Picture it: Long Island, New York, 2004. (For anyone old enough to remember “The Golden Girls,” I hear the voice of Sophia Petrillo saying “Picture it: Sicily, 1941.”)
I owned a moderately successful insurance agency in Hauppauge, New York. There were eight of us working there, we had a bevy of good clients, all of them fully insured, and we had what appeared to be, by today's standards anyway, a robust and competitive insurance marketplace.
My life consisted of putting a spreadsheet together to get the client and hoping I showed something their current broker didn't, even though they had access to the exact same plans and rates I did (New York had been truly community-rated for a very long time). Once the plans were chosen, I would conduct employee meetings and my staff would help service the group throughout the year. At renewal, I would almost laugh at the increases year after year, and watch as benefits eroded to offset the rising premiums.
But we didn't call it “erosion” at the time. Oh no! We called it “consumerism.” We drank the Kool-Aid and talked about a day when patients, with more skin in the game, would be better stewards of the plan dollars now that they had in-network deductibles.
Today, understanding community-rated markets much better than I did then, it seems silly to think that would work. Even with a reduction in claims and a super engaged employee population, the carrier could not benefit the group in any way whatsoever. So when that didn't work, the industry had a stroke of genius: We thought of going to even higher deductibles and applying those deductibles to more things. Clearly, that would have the desired result. And so the HDHP paired with a tax-advantaged bank account was born and true consumerism was finally achieved… right?
Well, we know that didn't work. I argue that it actually made things worse. It increased the bad debt hospitals carry on their books and led to the average working family facing deductibles 10 times their savings account balance. Mass avoidance of care began to occur. I often refer to this as rationing, although not in the typical sense. Rationing is typically thought of as a reduction on the supply side, in spite of demand. But this was more a rationing on affordability, and it adversely affected the affordability of the most important and preventative kind of care: primary care and treatment of chronic conditions like diabetes and hypertension.
So the avoidance began, which brought short-term savings at the expense of longer-term, larger claims. This all led to medical bills—already the largest cause of bankruptcy in the U.S.—continuing to rise, accounting for 60 percent of U.S. bankruptcies. Even worse, more than 75 percent of those bankrupt families had health insurance but were still snowed under by medical debt.
Here's the odd thing, though. As plans got worse, rates still went up. And because I was paid on commission, my revenue kept going up. As a matter of fact, the higher the increase, the bigger my raise. Admittedly, I didn't question it at the time. After all, that's how it was done. Nobody, including clients, asked about how we got paid.
In retrospect, maybe the lack of discussion should have been the biggest red flag. Few other businesses have built-in pay raises on existing customers every year without even having to ask.
Slowly, I began to realize that as I headed to each renewal, I was driving a nicer car each year, living in a nicer house, taking more vacations, wearing nicer clothes, and all the while, the very customers I was serving—and in particular their employees—were seeing the exact opposite occur. And a huge reason for that was their health insurance.
I can't say this was an overnight realization; it was actually a very slow awakening. I realized there was a reason I was uncomfortable talking with clients about how much I get paid—I was being overpaid. Period.
If you can't talk with your client about how much they are paying you, then you are being paid too much. And there were only two ways to fix this problem: get paid less or start to provide enough value to be worth what I was already being paid. And despite my early efforts, this did not come from providing more “free” stuff. It came from addressing what I suspected would be the top thing my clients charged me with: controlling their health care costs.
So, how did I start on this journey that now has us regularly reducing health care costs for our clients by 20 percent to 60 percent? Well, I can tell you it did not come from our industry's traditional sources of “tried and true” solutions. Albert Einstein said, “We cannot solve our problems with the same thinking we used when we created them.”
The change came from stepping as far outside the box as possible. It was scary at first. I had to bring clients the expertise of a seasoned veteran in these solutions with no actual experience to back it up. Thankfully, today we have dozens of employers that have embraced these non-traditional solutions.
Most interestingly, the very things that I had used to justify the commission I was getting—“free” ben admin, great service, fancy spreadsheets—went from being the lead in my presentations to a far less important part of the value proposition, almost an afterthought. Don't get me wrong; they are necessary, and you must be really good at them, but aren't those just the cost of entry into our profession nowadays? Can you really even hang a shingle without these things?
So, this is my plea to all brokers still acquiring and renewing clients on commission—not just fully insured premiums, but stop loss, medical management vendors, and telemedicine providers, too—to all those getting paid “overrides,” PBM fees, or backdoor deals with TPAs—not to mention bonuses, fancy trips and golf outings—to stop, now, and recognize that when you benefit from the problems in our system, you are part of the problem. The most amazing thing is that when you turn the tables, you can actually get paid more by delivering real value to your clients.
Just today, I received the following text from a client “You did it!!! :) How do you want your $15k?” This is from a 100 life group that had performance-based bonuses built in, and not only was $15,000 the largest bonus trigger, but they sent me this on their own, as soon as September closed. And they were happy to pay it, without me even asking!
That, my friends, is when you know you’re providing real value, and is the type of behavior that now allows me to rest my head on the pillow at night.