One area we have given lots of attention to is ideal target customer identification and how to be less reliant on the group health carriers and their compensation programs. These programs have traditionally determined what we are paid from our small health plan groups (under 50 or under 100 lives).
While we have been thinking about this for a few years, in early December 2016 we received a commission schedule change notice from one of our large national ACA group carriers (groups under 50 employees) confirming the commission levels on their new balanced funding plans would increase to $32 per employee per month January 1. Terrific!
However, the same memo declared the ACA plan commissions will decrease from $25 per employee per month to $4 per employee per month for groups up to 50 employees as the groups renew in 2017. Ugh!
Yes the ACA health plan rates are typically higher and the level/balanced funding plans do frequently provide a much better solution for those employer groups losing their transitional plans. What is hazardous is the fact that the carriers are using their brokers to control their agenda based on what they need to sell. Not what is the best client solution (because they can and they feel they need to).
I have vowed for 35 years I would never base a client recommendation on what is best for me or my pocketbook at the expense of the client. I continually reaffirm to our team we must always objectively recommend and implement the very best solution for the client from the tools in our toolbox. As I see it, we are at a crossroads thrust upon us by industry and the ACA. We must detach ourselves from what the group health carriers are willing to pay us to be able to run a profitable business.
I get it. The MLR part of ACA has squeezed the carriers admin margins because they can only retain 15% or 20% of rates. Unfortunately, commissions are part of the 15% or 20%. So, what is the best answer?
First, you should know my least favorable option is to move directly to a health plan consulting fee billed direct to client. And secondly, I am still a very big proponent of getting paid commissions on non-medical products where change has been much less dramatic and the commissions continue to be reliable.
I learned a big lesson regarding collection of client fees for group health plan in 2016.
We wrote a 250 employee group that was self-funded that wanted us to invoice them separately from the TPA/carrier bill for the health plan. Luckily, the other non-med benefits still paid us a commission. So we agreed to bill the client our monthly health plan consulting fee. The client got into financial trouble and eventually went into receivership.
The client fully paid their TPA and stop loss bill every month through the turmoil because if they didn’t the employees’ coverage would terminate and our state has a law about providing 45 notice of coverage cancellation. It is a criminal violation to not provide notice. What they didn’t pay was our consulting fee bill after the first nine months of the year. Yes, we had a written contract and they kept on telling us they knew they were behind and would catch us up. They never did.
While significant, to me the amount was too little to justify hiring an attorney to collect, so we took the loss. What I learned in a dramatic way is that it is much better to have our fee collected as part of the carrier or TPA bill for the group health plan.
The client will always pay this bill first (or the insurance claim payments stop to employees).
We as an industry are very lucky to have this option and need to seize every opportunity for our fee to be part of the TPA and/or carrier bill.
Here is what we as a company have determined:
- Client needs to agree to our separate fee for the group health plan consulting and fee needs to be collected as separate line item on TPA carrier billing statement. We have received lots of accommodation on this from the TPAs/carriers because it gets our fee out of their retention. I Hope this willingness to work together continues.
- We are not well suited or equipped as a business to be in the collection business.
- Our consulting fee needs to be presented to the client and agreed upon based on their needs and services very early in the client engagement and marketing conversations.
Our group health consulting fee needs to be calculated methodically based on what we need to thrive and deliver with a focus on value to the client. If the client needs ben admin, HR assistance, or SPD preparation and 5500 filings offer these, but show it as an “extra PEPM above the basic cost for our consultation, expertise and dedicated account manager.”
Can you imagine a world where carriers didn’t pay us anymore commissions on group health? They would still want the business, so they would have to run lots of new client and retention bonus and incentive programs.
I love the thought of not being subject to group health carrier control other than training and education on their group health products. Yes, the carriers may still choose to only work with certain agencies/brokers, but even that might change if group health compensation is no longer part of their control.
Many of you are way ahead of us in going down this road, but we must all be untethering ourselves from the group health insurance companies and stand as truly independent advisers to our clients regarding the healthcare plan.
But let us not forget the great value these health plan carriers can provide in their willingness to collect our fees and remit them to us. They are still our partners and without them we have no industry.
The group health commission ride was good for many years, but it is time to kiss it goodbye for everyone’s benefit.
With more than 32 years of experience, Employee Benefit Specialist and President/Owner of Employee Benefit Advisors of the Carolinas is an expert in assisting businesses who value their employees in design and implementation of employee benefit programs including group health insurance, High Deductible Health plans with Health Savings accounts, group life and disability insurance, group dental and vision and pre tax premium plans for employees.
Building A New Employee Benefits Agency
As a 34 year veteran of this industry it sure doesn’t feel like I am in the same business today.
In 2008 the insurance plans for the hundreds of small group clients we served (along with many larger groups) stopped paying our company a percentage of premiums. We suddenly received a per employee per month fee and with the layoffs happening at the time, revenues began to plummet.
The environment of increased annual commissions came to a sudden halt so growth only came by selling more clients.
At the same time, the competitive environment was heating up as advisers (some with knowledge and some without) started giving away free stuff like cobra administration, benefits enrollment technology, human resource services and wellness consultants to attract customers.
Even though we were no longer getting raises annually unless we sold new business…..the “rate shopping wars” continued with one broker after another touting their ability to get a better rate because of their status with the carriers.
It took me a while but I eventually found my way to a business coach and coaching group (notice I didn’t say a benefits advisory group even though that is important too) to help me understand what to do to grow again.
I discovered it isn’t what is going on outside that matters…it is mostly what is going on inside my company. Why do we exist? What is our purpose? What is it that I am trying to accomplish with my chosen work? Why does it matter? Does the team know our “why” and understand? Why do they work here? What is it we stand for and mostly…what is the client in desperate need of?
So I recognized my calling through this process….we know this business and we can provide plan design solutions that work and that our competitors often find too difficult to explain, implement or understand themselves.
We also have created great internal processes to deliver a consistent and efficient but effective experience for the client that we constantly strive to improve.
By participating in a coaching group with other non insurance companies I learned the single biggest differentiator of any successful business is orientation to process.
Also concern to meet the client’s needs with integrity is critical. This means always creating recommendations based on what is best for the client, even if it isn’t the most profitable solution for us. Integrity can often be hard to come by in the insurance world, but we have built our company on this behavior.
Integrity itself doesn’t work if not paired with dedication to be students of the industry. We must be constant learners who share a willingness to adapt and change quickly to adopt new ideas and proven solutions to bend the cost curve. This is what the client pays a benefits adviser to bring, along with electronic enrollment solutions, compliance solutions, data analytics, a strategic plan and a service experience that is second to none.
And then there is discipline to a sales process and constant sales activity…nothing happens without this.
So now our company looks more like a professional accounting firm or law firm or management consulting firm than an insurance brokerage.
We have great expertise in all welfare related employee benefits. It is a narrow focused area but we have mastery in our arena. We focus on providing value so we can be the one to be awarded the advising contract. And when we do our services don’t come at the lowest cost. We provide expertise and help our clients create a plan that works to attract and retain the best employees. They will pay us our consulting fees when they understand the value that comes with that. This is our purpose.
Glad to have my team around me to encourage and embrace the investments we are making to attract the customers we identify and want to work with. I am not waking up as often in the middle of the night as I get more comfortable with the decisions required to grow.
Suzy K. Johnson
We all know that the cost of Employee Benefit programs and especially health insurance has risen to the point where companies are now managing costs from the C suite in conjunction with HR.
Not only is it important to focus on providing great benefits but also management of costs. It is critical that value be maximized.
All CFO’s like to understand their Return on Investment whether it be the implementation of a new benefits technology/administration platform or implementation of a consumer driven health plan.
This is where a written strategic plan can be helpful. A knowledgeable broker can use historical data to project future cost increases and recommend strategies through plan design to level out the trajectory of these increases while being ever mindful of the need for the business to maintain a robust plan offering that attracts and retains good employees.
This allows the business over a specified period of time, to achieve a more cost effective plan that evolves the behavior of employees to a more consumer driven approach (“skin in the game”)while informing them of what is ahead and helping to educate them to be prepared for future plan changes.
Rome wasn’t built in a day and likewise, most employers find it difficult to make dramatic changes to the benefit programs without providing significant education and advance notice. A plan can serve as a roadmap that can be shared with employees so they can be engaged in helping the company achieve long term cost control goals with the assurance the company is not going to throw them under the bus or abandon them.
In short, the long term plan sets the stage for change implemented over a specified timeframe based on employee involvement and trust between all parties. A “Win/win” for all.
Suzy K. Johnson
President and Owner EB-Advisors of the Carolinas, LLC