They say luck is when preparation and opportunity meet. If that's true, then Josh Hilgers is well positioned to be lucky - he's been preparing for the past three years, and health reform presents the perfect opportunity.
Hilgers is president of Health Partners Training, a Birmingham, Ala.-based company that teaches brokers across the country how to sell defined contribution plans.
"We started implementing this strategy with groups in the southeast about three years ago," Hilgers explains, "and we could tell right away that it was the solution small businesses were looking for."
Recognizing that there's enough business to go around, Hilgers and his team decided to make the knowledge and sales tools they've developed available to other brokers, and it's proven to be a great decision: "In the year that we've been educating agents, we've helped them revolutionize their business model and have seen their business increase by as much as 1,000 percent."
Hilgers' approach? He doesn't compete with other agents for groups that offer health coverage. Instead, he focuses on companies that don't provide employee health insurance. "It's not because they don't want to," Hilgers says, "It's simply a matter of cost."
Most employers, he believes, would like to offer a health insurance plan, but many have trouble meeting the carrier's participation and contribution requirements.
Fortunately, there is an alternative. There are two sections of the tax code - 105 and 125 - that allow employees to spend tax-free dollars on eligible medical expenses, including individual health insurance premiums. Through a Section 105 health reimbursement arrangement, employers can provide funds to their employees on a tax-free basis - as with health insurance premiums, employer contributions to an HRA are excluded from an employee's gross income.
A Section 125 Cafeteria Plan offers many of the same tax benefits as an HRA, but a cafeteria plan also allows employees to contribute some of their own money through a salary reduction agreement. Hilgers' strategy takes advantage of both of these tax-advantaged plans, which are available whether an employer offers a group health insurance plan or not.
The defined contribution approach gives employers complete control - they can provide a fixed dollar amount to each employee while avoiding future premium increases. That's because the employer decides how much he wants to contribute each year. Employees can then use this employer money to pay for individual health insurance premiums for themselves and their families and pay any remaining amount through a cafeteria plan - not only does this save the employee money, it also creates a FICA savings for the employer. Even if an employer decides not to make a contribution, he can still benefit from the tax savings - in other words, a company can actually make money by adopting this strategy.
Hilgers is quick to say he draws much of his inspiration from Paul Zane Pilzer, an economist who believes small employers should never have taken on the health insurance burden in the first place.
"Small group insurance is an oxymoron," Hilgers explains. "Rule No. 1 of insurance is the law of large numbers, and small group insurance violates this law."
Through the defined contribution strategy, Hilgers is seeing a shift from the group to the individual market, a trend that is likely to accelerate in the next few years - he believes that the new legislation will push most employers out of the small group market, and many industry experts agree. That's because there will be no penalty for groups with fewer than 50 employees who don't offer health coverage, and those who hang on to their group plan could actually make their employees ineligible for the government subsidies that are available to people who purchase individual policies through the Exchange.
"Right now the only thing holding most employers back," Hilgers says, "is that there is no guaranteed purchasing option and some employees will not qualify for a personal plan."
But all that will change in 2014, when all plans will be guarantee-issue. "At that point, there will be no reason left for an employer to stick with a more expensive, one-size-fits-all plan."
For more information about Health Partners Training and the tools they provide, contact Josh Hilgers at 205-949-9735 or josh@healthpartnersamerica.com.
