Why advisers must move faster to untether commissions from group health rates
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.