Health Care Transaction Case Study

I am the President of the Frazer Lanier Company. The Frazer Lanier Company is an investment banking firm located in Montgomery, Alabama. Our company has served as an investment banker to thousands of corporations, cities, counties, states, local boards and agencies throughout the United States. I was first introduced to Jeffrey Bemoras through the Board of Jefferson County, Alabama.

The County faced two main problems:

  1. The County cost trend exposure was growing by 21% annually.
  2. The General Fund needed to be insulated from shock claims exposure.

The Jefferson County commission voted to implement the Advance Funding Model. A $78 million-dollar transaction was initiated. The advanced funding transaction was completed by issuing a three-year taxable note. The notes were issued by a special purpose trust (The Jefferson County Alabama Employee Benefit Trust), thus preventing debt restrictions from being triggered for state law purposes. The cash received from the advance funding transaction plus investment income and employer/employee contribution (monthly remittance payments) were held in the trust for the benefit of the County’s employees. Assets were used to pay at fixed level monthly amounts (a) principal and interest on the notes (b) all health care costs and related administrative services for a 36-month period. The financial program achieved a Aaa rating based on the structural framework.

The County established a budgeted fixed monthly health care cost of $1,990,141 (Remittance Payment) for the next 36 months. The monthly remittance payments were part of an arrangement between the County and the Trust that was subject to annual appropriation. The funds available inside the trust accrued to build additional reserves (net cash flow) throughout the term. The reserve build up was available to the County to offset any additional risk exposure during the three-year period without altering the fixed monthly remittance. The risk reserve build up exceeded $7 million at the end of the first 36 month term. The reserve buildup and cash flow dynamics of the structure were designed to mitigate volatility and insulate the County’s General Fund against excess exposures during the initial term and set the foundation for a “rolling risk reserve” fund..


Bob Young
President of the Frazer Lanier Company
His firm has served as an investment banker since 1976