There’s no shortage of bad news for benefit brokers these days. Medical-loss ratio calculations and health exchanges are expected to slash the commissions carriers pay agents over the next few years. Federal subsidies for employees earning up to 400 percent of the poverty level and Medicaid qualifications for employees earning up to 133 percent (instead of the current 100 percent) of the poverty level mean the numbers of employees that you insure could decrease by as many as half, depending on which predictions you believe. The states’ health exchanges will probably pay commissions to sign up employees that move to the exchanges, but it’s likely to be low; perhaps as little as .5 percent to 1 percent.
The question is: What will you do over the next two years to prepare yourself for the landscape in your industry after 2013?
There really are only four strategies you can adopt in response to these changes. You can hope Congress repeals the changes; you can adjust your lifestyle downward to match a decrease of up to 50 percent in your income; you can aggressively try to get customers to switch from your competitor to you for their health care; or you can add new lines of revenue from existing sources. Or, you can do a combination of them.
First, let’s accept the fact that demands on your time aren’t going to go down as commissions do. With rising premiums for your employers, you’re still expected to spend vast amounts of time pursuing creative ways of providing similar coverage at or near the same cost. You’ll still be expected to stay current with changes in the law and proactively work with your groups to keep them compliant. So you can’t be expected to adopt any strategy that takes you away from your core business—providing health care insurance for your groups.
Attract new clients
Attracting new health care clients is a zero-sum game. There are a finite number of clients in your territory and they all have a broker now. So the only way to get a new health care client is to recruit one from your competitor, and likewise the only way they grow is to take one from you. If you accept the population of potential clients will shrink (due to exchanges) and the commissions paid on those fewer employees will shrink (due to MLR calculations and exchanges), more brokers are forced to compete for fewer customers. While it’s possible for you to grow your business by recruiting health care business from your competitors, it isn’t easy. Every other broker will be calling those companies.
Over the last 10 years, brokers have seen their commissions increase steadily due to double digit rises in health care premiums. That increase has led to a false sense that their business is growing. However, if you analyze how many clients you added and how many you lost over the last decade, you’ll get a better sense of whether your business is going to be able to withstand a loss of 20 percent, 30 percent or even 50 percent of your clients.
Remember, every single broker faces the same realities you do, so they’re going to be fighting just as hard to keep their clients and take yours. What is your strategy for keeping your clients in this competitive atmosphere, and what is your strategy for gaining new ones?
Add revenue streams
Brokers have been urged to diversify, adding ancillary products to offset expected losses in revenue. Adding new lines will increase your revenue somewhat, but the tradeoff is that it will take time.
You’ll need to become as expert in this wide array of products as you do with your current offering. That’s why many brokers have allowed other companies to provide those products. The other issue is that most of the ancillary products are very inexpensive, which means the commissions are very small. Even if brokers are wildly successful selling dental, vision or legal aid, the total commissions remain a very small percent of the amount they stand to lose with health care reform.
One possible strategy is to use long-term care insurance as a foot in the door to get new clients, while adding revenue streams from existing clients. LTCI is one of the most sought-after benefits by decision makers, and few of your competitors likely offer it to their groups. That means you should find it easier to meet with these prospective new clients if you have a solid strategy for selling and implementing LTCI. A successful partnership with a company specializing in LTCI can reap big rewards with minimal investment of your time and with very little competition. The recent exit of Unum from the LTCI market makes this the perfect time to implement this strategy.
Our nation is facing a crisis in long-term care as 80 million baby boomers approach retirement. Medicaid budgets are reaching crisis levels. And less than 1 percent of companies in America have a LTCI plan in place, so the market potential is huge.
Your competitors likely aren’t talking about this benefit to their clients. This creates an unbelievable opportunity for you; the awareness, personal experience and perceived need is there, but the competition isn’t.
Most brokers have ignored LTCI. Even when they have rolled out a plan, they generally haven’t gotten much participation. They aren’t being asked about it often. So they mistakenly believe there’s no interest. There is interest, but it has to be sold differently than health care and other ancillary products. The typical group enrollment process doesn’t adequately educate the top decision makers before making a proposal and they don’t got emotional buy-in from employees and spouses. When LTCI is properly sold you can be successful and differentiate yourself in a positive way.
If you reach age 65, you’ll have about a 70 percent chance of needing long-term care at some point in your life, according to the U.S. Department of Health & Human Services. And that care’s costly. A 40-year-old employee could be looking at a long-term care expense of $1,800 per day at age 85. That’s $54,000 per month, or $657,000 per year.
Despite the fact that some carriers have exited the market, and others have seen price increases on new business (and occasionally even on in-force business), long-term care insurance continues to be a bargain. That 40-year-old employee can get a policy that will pay the $657,000 per year at age 85 for about $100 a month. If that employee receives as little as one month of care at age 85 he’ll recoup every penny paid into the policy.
If people don’t hear about this through their workplace, they’ll often wait until it’s too late to look into LTCI.
A reason to care
Like all benefits, LTCI can be a tool for recruiting and retention and for the general welfare of the employees. But beyond that, employees who are caregivers tend to be distracted while at work, and often have to cut their hours or quit working. So over the long-term, making sure more employees have protected their family will allow them to be sure their loved ones get the care they need while still keeping their commitment at work. An LTCI benefit also can be a way to shield profits from taxation. The premiums can usually be deducted as a business expense, even if the employer discriminates on who gets a policy, and the premiums don’t have to be included in the owner’s (or employee’s) W-2. Nor are the benefits taxed when received, so there are triple tax benefits.
Multi-life vs. group
Multi-life products are similar to individual policies. They can be individually customized to the customer’s needs, they are portable when you leave your company, and they are owned by the individual. The difference is that simplified underwriting, or even modified guaranteed underwriting, is available if minimum participation levels are reached (can be as low as three lives, may include spouses in simplified underwriting and can go up to age 71). Simplified Underwriting usually involves six questions, MGI usually asks only three. In both cases, no medical records are ordered, no list of prescription meds is asked for (although an MIB inquiry might be ordered), and no height/weight or smoking questions are asked. Also, multi-life policies offer discounted premiums to employees, spouses or domestic partners, and extended family members.
Group insurance, on the other hand, isn’t customizable. The decision makers decide on three or four plans that the employees can purchase. If plan A doesn’t provide enough coverage and plan B is too expensive for the employee, there’s no middle ground. The company owns the policy, the individual is given a certificate. Group insurance usually offers guaranteed issue. The people who know they will need LTCI (i.e., the sickest) might be represented disproportionately (adverse selection). The carriers have to factor in this risk, so while group carriers often offer competitive pricing for a base plan, they can be very expensive for meaningful levels of coverage with inflation protection.
The right partner
LTCI is a complex product, and the sales process is complex. Carriers are constantly changing their products, pricing, policies, features and provisions. You need to understand and keep up with these changes in order to best serve your clients.
You’ll also need to be capable of one-on-one consultations to the employees and spouses at your groups. And unless you have an extensive long-term care department with a nationwide footprint, it will be necessary that you partner with an agency that can provide that level of service. A partnership allows you to provide the personalized care that is required to sell LTCI without taking you away from your core business. Ideally, you’ll want a partner that only sells LTCI, so as not to have a conflict with you.
When selecting that partner, it’s important to pick a partner that: has a nationwide footprint, specializes exclusively in LTCI, has a successful strategy for selling in the workplace and has the tools and experience to roll out and enroll companies of any size.
Over the next decade, there will be a huge shift in the LTCI marketplace as more people purchase their LTCI at the workplace. Think back to the opportunity in the mid-1980s when companies went from defined benefit plans to defined contribution. Those brokers that positioned themselves to take advantage of the increase in sales of 401(k)s, 403(b)s, etc. were wildly successful. You now have a similar opportunity with multi-life LTCI. Take advantage of it.
Philip Abdouch is a partner at LTC Financial Partners. He can be reached at email@example.com.