Today’s economic realities—combined with elements of the PatientProtection and Affordable Care Act that are about to come online—have brokers of all sizes and stripes scrambling for answers.Most remain understandably pessimistic, viewing the looming changesas nothing short of an existential threat.

In fact, it wasn’t that long ago in this magazine that this iswhat passed for optimism: “Health care exchanges could completelyreplace me,” said a benefits broker from Georgia, “but then again,they may not!”

From large brokers to small group and individual agents,perspectives on the looming challenges vary widely; but they allshare one fundamental characteristic: uncertainty.

According to MetLife’s Broker and Consultant Study (“Where do wego from here? Prospering in a Post-Health Care Reform World”), “thepossibility that migration to health care exchanges will causeemployers to stop offering medical insurance to their employees isof considerable concern to almost two-thirds (64 percent) of[brokers], while 73 percent are very concerned aboutreductions in commissions due to PPACA’s medical loss ratioprovisions; and nearly nine in 10 brokers and consultants surveyedbelieve that health care reform will cause both employer andemployee costs to rise.”

The medical loss ratio provision in the PPACA mandates insurersallocate no more than 20 percent of premium costs to pay overheadexpenses, such as marketing, profits, salaries, administrativecosts and agent commissions. As a direct result of the MLRrequirements, many brokers and agents are seeing a net reduction oftheir business incomes of 30 percent to 50 percent.

But it’s not just broker commissions that are at risk—it’s anentire business model. Amid the widespread uncertainty, a consensusis beginning to emerge that could prove to be the most viable wayforward: a fee-based model whereby brokers charge rates forspecified services, from evaluating an employer group’s insuranceneeds, to helping select the appropriate plans, to helping designpolicies that maximize policyholder value. A fee-based model putstremendous pressure on the broker to lower operating costs whilecontinuing to deliver superior service. It pushes brokers todemonstrate value at every point in the “value chain” and be heldaccountable for every deliverable, from time spent on initialconsulting to plan deployment, design, and enrollment. Brokers willhave to deliver cost savings to the employer and show the value—andcontinued relevance—of their specific expertise within narrowerprofit margins.

A fee-based model is a stringent, some might say Draconianmodel, and the harsh truth is that not all of today’s brokers willsurvive. This article will address how technology can help brokerslower across-the-board costs, wring efficiencies from otherwiselabor-intensive processes, and give employees flexibility in planselections and tools to promote better decisions while increasingsatisfaction. We’ll show how this affords brokers the time to dowhat they do best, providing insight and guidance on everythingfrom health care to workers’ compensation, liability, disability,life insurance, and retirement options. These are issues that won’tgo away as the PPACA provisions come into effect. We’ll demonstratehow a new approach and pricing/delivery model will enable you toreassert your position as a trusted—and yes, valuable—businesspartner to the employers you serve.

The fee-based model

While none of us can predict how and to what degree the PPACAand the MLR rules will change traditional broker business models,we’re confident the prevailing commission model will no longer beviable.

Moreover, while the “exchanges” and the promised transparencywill supposedly enable employees to make independent and informedcomparisons and decisions, we can be assured that in a very shorttime, people will find out that comparing prices and benefits planson a web site is not like buying a plane ticket on Orbitz or alarge screen TV at Best Buy. The process is complicated,time-consuming, and frustrating—employees and their employers willcome to realize the value in the services that brokers provide.

However, the real question isn’t whether employers will pay forit—the question is how will brokers afford to be able to delivertheir support and expertise in light of cumbersome restrictions andpainfully small margins?

According to the MetLife broker and consultant study, “shiftingtoward a fee-based model could enable brokers to further leveragetheir firm’s proprietary tools and assets, such as serviceplatforms, enrollment support or communications tools.” Loweringoperating costs while sustaining—indeed, improving—service deliverywould appear to be in sharp contradiction. The following addressescomponents of a technology solution that achieves these seeminglyincompatible objectives.

• Best-of-breed technology. While there’sno shortage of solutions in the market, a best-of-breed benefitsadministration platform can offer much more than just onlineenrollment. An increasing number of employers are turning away fromone-time online enrollment solutions and looking for a more robustplatform for benefits administration. One advantage of this type ofsystem is that rather than only having access during openenrollment, brokers, employers, and employees can access it365/24/7. These systems also integrate fully with otherfunctionalities that handle core medical, dental, and visionbenefits, voluntary products, and flex benefits, as well as TPAservices, and seamlessly works with an existing HRIS, Payroll, orCOBRA administrator. When multiple vendors are involved, it’s alsocritical that the solution be able to interface on an IT level aswell as be compliant with regulatory requirements. From thebrokers’ perspective, they must be secure in knowing that thesolutions they use and recommend will perform flawlessly andseamlessly.

For example, a key feature that is essential in today’s rapidlychanging environment is a fully automated EDI data exchange, whichprovides connectivity among employer groups, insurance carriers,third-party administrators, payroll vendors and brokers—ensuring aseamless, transparent, accurate and secure process.

In short, best-of-breed benefits administration technologydecreases administrative tasks, lowers overall costs, andstreamlines a typically fragmented process.

• Flexible and scalable solutions.According to the Benefits Selling survey, individualagents and small group brokers plan to concentrate on delivering afocused set of services to their core customers, and expanding to amore diversified suite of ancillary/voluntary products that wouldenable them to replace lost health benefits income.

Conversely, a majority of middle market, large group, andnational account advisers said they would retain their focus onhealth as a core offering. Scalable and flexible benefitsadministration technology can house and integrate a variety ofbenefit plan options and programs, providing employer groups withthe ability to customize their choices based on those best suitedto their needs from a cost and coverage perspective. In turn, thistechnology provides brokers with a platform that facilitates theconsolidation of plans and services and offers economies of scaleto serve employers of any size more efficiently andcost-effectively. Flexible and scalable automation can reducebrokers’ administration and related costs, while delivering ahigher ROI and profit margin.

• Decisioning tools. Changes to the wayhealth care is selected and utilized will increase the need fortools that focus on empowering consumers. Tools, such as onlinecalculators, facilitate the decision-making process and provideemployees with demonstrable evidence to support their choices. Forinstance, a built in calculator can project overall plan costsavings for an individual using a health savings account and ahigh-deductible health plan versus traditional options, accountingfor factors such as family size or past health careexpenditures.

Other tools can simplify complex HSA regulations and calculatean employee’s maximum HSA contribution. Overall, these tools armemployees with the preliminary information they need to make aninformed decision. Such tools reduce a broker/consultant’sadministrative “overhead,” frees them up to maximize their time andresources, and improves both employer and employeesatisfaction.

• Electronic benefits communications.Many brokers and vendors are offering a communications component toadd “value” to their offerings. It’s estimated that companies spendup to $3 per-employee-per-month on printed benefits-relatedcommunications. And while some organizations are experimenting withsocial media to introduce interactivity, build community, and driveproactive utilization, these tools are rarely integrated into anoverarching communications framework.

In actuality, traditional health and wellness communications areineffective at reaching and engaging employee populations primarilybecause the information is static (one-way) and uninvolving. Theupside is that this void represents an opportunity for brokers tooffer electronic communications as a fee-based program (i.e., PEPM)for employer groups that requires minimal broker investment(resources, money) or ongoing maintenance. Imagine an engaging,attractive, easy-to-read email (one that embeds “actionable”links), and a dynamic, integrated Twitter page that sustainscommunications through the week, exposing employees to broker,vendor, or company-sponsored tools, programs and resources. Thisapproach provides consistent, year-round benefits-relatedcommunications, deepening engagement and creating a more proactivehealth-conscious user community. Moreover, embedding links withineach article can route readers to relevant resources, drivingeducation, proactive behavior, and utilization of programs andservices. In short, electronic communications can effectively bedelivered at a lower PEPM without adding administrative burden tobrokers or employer groups.

• “Value-added” consulting. In the MetLife study, when brokers were asked how their roles might bedifferent three years from now, 83 percent said they see themselvesspending more time consulting with clients on legal and complianceissues. A broker’s core value—in any environment—is measured by thequality and breadth of the consultation offered. The benefitsadministration and enrollment technology as described here allowsbrokers to free themselves from the time-consuming and costlyadministrative tasks, enabling them to focus on what they do best:offer their expertise and support.

The health care exchanges could well improve an individual’sability to navigate among various and sundry plan options, butmarketing and placing coverage for clients is only a part of thebroker’s role. Brokers will still be relied on to help clientsmanage plan costs, set up employee contributions, assure compliance(i.e., ERISA, HIPAA, COBRA, Sec. 125, etc.), implement and designwellness initiatives, and coordinate employee communications.

Of course the challenge is in offering these high-value serviceswithin a framework that puts pressure on margins. Here is where abest-of-breed technology platform, combined with a fee-based model,can go a long way in promoting a broker’s economic viability—as thetechnology cuts overheard and streamlines processes, while afee-based model allows brokers to be paid for their consulting as acomponent of their overall services.

A difficult road ahead

To this point, we’ve addressed the changing landscape from thebroker’s perspective. Ironically, the perspective of small-and mid-sized companies appears to be more encouraging. Accordingto the Met Life study, “54 percent of employers plan to rely, evenmore than usual, on their broker or consultant to keep themapprised and educated on health care reform issues.”

That number can be expected to rise as fee-based models becomethe norm, affording employers greater transparency and, as aconsequence, forces brokers to demonstrate value. The Met Lifestudy points to an increase in the involvement of the CFO inbenefits decisions, which gives brokers an achievable metric:showing how employee benefits drive loyalty and job satisfactionand contribute to attaining work force retention and productivitygoals.

The road ahead will be difficult, the transition will not comewithout hardship, but there is a way forward. No matter how thelandscape shifts, brokers can, and will, continue to have a role byfocusing on the invaluable services they provide—but it will takeagility, creativity, and a careful inventory of tools andprocesses, maximizing efficiencies across the “value chain.”Brokers can make a fee-based model economically viable byimplementing benefits enrollment, administration, and “intelligent”decisioning technology that lowers operational costs and sustainshigh levels of service delivery—harmonizing two otherwise mutuallyexclusive objectives

To quote another Ohio-based broker from the BenefitsSelling survey, “A reduction in commissions and a transitionto fees spells opportunity.”

Troy Underwood is CEO of benefitsCONNECT. Troy can bereached at 916-421-4000, or [email protected].