Health insurance brokers must change to survive

March 7, 2014
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Do we really need benefits brokers anymore?

You know?

The guy or gal that shows up in your office once a year to tell you how your premiums are going up and your benefits are going down?

And then disappears for the next 364 days.

Yeah, that guy. Do we need him or her anymore?

I tried to answer this question while sitting on a panel of journalists yesterday at the annual meeting of the Indianapolis Association of Health Underwriters (read: benefits brokers and vendors).

The question I was actually asked was about whether the Indiana University Health hospital system would start acting like an insurance agency to bring customers to MDwise, the health plan co-owned by IU Health, which is selling coverage via the Obamacare exchanges.

You see, MDwise, unlike Anthem Blue Cross and Blue Shield, doesn't pay commissions to brokers for selling its insurance policies. So if a benefits broker helps a customer sign up for MDwise, the broker will earn no money for doing so.

At least under the old business model used by benefits brokers.

Under that business model, brokers' incomes come via commissions added to the premiums paid by employers and individuals when they buy health insurance.

My response?

"If MDwise can figure out a way to connect customers to its health plan without using brokers, then you should be worried. Or you should find a different business model."

I added that many industries have abandoned the distribution systems they once relied on. I mentioned newspapers gradually moving away from print now that the distribution of information can happen digitally.

If I had been quicker on my feet, I would have mentioned airlines moving away from travel agents once they had Expedia. Or law firms hiring far fewer couriers after the creation of PDFs and PDF scanners.

So if the question is, do we need benefits brokers operating under their old, purely commission-based business model any more, the answer will soon be an emphatic no.

But if the question is, do we need benefits brokers working under new business models, then the answer is a definite yes.

I told the audience at the Downtown Marriott hotel that the profile of benefits brokers is bound to increase in the next few years because the need for them will increase.

Why?

Because the days of employers making nearly all the decisions about which health plans their employees buy, those days are coming to an end.

For two key reasons:

First, employees are already paying 41 percent of the costs of employer-sponsored health insurance--when both their premium contributions and their out-of-pocket spending is combined. And that percentage is headed to more than 50 percent in the next 3-5 years.

I got these startling statistics from this much-discussed presentation by Mark Bertolini, the CEO of Aetna Inc., last week. You can read an edited summary of his talk on Forbes.com.

I previously thought employees were paying 28 percent of the cost of their health care benefits (and only 17 percent for single coverage). Those are the latest data from Kaiser Family Foundation's annual survey of employers.

But those are just the percentages that workers pay of the insurance premiums.

With the proliferation of high-deductible health plans, employees have been taking on more of the total costs. And that means their say on what plans they can purchase is going up too.
 
Second, employers are trying to keep the cost of their health insurance plans low enough so as not to trigger Obamacare’s Cadillac tax in 2018. That means many of them are adopting a defined-contribution strategy, using either a private exchange or the public Obamacare exchanges or both, to let their workers select their own health plan.
 
Consumers will need help making these complex decisions. Help that brokers are well-suited to provide.

But brokers will have to figure out ways to serve large numbers of individual customers, not just the CFOs and HR directors of companies.

The private exchanges are one such example. Many of them were created by the nation's largest brokerage firms--Aon Hewitt, Mercer, Gallagher, etc.--as a way to allow each employee to select a health plan. And, yes, the brokers that run these exchanges collect a commission from the health plans sold on their exchange.
 
Another example of a new business model can be seen at Indianapolis-based Nefouse & Associates, which set up a web site at the address indianahealthinsuranceexchange.com to bring in such a high volume of customers, that the small-dollar commissions earned on each one could be profitable.
 
Or brokers may need to figure out how to make money even from plans that don’t pay commissions.

An example is Bernard Health, out of Tennessee, which has set up two retail stores in Indianapolis to provide counseling to small businesses and individuals for a fee. Then if they buy insurance that pays a commission, Bernard Health gets that too. But its livelihood doesn’t depend on it.
 
Or, if brokers still want to serve mostly employer clients, they’ll need to become more valuable. Some large brokerages have hired actuaries and financial analysts to run complex cost scenarios for their clients, which the firms bill directly for the services they provide. In that way, firms such as MJ Insurance and Gregory & Appel and Apex Benefits and others, act more like consultants than brokers.
 
Others, such as KBIC, a firm started by former broker Andy Kaelin in Indianapolis, are taking on the entire human resources duties around health insurance for small businesses. KBIC doesn’t earn commissions, instead it gets paid to develop strategies, interface with brokers, communicate with employees and troubleshoot any problems that come up—all year long.
 
Several people came up to me after the panel discussion, to tell me how they’re adopting a new business model to serve customers in these changing times.

I look forward to what else brokers come up with.

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  • FYI
    FYI
  • Not your run of the mill broker
    This article reassures my faith in my family's agency, Conner Insurance, to stand the test of time. We function under an advanced business model and have always stayed ahead of the game. We are experts and advisors, not just simple order takers.
  • Welcome To The Party JK
    JK - glad to see folks like you picking up on this trend and reporting on it. Actually the top employee benefits firms have been doing this (providing value via fee based compensation) for a number of years now. It's about helping clients manage their risks. Benefits, insurance and compliance with ACA are really just parts of the overall Business & Strategic Risks organizations face relative to their workforce. If traditional brokers as you describe haven't adopted a new model by now, they're in trouble. More importantly employers deserve and need better guidance and more transparency. Thanks again for speaking on this issue. While it doesn't seem like "news" to me, I guess it probably is.
    • To Tim Leman
      Thanks for reading. I agree with you that among brokers that serve employers with more than 50 lives, these changes are nothing new. But for brokers working with smaller employers or with individuals, my sense is these changes are somewhat new. Would you disagree with that?
      • Re: To Tim Leman
        JK - you're right. The broker services you mention aren't common in the <50 or even <100 space. Some of them - such as certified actuarial work - aren't even relevant in that space. The way most carriers have filed rates, going net of commissions (and charging a fee) isn't an option either (although brokers could still choose to be transparent about compensation). So advisors in the <50 space will try to differentiate through enrollment and educational support. It's a good start, but I don't know if that will have a long term shelf life if many of the employers in that space drop coverage. In the end the pressure to provide more and do more, regardless of employers size, is a good thing. It makes all of us advisors better and that's good for the employers that value the things you talk about. Sadly many employers are still making their decisions based on a relationship.
        • To Tim Leman
          Thanks for your thoughts, Tim. That's helpful.
        • No commission for MDWise?
          As an independent insurance agent, the majority of the people I signed up for Obamacare were with MDWise. In our training were we NOT told that we would not be paid to sign people up for MDWise and other plans. We were only told that by entering our National Producer number on the form the information would be sent on to the insurance company for them to pay us. What a scam this was for those of us who worked long hours to get people signed up and helped them chose a plan. Many times I was still working at 11 pm, plus I worked weekends. I am only discovering this now as I'm trying to find out why I'm not getting paid. Why wouldn't they tell us upfront? At least then we could have made an informed decision as to even be involved with Obamacare.

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