Today’s economic realities—combined with elements of the Patient Protection and Affordable Care Act that are about to come on line—have brokers of all sizes and stripes scrambling for answers. Most remain understandably pessimistic, viewing the looming changes as nothing short of an existential threat.
In fact, it wasn’t that long ago in this magazine that this is what passed for optimism: “Health care exchanges could completely replace 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 all share one fundamental characteristic: uncertainty.
According to MetLife’s Broker and Consultant Study (“Where do we go from here? Prospering in a Post-Health Care Reform World”), “the possibility that migration to health care exchanges will cause employers to stop offering medical insurance to their employees is of considerable concern to almost two-thirds (64 percent) of [brokers], while 73 percent are very concerned about reductions in commissions due to PPACA’s medical loss ratio provisions; and nearly nine in 10 brokers and consultants surveyed believe that health care reform will cause both employer and employee costs to rise.”
The medical loss ratio provision in the PPACA mandates insurers allocate no more than 20 percent of premium costs to pay overhead expenses, such as marketing, profits, salaries, administrative costs and agent commissions. As a direct result of the MLR requirements, many brokers and agents are seeing a net reduction of their business incomes of 30 percent to 50 percent.
But it’s not just broker commissions that are at risk—it’s an entire business model. Amid the widespread uncertainty, a consensus is beginning to emerge that could prove to be the most viable way forward: a fee-based model whereby brokers charge rates for specified services, from evaluating an employer group’s insurance needs, to helping select the appropriate plans, to helping design policies that maximize policyholder value. A fee-based model puts tremendous pressure on the broker to lower operating costs while continuing to deliver superior service. It pushes brokers to demonstrate value at every point in the “value chain” and be held accountable for every deliverable, from time spent on initial consulting to plan deployment, design, and enrollment. Brokers will have to deliver cost savings to the employer and show the value—and continued relevance—of their specific expertise within narrower profit margins.
A fee-based model is a stringent, some might say Draconian model, and the harsh truth is that not all of today’s brokers will survive. This article will address how technology can help brokers lower across-the-board costs, wring efficiencies from otherwise labor-intensive processes, and give employees flexibility in plan selections and tools to promote better decisions while increasing satisfaction. We’ll show how this affords brokers the time to do what they do best, providing insight and guidance on everything from health care to workers’ compensation, liability, disability, life insurance, and retirement options. These are issues that won’t go away as the PPACA provisions come into effect. We’ll demonstrate how a new approach and pricing/delivery model will enable you to reassert your position as a trusted—and yes, valuable—business partner to the employers you serve.
The fee-based model
While none of us can predict how and to what degree the PPACA and the MLR rules will change traditional broker business models, we’re confident the prevailing commission model will no longer be viable.
Moreover, while the “exchanges” and the promised transparency will supposedly enable employees to make independent and informed comparisons and decisions, we can be assured that in a very short time, people will find out that comparing prices and benefits plans on a web site is not like buying a plane ticket on Orbitz or a large screen TV at Best Buy. The process is complicated, time-consuming, and frustrating—employees and their employers will come to realize the value in the services that brokers provide.
However, the real question isn’t whether employers will pay for it—the question is how will brokers afford to be able to deliver their support and expertise in light of cumbersome restrictions and painfully small margins?
According to the MetLife broker and consultant study, “shifting toward a fee-based model could enable brokers to further leverage their firm’s proprietary tools and assets, such as service platforms, enrollment support or communications tools.” Lowering operating costs while sustaining—indeed, improving—service delivery would appear to be in sharp contradiction. The following addresses components of a technology solution that achieves these seemingly incompatible objectives.
• Best-of-breed technology. While there’s no shortage of solutions in the market, a best-of-breed benefits administration platform can offer much more than just online enrollment. An increasing number of employers are turning away from one-time online enrollment solutions and looking for a more robust platform for benefits administration. One advantage of this type of system is that rather than only having access during open enrollment, brokers, employers, and employees can access it 365/24/7. These systems also integrate fully with other functionalities that handle core medical, dental, and vision benefits, voluntary products, and flex benefits, as well as TPA services, and seamlessly works with an existing HRIS, Payroll, or COBRA administrator. When multiple vendors are involved, it’s also critical that the solution be able to interface on an IT level as well as be compliant with regulatory requirements. From the brokers’ perspective, they must be secure in knowing that the solutions they use and recommend will perform flawlessly and seamlessly.
For example, a key feature that is essential in today’s rapidly changing environment is a fully automated EDI data exchange, which provides connectivity among employer groups, insurance carriers, third-party administrators, payroll vendors and brokers—ensuring a seamless, transparent, accurate and secure process.
In short, best-of-breed benefits administration technology decreases administrative tasks, lowers overall costs, and streamlines a typically fragmented process.
• Flexible and scalable solutions. According to the Benefits Selling survey, individual agents and small group brokers plan to concentrate on delivering a focused set of services to their core customers, and expanding to a more diversified suite of ancillary/voluntary products that would enable them to replace lost health benefits income.
Conversely, a majority of middle market, large group, and national account advisers said they would retain their focus on health as a core offering. Scalable and flexible benefits administration technology can house and integrate a variety of benefit plan options and programs, providing employer groups with the ability to customize their choices based on those best suited to their needs from a cost and coverage perspective. In turn, this technology provides brokers with a platform that facilitates the consolidation of plans and services and offers economies of scale to serve employers of any size more efficiently and cost-effectively. Flexible and scalable automation can reduce brokers’ administration and related costs, while delivering a higher ROI and profit margin.
• Decisioning tools. Changes to the way health care is selected and utilized will increase the need for tools that focus on empowering consumers. Tools, such as online calculators, facilitate the decision-making process and provide employees with demonstrable evidence to support their choices. For instance, a built in calculator can project overall plan cost savings for an individual using a health savings account and a high-deductible health plan versus traditional options, accounting for factors such as family size or past health care expenditures.
Other tools can simplify complex HSA regulations and calculate an employee’s maximum HSA contribution. Overall, these tools arm employees with the preliminary information they need to make an informed decision. Such tools reduce a broker/consultant’s administrative “overhead,” frees them up to maximize their time and resources, and improves both employer and employee satisfaction.
• Electronic benefits communications. Many brokers and vendors are offering a communications component to add “value” to their offerings. It’s estimated that companies spend up to $3 per-employee-per-month on printed benefits-related communications. And while some organizations are experimenting with social media to introduce interactivity, build community, and drive proactive utilization, these tools are rarely integrated into an overarching communications framework.
In actuality, traditional health and wellness communications are ineffective at reaching and engaging employee populations primarily because the information is static (one-way) and uninvolving. The upside is that this void represents an opportunity for brokers to offer 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 sustains communications through the week, exposing employees to broker, vendor, or company-sponsored tools, programs and resources. This approach provides consistent, year-round benefits-related communications, deepening engagement and creating a more proactive health-conscious user community. Moreover, embedding links within each article can route readers to relevant resources, driving education, proactive behavior, and utilization of programs and services. In short, electronic communications can effectively be delivered at a lower PEPM without adding administrative burden to brokers or employer groups.
• “Value-added” consulting. In the Met Life study, when brokers were asked how their roles might be different three years from now, 83 percent said they see themselves spending more time consulting with clients on legal and compliance issues. A broker’s core value—in any environment—is measured by the quality and breadth of the consultation offered. The benefits administration and enrollment technology as described here allows brokers to free themselves from the time-consuming and costly administrative tasks, enabling them to focus on what they do best: offer their expertise and support.
The health care exchanges could well improve an individual’s ability to navigate among various and sundry plan options, but marketing and placing coverage for clients is only a part of the broker’s role. Brokers will still be relied on to help clients manage plan costs, set up employee contributions, assure compliance (i.e., ERISA, HIPAA, COBRA, Sec. 125, etc.), implement and design wellness initiatives, and coordinate employee communications.
Of course the challenge is in offering these high-value services within a framework that puts pressure on margins. Here is where a best-of-breed technology platform, combined with a fee-based model, can go a long way in promoting a broker’s economic viability—as the technology cuts overheard and streamlines processes, while a fee-based model allows brokers to be paid for their consulting as a component of their overall services.
A difficult road ahead
To this point, we’ve addressed the changing landscape from the broker’s perspective. Ironically, the perspective of small- and mid-sized companies appears to be more encouraging. According to the Met Life study, “54 percent of employers plan to rely, even more than usual, on their broker or consultant to keep them apprised and educated on health care reform issues.”
That number can be expected to rise as fee-based models become the norm, affording employers greater transparency and, as a consequence, forces brokers to demonstrate value. The Met Life study points to an increase in the involvement of the CFO in benefits decisions, which gives brokers an achievable metric: showing how employee benefits drive loyalty and job satisfaction and contribute to attaining work force retention and productivity goals.
The road ahead will be difficult, the transition will not come without hardship, but there is a way forward. No matter how the landscape shifts, brokers can, and will, continue to have a role by focusing on the invaluable services they provide—but it will take agility, creativity, and a careful inventory of tools and processes, maximizing efficiencies across the “value chain.” Brokers can make a fee-based model economically viable by implementing benefits enrollment, administration, and “intelligent” decisioning technology that lowers operational costs and sustains high levels of service delivery—harmonizing two otherwise mutually exclusive objectives
To quote another Ohio-based broker from the Benefits Selling survey, “A reduction in commissions and a transition to fees spells opportunity.”
Troy Underwood is CEO of benefitsCONNECT. Troy can be reached at 916-421-4000, or troy@benefitsCONNECT.net.