Season 4, # 1. Purpose: Ethos in Employee Benefits

Welcome back to the Founder's Sandbox. I am Brenda McCabe, your host on this monthly podcast. It reaches business owners and entrepreneurs who learn about building resilient, scalable, and purpose-driven companies, all with great corporate governance. I am Brenda McCabe, and I am your host.

And the guests that come to the podcast are not only those founders and business owners who are sharing their experiences, but also corporate directors, investors, and professional service providers who, like me, want to use the power of the private enterprise, small, medium, and large, to create change for a better world. Through storytelling here and a recreated sandbox, my goal is to equip one startup founder or one business owner at a time to build a better world through great corporate governance.

Today, my guest is Donovan Rikas. He is joining the podcast as CEO of Ethos Benefits, the nation's leading fiduciary benefits consultant in the mid to large market employer space. So I'm absolutely delighted to bring in a professional service provider in the employer benefits area, which we're going to unpeel this sector today in the podcast. it's fascinating.

So thank you, Donovan, for joining me today. Thank you, Brenda. Thanks for having me. Excellent.

So the company you and Chelsea, your wife and president of Ethos Benefits, was founded in 2016, which wasn't that long ago. But it happened serendipitously. You got a chance request because at that time, you were a financial advisor, right? Yes.

When your client was faced with an increase in the company's health insurance bill for their employee plan, pardon me, that would have had such a financial burden, it would have threatened the sustainability of the company and that's your client. So what did you do Donovan? What was the origin of Ethos Benefits? Thank you.

Yeah, so that's exactly right. I started as a financial advisor. So Ethos Benefits was formerly a registered investment advisory, which was Jay Donovan Financial. And one of the interesting things that are a little bit different on the security side versus the insurance world is the ability to license and designate yourself as a fiduciary advisor to your clients.

So that's really important and that's kind of where we started as financial advisors. So that essentially means that you're not gonna be commission-based with variable commissions based on what you wanna sell and the client doesn't really understand, right? You're gonna be transparent with how you earn any compensation. and you're not gonna have any conflicts of interest that might change the recommendations or advice that you're giving them.

So it's gonna be flat fee and you get to work with them directly instead of working for the financial institutions and the insurance companies kind of in the background that are actually the ones incentivizing. Cause it's this odd relationship where it's like you think the financial advisor is working for you but they're actually incentivized by the institutions that they're representing. Very important clarification because we do have a question further on, which is, you know, what, what, how does the 401k management, right about employers 401 plan, mirror that of healthcare benefits?

Yeah, for sure. You'll start to see some of those. So that's how we're working as financial advisors. And that's an important distinction as we get into an explanation of the whole healthcare industry and how that works.

So you're exactly right. I was working as a financial advisor, working with business owners because they had more kind of complicated planning and tax structures and things that I could do to really make a difference. And what I realized is when most of them had commission-based advisors, they'd rush to sell a product, mutual funds with upfront loads and REITs that had proprietary commissions and all this kind of stuff. And then they would leave without worrying about any of the tax consequences, you know, islets or trusts or even wills, right?

Like all these extra things that business owners needed to set up their own personal wealth, but also their company, their 401k, maybe combining a defined benefit plan. So that was kind of the niche I chose. And it was incredibly lucrative. I loved it.

Was doing exactly what I wanted to do until that client kind of asked me for that help, like you alluded to. And it was 40 % increase on his health insurance. He said, my broker says, this is it. There is nothing else.

Can you help? And I didn't know any idea. Like I had no idea about health insurance or what I do. But yeah, just- No, no.

problem. And certainly as a financial advisor, it kind of seemed like going backwards and beneath me. didn't really want to do it, but I was like, I could hear the panic in his voice. And I was like, yeah, absolutely.

Just send me everything you have. And after about three weeks, basically making as many connections in the industry and learning as much as I could and trying different things, we basically mitigated that increase entirely. And he actually came three points under where he was currently today before that increase. And we didn't take away any benefits from employees.

We didn't put them in smaller HMO networks. We didn't increase deductibles or increase their premiums. None of the usual tricks. So this was a like for like solution.

We actually improved the plan a bit and came in under. And it really made me realize in that moment, it wasn't my experience or my education or my smarts that may be able to do this, it was a lack of conflicts in compensation and incentives, right? Because his broker does about $7 billion a year annually. I didn't come in with more market knowledge, leverage, or experience.

I just didn't have conflicts of interest and compensation. That's what started me down this path. And back then, you hadn't yet created Ethos Benefits with that name. So when I did a little bit of research, I couldn't have been more delighted that you actually reached out to to be featured on the founder sandbox because of two reasons, you the word fiduciary, right?

It was in your basically your call to action, right? Or your or the definition of company. So, you know, you are the governance of a company goes way beyond making a profit for shareholders. the duty of care, the duty of loyalty and the duty of obedience is really the underpinning elements of fiduciary duty.

And on your website, you say our ethos is simple fiduciary first. So we're going to appeal that in here in a minute here. So act in the best interest of those we serve, no matter the cost. You also on the website, you you had a purpose ethos represents the guiding principle.

character or spirit of an organization or a person is the why that drives decision making and feels purpose. So I, I looked like I was reading what next act advisors may consult a firm is about is just really finding those purpose driven. So with that, I wanted to just, you know, ask you, what was that you had that first client that first aha moment, and How long did it take you and did when did you realize that this could be a a career change for you, right? Rather than a financial advisor, you were actually actually a health care benefits advisor, right?

Yeah, I mean, I think I think the first moment is, you know, being being a financial advisor was very lucrative. And I like the people I was working with. I liked working with entrepreneurs and business owners and and, you know, just I found them inspiring and I was curious about the things they're doing. And I think that kind of lifts everybody up when you keep a circle like that, right?

Like you push yourself harder, you learn, educate and do different things. So I love the clients I was working with. Like I said, maybe working on personal wealth for individuals though, isn't the most rewarding thing you could be doing. seeing that...

Don't get me wrong, I was paid well enough. It would have took me a long time to figure out that it wasn't very personally fulfilling. But seeing that first case, mean, the first thing I did when I got that successful proposal back, before I presented it to the clients is I was looking at the math of what does this cost? What difference does this make per paycheck to all the individuals in this planet?

And then I'd look at somebody, my God, this person's got a wife and two kids. Look at the difference in premium there. I was calculating my work in return to the average American worker and realizing like me putting myself aside to proactively, strategically go after this problem instead of making a decision for my own personal commission, looking at how much that impacted everybody. And that was powerful.

I'm going on 20 years in financial services and every aspect of it, I've seen people who prioritize commissions over, you know, a better product, a better outcome for an individual. But the idea that that could be done on scale to where you're now making that decision for yourself over 200, 500, 2000, 3000 employees, like that's pretty disgusting, right? So seeing that that kind of impact could be made. I mean, it was it was really not a question after that I knew I was transitioning my business.

Excellent. Excellent. So my own path after 25 years in Europe was quite an eye opening experience when I came back to the United States, I am a US citizen, but I had to get you know, I've been working for myself and I had to get self insured. So I got back this is like 12 years ago, I got the Affordable Care Act for dummies from my local library.

I had not yet transferred my tax certification to the United States takes quite a few years when you've been gone so long. So you because you do have to sub venture tax returns and all that. And then I ran into I met Marshall Allen, the author of never pay the first bill and the other ways to fight the healthcare system and when Marshall Allen actually spoke at a graduate or alumni event of University Chicago. And I was, you know, reading these books.

And you know, eventually, I got my own broker to help me get onto the exchange. But it every year has been an experience. I'm fortunate to be part of a membership organization through which for small and medium sized businesses and I get PPO through I won't mention names, but I was blessed because just and I'm 12 years in the United States, you have to knock on a lot of doors to actually get health care when you are a small business owner and really understand what you are paying for, not only your premiums of what are the services that are provided.

So can you talk about the average premium for a family of four and some of the numbers that you discovered and believe we as a country could actually improve on the outcomes, healthcare outcomes with the actual spend we have today, right? Yeah, we're getting the numbers are pretty wild. mean, I feel like we're really kind of getting to a breaking point with it. You know, For what I work on, employer-sponsored healthcare, 186 million Americans are covered under employer-sponsored healthcare plan.

These plans can average increases anywhere from seven to 10 % annually. We see a lot of reports that come out that kind of measure these things. Kaiser Family Foundation does one, Milliman Index is another one. So there's a lot of studies that kind of measure this annually and changes for employers across the board.

What we saw this year for 2025 was the average cost for a family of four under employer sponsored health care plan is $35,119, which is just an astonishing number. That is unaffordable for an employer. That's unaffordable for an employee. And it's unaffordable for them to split that cost as well, which is how these, yeah, that's how they're structured in some way or another.

And another number to know that kind of governs this is the ACA affordability percentage, which is essentially where employers have to contribute, they have to contribute enough to keep the premium under this amount, which is 9.02 % this year. So premium for one of your employees cannot exceed 9.02 % of their take-home pay.

And this is updated on an annual basis, correct? Correct. Yeah, it fluctuates a little bit, but it's always right at 9, 8.5, 9.

2, it's balanced up and down. But that's a pretty astonishing number too. And I see a lot of companies that are basically designing their contribution just to stay under that. it's, obviously they'd love to do more, but with the way these costs increase annually, sooner or later, they get to that point.

where they're kind of designing it just to be under 9 % of the employee's income. Okay, that's astonishing. And I'm happy that you are working nationwide now with employer benefits with companies that, what's the size of the companies that you typically sell to? So we only work with large employers these days.

And if we have somebody come in a little bit under, we have some associate agencies that we can kind of refer them to. I'd say our minimum is usually like 250 eligible employees all the way up to 5000. Yeah, so anywhere in that mix. Excellent.

So when again, I first met you was unaware because you've basically become nationwide in the last what two, three years, right? I'd say around COVID. Yeah, I took off right. So when I was speaking with you spent some time on the website.

I was trying to understand the sales alignment. So how you reach customers, those employees that have 250 between 250 and 5,000 employees, right? My first reaction was, OK, Donovan, go in with either of these benefits. You do a cost down, right?

You've done, you basically work yourself out of the job. You corrected me. So for my audience, so how? does ethos benefits work for a company, right?

What is that? Is it is it an annual engagement talk walk me through the work you Yeah, I mean, things are happening on a daily like when we break down our scope of services, we'll actually show them like, these are daily, these are weekly tasks, these are monthly, quarterly and annual because there's so much happening. So we're talking about the employee benefit space. Yes, it's the kind of designing consulting for the annual premium for a 12 month period.

I think that's what people first consider. But there's also a ton of compliance factors that have to happen throughout the year that that company has to fill out, right? Could be anything from section 125s, 5,500s, wrap documents, all kinds of notices and disclosures that need to be done. Also, you know, we deal with benefits administration.

So that's... How are the employees making elections, seeing premiums? Is that integrating into payroll? So functions like that with eligibility in and out of the company adjusting that.

But also we kind of discussed and talked about the fact that health care is incredibly complex. So all the same market influences, where the market's at, interest rates, inflation, all that kind of stuff affects health care rates just like any other company in the market. but it also gets as granular as new medical procedures, new drugs, new generic drugs that are now an option. It can even go down, you know, locally or regionally to where we get a new CFO in a hospital group and that starts changing the reimbursement rates that they're requesting from the insurance.

So we see that where kind of a CFO comes in and they start flexing, making life difficult in a particular region or with a hospital group. So all these things are kind of coming together and changing every single day. Also the fact of the sheer amount of bills, claims that come through. So what we see on average, this is a pretty crazy number, but what we see on average is 18 claims per employee per year.

Okay, that's a lot. That's a lot. So if we had just a hundred employees, that'd be 1800. basically accounts payable into the company.

And that's part of our job too, because as you might imagine, hospitals make tons of mistakes on the bills, about 80 % of the bills have mistakes. And then we also have to make sure that those are coming in at fair reimbursement rates to the company, because what hospitals bill is a spectrum for the exact same procedure. And the only difference is the payer. It's not the patient, it's not the complexity, it's not the physician, like it's literally just the insurance card that can affect that difference in reimbursement rates.

So all these things kind of come together where, yes, it very much is a daily task for me and my team on different things that we're working on. And- Are you an advocate in any way for the employees? Yes, very much. So, you know, it's two, there's two complicated ecosystems at the same time that we're trying to navigate.

One is certainly the healthcare finance, which is what we're working with the company. But healthcare delivery for employees and members is just as complicated and confusing as far as where do I go? What is this gonna cost? What's the next step?

Can I get a second opinion? How would that work? Right? And also helping navigate them to their highest cost or their lowest cost, highest quality and understanding what that is and giving them options to seek care at.

at lower prices if that's available. Excellent. So your delivery platform, is it like a customer success team that is assigned solely to that client? How does it work?

Yeah, so it's kind of different. every employer is starting at a different place. They also have different ideas of where their end place or where their goal is. healthcare delivery, kind of working on some things like that, there might be a couple of different ways we handle it.

One might be having a direct primary care provider. So the idea of a direct primary care provider is basically same day, next day appointments with your primary care physician and 30 to 60 minute visit times, not the average, which is seven minutes with a PCP, which is what most people get across the country. And with that DPC provider, you can also do things like stitches, blood work, get generic meds. So we're talking about more of a comprehensive service when you actually need it, not the 14, 18 day primary care.

So that might be one of the ways we help with healthcare delivery. It might be a nurse concierge where they have a nurse that they can help find providers, navigate them. That might be a part of it. So it kind of depends.

then also a lot of the times are Our team will basically act as a care coach, where if they have anything going on, they can just call us. We'll help them set appointments, navigate them towards care, help them with their ID problems. Fantastic. Anything else you'd like to share or shed some light on the service offering of ETHOS benefits?

So we're going to jump into a legal question in a minute here. Yeah, I mean, it always just depends on the employer. what I would say is generally they find everything we do to be more comprehensive. And I think that's just the nature of the fact that we're not seeking compensation from the insurance providers or working with the client, because it's my belief that we don't have a single thing to sell to an employer.

Employers have a health care problem. And we're here to solve that and work through that in any way that they need at that given time. So we're not, you know, pushing those solutions are having those conflicts. It's an excellent segue down into current lawsuits that are popping up with respect to, first of all 401k, lawyer, and now healthcare benefits.

So before we jump into that some specific cases, you know, for my listeners, what does fiduciary mean? in your business model, right? Please. Yeah.

So fiduciary for us is certainly always acting in the best interest of those that you represent. It's the highest standard of care. So you mentioned a couple of things earlier, loyalty, obedience. I think the biggest thing where companies may think they're acting as a fiduciary and they're not, because while we carry that duty to our employers and our clients, Employers have that duty to all of their employees.

And that's something that are kind of educating them because a lot of them don't realize it. But I think the big duty that is left out or misunderstood is the duty of prudence. Okay. So did they go far enough in investigating solutions and understanding the problem and working through it and having a committee within the company to kind of help go through that?

Because what I mean, in a compensation package, there is nothing more important than the cost of health care and the options in health care, right? And how those decisions are being made. So I see the duty of prudence being the kind of most I, the duty with the most opportunity, let's say, maybe, maybe the most misunderstood because the employer sometimes think, well, you know, the broker came in and he showed me one or two other options. This is the least worst option.

Therefore that's what we're doing. And I think that's enough. Right. And that is not the case.

And it's only until there's a 40 % increase due, right. It doesn't employer say my business is not sustainable. So actually healthcare is what not the number two or number three expense in the company's PNL today. Correct.

Right. So walk me through some of these recent lawsuits. Yeah, I think we have companies like J &J and JP Morgan. Speak to me about that.

Yeah, J. J. J. P.

Morgan, Wells Fargo. A lot of them are almost they're copied and in some parts of the complaint, because it's very much the same thing. the first one we saw was Lewandowski versus Johnson and Johnson. And this is for their health care plan.

You know, they're a Fortune 50 company. I think they somewhere around 160,000 employees. and they have a benefits committee and a benefits team of 16 or 18 people. So a big team of people to help make these decisions, understand them and vet them.

And the lawsuit is basically for their decision of pharmacy benefit manager. So a pharmacy benefit manager essentially sets the price for any drugs that employees could get within the plan. And it lays out 35 or so specific examples of drugs but basically they agreed to pay up to 13,000 times the cost of the drug that's available, just cash pay. employee and employer funds are agreeing to pay that kind of multiple on a drug that's available without insurance, much, much cheaper.

And the lawsuit is brought by the plaintiffs, who are they? am Lewandowski. So she's she's the plaintiff. And then I believe as it's developed, other employees have kind of came on.

So 13,000 was it do you know, I know that you're not directly involved in this case. Nor should you speak to it if that is the case. But is the transparency of the data? Can you get that data if you were an employee to then understand the multiples that your employer plan has agreed to pay to the pharmacy benefit.

I'm aghast. 13, I think the number is 13,226. So when this came out last January, the first thing I did is I read through the whole complaint. It was like 130 pages went through all these.

So for all the drugs that were mentioned, I ran J &J's prices, again, Fortune 50, 150, 160,000 employees. So you would assume they're getting leveraged prices, they're making great decisions, all those kinds of things. I ran those prices against what my clients were paying. And in the smallest, like I think our smallest in my book of business, like 100 insured employees somewhere around there, they were paying 94 % less.

for the same, for one fill of all the same drugs. So the math worked out to be like 135,000 for J &J for one fill of each of those. And my clients were like 3000 or 4000, don't know, it's all my LinkedIn. posted the public letter as soon as it came out.

But I basically price referenced them. So it's not a question of leverage or buying power, know, all the ridiculous things you hear. when you're talking to an insurance broker for these types of decisions, it's literally, it comes down to that question of prudence. Like, how did you vet these decisions?

Do you know how the pharmacy benefit manager is getting paid? Do you know what these drug benchmarks are against the cash price? And that's where I think this lawsuit is gonna be a slam dunk. Like, there is no reason for a company that size with that big of a benefits committee to hire such a conflicted PBM, is what they call it.

You heard it here on the founder sandbox. So stay tuned for any other lawsuits that are worthy of mention. Do all of them? Are they all related to the pharmacy benefit manager conundrum?

There's there's all kinds of lawsuits. I think the PBMs are the lowest hanging fruit because it's so easy to benchmark. But certainly the same arguments exist with hospital reimbursement rates. And we're starting to see those as well.

Excellent. Well, thank you for sharing a bit more details on the recent, I guess, health care benefits in the news, right? Lawsuits. Going to get a little bit technical here.

because you allowed me to. the framework of the CAA of 2020 and 2021, that's the minimum set of standards for activities to benchmark health care plans. And so what are they? Because it then leads into some of the common sense strategies that employers can deploy immediately.

So can you walk? Because this is just as yesterday, it's actually during the pandemic. What's the CAA? of 2020, 2021.

Thank you. Yeah. So that's the interesting part of this. So the reason I said a decade ago, over a decade ago, I was waiting for these health care lawsuits to happen.

It's because Arissa has always stated that employers have this fiduciary responsibility, just like they had with 401k. The problem has been, and the reason these lawsuits didn't come sooner, is that health insurance companies make this data hard to access. different carriers were released different amounts. And there was no set of compliance standards for employers to understand this is how I go about making it, making these decisions and benchmarking these decisions, right?

Like it was all just too vague, too opaque. The data was too gagged and withheld from the employers. So the starting point of how do I know I'm being prudent or not, that's kind of what wasn't known prior to the CAA of 2021. So the CAA basically defined a set of minimum standards that you have to do to even pretend like you're being a prudent fiduciary for your healthcare plan.

So there's four things, but there's three main things. I'll mention the fourth thing as well, because there's funny stuff about that. So the first one should be the most obvious, and it's kind of our founding story, which is understanding your broker compensation before you enter into any arrangement or agreement for your upcoming plan. So that should not only be how much, it should be when, what type of bonus is there.

If you're looking at carrier A, B, and C, really what it says is you should know what is their compensation for carrier A, B, and C before you make an arrangement, because they will be different. And that will change the recommendation, the advice, the conversation that you're having with that broker. is critical. That is so critical.

And in reading these transparency commission disclosures from brokers, it is wild, the stuff that they put in there and how conflicted their advice is. One of them that I looked at last week said, broker acknowledges that their parent company has equity in the insurance carriers that they're recommending. Oh my gosh. So they're essentially saying, We are an insurance company that's going to bias our recommendations to the own companies we have equity in.

It's like, that's no longer a party you should take advice from, right? Okay, so that's part one. Yeah, no, this is this is and you know, I without it's gonna get too technical because the gag clause and the prescription DC reporting so that you know, basically CAA has provided the set of benchmarks, right, which you need to at least checkmark right before you actually do. engage or decide on your employer benefit plan.

Yeah. To be in compliance with your fiduciary duty, particularly that of prudence. Yeah. Yeah.

And I think companies shouldn't look at as a checkmark. I think if they apply it with a good faith effort, they'll see like, oh, it's not compliance. This is a framework for making better decisions. Right.

And that's what it's meant to do. It's meant to say, Know your compensation, know your drug benchmarks, and eliminate any gag clauses to your data because you need your data to make decisions. So I think if companies make a faith effort, they'll automatically get better outcomes. That's the way here.

Excellent. Well, thank you, Donovan. I want to give me this time to actually speak about how to contact you, your company. But more importantly, There is you're hosting a webinar on August 14, which is right around the corner.

Can you give us some more details? The details will be in the show notes, but speak to the event that ethos benefits is hosting on August 14 2025. Thanks. Yeah, thank you.

Yeah. So on the 14th, we're doing a fiduciary workshop masterclass, which is basically understanding what your what your duties are, how to get through them, how to navigate them, how to have this framework for decision making and document that process as well. And it's all geared towards just achieving those better outcomes for your company, eliminating any of these risks and really creating positive results for your people. Excellent.

And any information with respect to how to reach out to you beyond the- Yeah, sorry. the registration is on a banner on the top of our on our homepage. So ethos benefits.com.

If you connect with me on LinkedIn, LinkedIn, Donovan, ragas, you can find it there as well. Great. Well, I'm coming to the part of my podcast, which brings us back to the sandbox. In my work, I'm all about working with purpose driven, scalable, and resilient companies.

And so I ask my guest, what is the meaning of each of those terms? What does purpose mean to you? Purpose, what does it mean to you? That's such a big question that you can go a lot away from.

You know, I feel like purpose should be almost like a hidden driver. It's almost not like a well-considered thing. It's just kind of driving you forward. I think our purpose is progress, right?

Like if something can be done better, it should be and just kind of moving forward with that. We're trying to move one company at a time, but also the industry and better outcomes for the country. And that good feel factor when you get up in the morning and know that you're doing good, right? Yeah, absolutely.

Let's just sleep well at night. Right? Yes. Amazing.

How about resilience? You did share with me off camera that yeah, while you abandoned the financials, advisory role, it took almost five years, right to really find product market fit, right and build this because it's a very unknown right industry. unknown service within a very, very complex industry, right? Yeah.

So resilience for you, what does that mean? Yeah, I think you're right. You know, it took us a while because we were sharing such a wildly different message than what people were hearing from their brokers. And sometimes they look at you and be like, well, you're small, they're big, that must mean they're right, right.

So I think resilience is being able to go from failure to failure without any loss in energy, right? So when something doesn't go your way and you have an obstacle, an outcome that is less than desired, it's about being able to push on still without losing any of your optimism or energy. And that's all we do. So.

Thank you for what you do. And scalable. What does scalable mean? Scalable is certainly about having an actual documented process.

I think when you're getting into something new as a company or a new system or procedure process, if it's not something that everybody in the company could repeat in the same way that I do, just inherently the way I do it because of my background and education, if it's not repeatable for everybody and everybody doesn't understand the purpose for those steps, the outcomes from those steps, like the end result, it's definitely not gonna be scalable. Thank you. Final question. Did you have fun on the sandbox today?

I did. Thank you so much for having me. Thank you, Donovan. So to my listeners, if you liked this episode with Donovan Rikas from Ethos Benefits, sign up for the monthly release of founders, business owners, corporate directors, and professional service providers that share their experiences.

and how to build with strong governance a resilient, scalable, and purpose-driven company to make profits for good. Signing off for this month, thank you very much. Have a great day.