its services, a division that is growing rapidly under its president, David Kelly.


A Round of Reform


At the time of this writing, President Obama had just delivered his first State of the Union address. The much touted healthcare reform bill that seemed unstoppable was looking less and less likely after the ceding of Senator Ted Kennedy’s seat to the Republicans. It’s a debate the company watches closely – these reforms could make or break their business. The company has been in this tenterhooks position before, in 1994, when the State of Maryland passed its own reforms.


“During the early years of the Clinton administration, they decided to tackle healthcare reform, much like this Obama administration,” Kelly recalls. “Many states tried to anticipate or beat the feds to the punch and began their own reform efforts as well. In Maryland, the state legislature was pretty aggressive.”


Prior to reform, Maryland carriers could pick and choose the individuals they would underwrite in the small group market (companies with two to 50 full-time employees), deny a group entirely or, if there was a problem, the carrier could raise rates exorbitantly. Kelly & Associates sided with reform measures that every carrier in the small group market had to provide guaranteed issuance of coverage, no medical underwriting, no preexisting limitations, and rates based only on average age of the group, the geographic location of the group and the quality of the benefits – not age, sex or health risk.“


"It kind of made the insurance market what it should be: a big pool of good and bad risk,” says Kelly. “We supported that reform because we advocated what we thought was right even though it eliminated our niche, and because the alternatives were much worse,” he explains, noting that all their associations would be dumped into one large pool. When reform went through, Kelly & Associates had 20 employees and 1,500 clients (each with an average of five lives), all connected to associations.


“Would we still be an administrator? Would the carrier still want us to do that?” Kelly remembers. “It was a very tenuous time in our history because we didn’t know what reform would mean.”


Blessing in Disguise


It was into this tumultuous climate that Frank Kelly III stepped into the position of president of the company, six months before reform went into effect. At the time, he thought he was taking control of a company that would be under water in months.


Fortunately, CareFirst BlueCross Blue Shield, the major small group carrier, opted to continue outsourcing administration to companies like Kelly & Associates. “We felt like our ability to install and enroll was more efficient than the carriers themselves,” says Kelly. “What was a major threat in ’94 actually turned into a tremendous opportunity for us to bring more efficiencies to the marketplace.”


In the wake of the 1994 reform, Kelly & Associates started to market all five key benefits – health, life, disability, dental and vision – together. “In the past, you would have five different applications, five different carrier reps, five different bills. We consolidated it so you get one enrollment application for all lines of coverage,” he explains. “Today, that is one paper or online application, with one point of contact for service and one consolidated bill and premium statement.”


More importantly, the reforms allowed the insurance carriers to go to their brokers and agents and empower them to move their business to Third Party Administrators (TPAs) like Kelly & Associates in block transfers. Kelly and his brother Bryan (president of marketing services) moved to aggressively market themselves to the top brokers in the state. Of the 11,500 groups that are with the company now via agents and brokers, more than 6,000 came through block transfers. At the same time, his brother John (president of benefit strategies) went after larger employers.


Since Frank Kelly III took over in 1994, Kelly & Associates has grown from a corporate client base of 1,000 to more than 12,000. Annualized premiums and payroll administered under management have risen from $20 million to over $1.5 billion. Frank Kelly III became CEO in 2007.


According to Keith Scott, president and CEO of the Baltimore County Chamber of Commerce, where Frank Kelly was a board member from 2001 to 2009, it was this sort of business acumen that benefited the board. He describes working with Kelly as a “fantastic learning experience.”


Scott credits Kelly with helping the chamber become more fiscally responsible, more unified in its public brand identity and in helping the board become more diverse. “What Frank brought to the board is a positive outlook on how to conduct business,” says Scott. “He’s a real go-getter and a person who makes things happen.”


The Deep End of the Federal Pool


Kelly explains that the benefit of pooling is that insurance, at the truest level, is designed to protect large pools of people and multiple risks. Of course, carriers want the healthiest people in the pool, so the bigger the pool, the more people over which to spread the risk, which would bring the truest rate. “Which is why some people see some merit in pooling everyone into one, huge national government plan,” says Kelly. “But there’s major problems and inefficiencies with that because there’s more than just the pool of participants to providing quality insurance.” Nor surprisingly, Kelly has watched the national debate closely to try and determine how federal changes might affect the business. Obviously the company does not support a public option where the government would compete with insurers on what Kelly terms an “unlevel playing field.” One thing he’s watching closely is the progression of “insurance exchanges,” which were included in both the House and Senate bills.“


An exchange, as it stands today, would be a government entity that provides employers and individuals access to multiple carriers, which is basically what we already do,” he says. Maryland is unique among the states in that it already allows for Third Party Administrators like Kelly & Associates. “They’re going to spend hundreds of millions of dollars to establish nonprofit exchanges when we’ve already spent millions of dollars over many years to create private exchanges,” he says. In addition, the public exchanges would only be for healthcare, not life, vision and disability, for example.


One thing Kelly learned from the 1994 state reform was the importance of being involved. The company works with a lobbyist to give voice to its concerns and positions and to work personal and professional connections with state legislators. “We’ve been speaking into the process as best we can,” says Kelly. “With this national healthcare reform, there’s major threat and potential opportunity. We see more opportunity than threat.”


His biggest concern with added government regulation in health insurance goes back to efficiency. He points by way of example to when the American Recovery and Reinvestment Act (ARRA) of 2009 provided subsidies for the extension of COBRA (the Congressional act that continues group health coverage that otherwise might be terminated).


“It was a good idea, but from an execution perspective, it took us thousands of hours to serve our clients with the level of service we require,” he says, indicating that their call volume related to COBRA inquiries doubled, and the average call length significantly increased. “How long would they have been on hold if the government was running things?”


Regardless of what happens with national healthcare reform, anything that pushes more people to get health insurance could be a boon for the company. Kelly hopes that with the technology they have in place and the agility of their company, they can evolve to whatever the feds throw at them as they have in the past. “We try to be on the front end of being part of the solution,” he says. “We advocate, we communicate, we tell our story. Once the chips fall, we assess the situation and move forward.”


The Business of Faith


To some, it might appear that Kelly & Associates has succeeded through a certain amount of divine providence. And those observers may not be all wrong. When Kelly’s parents began the business, the couple had five children under age 14. They started the company with a loan from a friend, aloan on a credit card and a mortgage against their home. “My dad quit his job and they literally got down on their hands and knees at the foot of the bed and asked God’s help and blessing,” says Kelly.


Faith is integral to the Kelly family, and they’ve gone where some companies might fear to tread, incorporating faith into their daily businesspractices. The company’s mission statement, which is prominently displayed throughout their buildings, on the website and on collateral materials,begins: “Kelly is an organization committed to the pursuit of excellence in an effort to bring honor and glory to God.”


The mission statement can be traced, in large part, to Frank Kelly III himself. He wrote the first draft when he started working for the company after serving as a Christian missionary in Japan, and after he and his father attended a two-day seminar in 1991, “Business By The Book,” on what the Biblesays about business. The mission has since been refined with input from the entire family. “My parents had a strong faith when they started thebusiness and clearly our family felt God had blessed us with the business,” he explains.


“But we’re far from perfect,” he’s quick to add. “Just because we have a mission statement that talks about God doesn’t mean we’re better than anyoneelse by any means. From the first day I’ve been at Kelly & Associates, it’s not been full-time work for me, believe it or not,” he continues. “It is and it’snot. For my brothers and me, our lives are integrated with our faith and family commitments. So for us, Kelly & Associates has never been an end initself; it’s always been a means to other ends – to be involved in community and in work we believe has eternal significance.”


Kelly made the decision to make the mission statement public, to use it as a grid by which the company could measure its true success or failure. Being so public about faith is not without its pitfalls; Kelly admits that they have lost clients who, though they respect Kelly & Associates’ conviction,were put off by their religious zeal. But Kelly is emphatic that you don’t need to be Christian to work there or do business with the company.“


When people come to Kelly & Associates, they may not even believe in God. You don’t need to believe what we believe. You don’t need to worship theway we worship,” he underscores. “But guess what? If you show up on time, you do what you say you’re going to do, you’re honest with yourcoworkers, and you treat people with dignity and respect, you are living out Biblical principles whether you believe in them or not.”


A Healthy Future


Faith may play a role in the everyday working at Kelly & Associates, but so does planning for future growth, which was stymied by the arduoushealthcare debate that occupied the first year of Obama’s presidency. “We have decisions to make and it’s hard to invest and grow when you have noidea what the future holds,” says Kelly. “We choose to have a positive attitude and we believe that whatever happens there’s opportunity for us tobring something to the table, even if we have to change. [The health reform debate] has hampered our ability to make decisions. We’re waiting – but that’s business and business risk.”


(At the time of this writing, the waiting game continued, though a massive healthcare overhaul was looking less and less likely.)


Throughout the healthcare debate, Kelly says he received less panicked calls from clients worried about the outcome of healthcare reform and more feedback from customers that they were concerned about surviving and making this month’s premium payments in a sinking economy. Regardless of what happens with healthcare, there are two things Kelly recommends all business owners pursue to ensure a more affordable and healthy future fortheir employees and the company: consider high-deductible health savings accounts (HSAs) and enact a corporate wellness plan.


An HSA is a savings product for consumers to deposit money on a tax-preferred basis and control the money for their health expenses, putting more control in the hands of employees. A quick look at the evolution of healthcare shows that in the ’60s and ’70s, insurance had relatively high deductibles, as it was meant to cover a person in the case of a major medical event. With the formulation of HMOs in the ’70s, the mindset become one more toward preventative healthcare that covered things such as doctor visits.


Now, the tide is rolling back to what are termed “consumer directed health plans,” under which HSAs fall. Though you can have some benefits, like doctor’s visits, included, the cost for plan is much less than plans with lots of options, and there’s an incentive to save money, tax-deferred to meet the deductible when applicable. “It reduces the cost of the healthcare plan and involves the consumer more in their healthcare decisions because they have a vested interest in what they’re paying for,” Kelly explains.


Wellness plans are something Kelly and his brothers can really get behind. They all have athletic backgrounds and current interests. John Kelly, for example, is a passionate cyclist, and Kelly & Associates now sponsors a professional cycling team. Brother Bryan is a lacrosse coach. The company has a full-court basketball court at the Hunt Valley location and a full gym in the headquarters. According to Kelly, fit employees are healthier employees who don’t need to utilize their healthcare benefits with the frequency of employees with bad habits. Healthy workers have lower rates of absenteeism and are more productive.


“A very high percentage of medical dollars are being spent to treat diseases that can be avoided through appropriate diet and nutrition, exercise and not smoking,” says Kelly. “They’re three things we can control ourselves that can affect the utilization of healthcare.” 


In their publication, Fit for Business: Kelly Wellness Report, the company states that investing in wellness programs will help drop the cost of medical and disability costs and improve employee productivity among other benefits. The publication cites that 75 percent of healthcare spending can be traced to conditions (obesity and smoking are the biggest offenders) that can be avoided or delayed through preventative measures.


The idea of a wellness program is to create incentives (such as discounted gym memberships) and programs (like smoking cessation programs) and to facilitate good health choices (having healthy drinks in vending machines, for example) and behaviors, to be proactive in creating healthier employees rather than paying out for expensive insurance plans that are reactive to disease states.


No one can accuse Kelly, who is fit and fast, of not practicing all that he preaches. Sports, faith and family are three things Frank Kelly has in abundance, and they are the things he says keeps him balanced. Without being delusional, he says he and his brothers challenge each other to see the positive, even when facing something as scary and uncertain as national healthcare reform. “We’d all rather choose to see the glass half full than half empty,” he says. “We are trusting that there’s opportunity in what President Obama passes and we can be part of the solution.”