As leaders of a rapidly growing company, executives at American Advisors Group have faced challenges when it comes to employee health benefits. "We currently have only about 20 percent of our employees enrolled in the coverage the company offers," says Rebecca Pacillas, vice president of human resources. The affordable coverage and shared responsibility requirements under the Patient Protection and Affordable Care Act have the potential to create unpleasant financial consequences unless the Orange, Calif.-based company makes significant changes to its health benefits.
That’s why Pacillas is working closely with a benefits broker to quantify those financial consequences while also shopping for a new health plan to offer employees.
American Advisors Group specializes in reverse mortgages. It has grown from 200 employees in February 2012 to more than 550 employees today; it projects a workforce of 700 employees by the end of the year. The employer strives to offer competitive compensation and benefits to attract the right employees. However, Pacillas recognizes the need for hard financial data to sell senior management on the need for better employee health benefits.
For benefits brokerage firms, this type of close client relationship represents an ideal scenario. Brokers are working to find new ways to add value to these relationships and, frankly, to generate revenue in a postreform health insurance marketplace.
Yet, Pacillas throws some cold water on the situation: "Our broker is helping us prepare for 2014, but I would say they become less important after that," she says. Once the company follows through on its plans to add a full-time employee benefits manager and takes more benefits-related work in-house, she estimates that the broker’s role will be cut to half its current level.
The idea of employers reducing or eliminating the benefits broker’s role in negotiating and managing employee health benefits keeps brokers up at night. Brokers who are going to survive the health care shift understand the group benefits brokerage business model as it stands today is in the process of drastically changing.
A 2011 study by the Boston Consulting Group projects that brokers’ market share of health insurance distribution channels will drop from 47 percent of insured individuals in 2011 to 29 percent in 2019. Meanwhile, direct purchase by individuals will increase from 18 percent to 27 percent of insured individuals, and health insurance exchanges will rise from 3 percent to 10 percent of the market during the same period.
"The role of the benefits broker is transforming into much more of an advisory role, and brokering the coverage is just a small piece," says Joseph DiBella, executive vice president at Conner Strong & Buckelew, a benefits brokerage and consulting firm in Marlton, N.J.
In this environment, employers can expect far more from their brokers—compliance assistance, stronger client service, and ideas and innovations. And if employers are not getting this kind of attention from their current brokers, they have an open marketplace to find what they need. As Pacillas puts it, "Our broker is working harder for fear that the company might go to another broker or start shopping the market ourselves."
Brokers agree. In fact, many concede that the willingness and ability of a brokerage to meet employers’ expanding needs has become the price of admission into this marketplace. "These developments have forced the more transactional brokers to get out of the business and allowed brokers that have invested in their own tools and compliance resources to assume much more of an advisor role," explains Thomas Mangan, chief executive officer of United Benefit Advisors, which offers brokerage services. One example of this expanded role would be brokers providing actuarial calculators to help employers consider the potential costs of a play-or-pay decision—that is, whether to provide benefits or pay the penalties under the shared responsibility provision of the health care reform law.
More from Brokers
If health care reform is putting the future of some benefits brokers in doubt, the law’s complexity may be their saving grace. The law is so complex that employers have turned to brokers for support in understanding and complying with the requirements.
When Jason McMillan, human resources director at Tides, a San Francisco-based nonprofit with 700 employees, needs help with benefits, he relies on his broker’s resources—for example, the broker’s in-house counsel "so we don’t have to go to our own outside legal counsel." In addition, the organization relies on its broker to provide a range of services such as a financial analysis of plan costs and various levels of employee contributions, as well as benchmarking against health plans offered by other nonprofits and organizations in the San Francisco Bay area.
"Our broker plays a very hands-on role when it comes to how we manage and strategize about our plan and look at various cost options," McMillan says. For example, the organization has always offered preferred provider organization plans and has avoided high-deductible account-based plans. However, with the so-called Cadillac tax on high-cost health plans scheduled to take effect in 2018, Tides’ leaders are rethinking that decision out of concern that the company’s relatively rich health plans could be hit by the tax. At the broker’s suggestion, they developed a plan to phase out some of the more expensive plans while rolling out lower-cost options, including a high-deductible plan with a health savings account.
Employers that purchase health benefits without using a broker will quickly find that additional services such as planning and analysis are no longer free.
MJ Insurance Inc. serves as an example. It is working with certain clients to develop different types of health-related programs, such as onsite health clinics. "Most of our clients are self-insured, so these clinics are designed to reduce claims costs while also providing enhanced benefits in a cost-effective manner," says Andy Vetor, a partner.
He notes that his Indianapolis-based company does not charge brokerage clients for planning and development because it considers the services part of the value the company provides as a broker. However, MJ Insurance does charge fees to employers that are looking for such services on an ad hoc basis but are not interested in developing a brokerage relationship.
As brokers look to solidify their client relationships and develop new revenue streams from nonbrokerage clients, new benefits services are likely to become more commonplace. For example, offering voluntary health benefits to employees could be a win-win for brokers and employers. Voluntary plans allow employers to provide employees with various types of insurance coverage at group rates and with no underwriting. These plans tend to be fully paid by employees and are a low-cost way for employers to offer a broader array of benefits at a time when they may be scaling back on core health insurance. For brokers, voluntary benefits offer a significant source of revenue.
Even as brokers offer new services, the evolving approach many employers are taking to health benefits under the health care reform law could significantly curtail or end these relationships over time. Even though Kristin Berdelman, director of benefits at Acco Brands Corp. in Lake Zurich, Ill., sees the company’s broker as a key partner when it comes to health benefits, she still expects the brokerage firm to evolve and keep up with what’s happening in the marketplace and within her organization. "If brokers are going to become true benefits advisors, they need to have a full suite of both legal and administrative resources and expertise to support their clients," she says.
Acco Brands relies on its broker for insurance renewals and contract negotiations, compliance support, post-merger and acquisition integration, vendor management, benefits communication, and global benefits management. In addition, the broker has helped the company develop a strategy for revisiting basic health benefits questions with senior leaders each year.
"We ask three key questions each year," Berdelman says:
Do we continue providing health benefits in the same or a similar way as we have in the past?
Should we migrate to a defined contribution approach to health benefits?
Should we eventually move away from providing health benefits and direct our employees to the public health insurance exchanges or some other vehicles?
Acco Brands plans to continue its current approach to offering health benefits, but that could change in the next few years based on the company’s situation and what its competitors do.
The annual review illustrates brokers’ current bind: If Acco Brands’ leaders ever decide to make a change in the company’s benefits strategy and stop offering health benefits, the broker will have played a role in eliminating part of its own revenue by developing this decision-making process for its client.
In the Marketplace
In this environment, employers need to choose brokers wisely. Although brokers are eager to attract and retain clients, not all will be able to meet every employer’s needs. For example, employers should beware of any broker who "treats the business as transactional or a commodity," says Nicole White, senior vice president of ABD Insurance & Financial Services Inc. in San Mateo, Calif. "With more of an advisory relationship, brokers are better able to work with the client to achieve the client’s objectives and deliver in terms of price."
However, as brokers look to bring in as much new business as possible, employers need to make sure they continue to get adequate attention. "You want a roll-up-your-sleeves partner who can allocate the necessary resources and time to your account," Berdelman says. "We are being asked to do a lot more with less staff, so brokers are going to need to change their models to meet our needs. Some will, and some won’t."
Charles Dayton, business manager with 60-employee RVK Architects Ltd. in San Antonio, agrees that employers should take advantage of what brokers offer. In fact, Dayton sees this level of support as a make-or-break element of the relationship. "If you are not getting the kinds of answers or information you need, that, at the very least, gives you a pretty quick heads-up that you might need to" use a different broker.
Indeed, a primary reason employers use brokers is to have an advocate in the purchasing process. For that reason, Dayton expects to continue to rely on a broker even when the health insurance exchanges and Small Business Health Options Program are up and running. The human element and focused attention are selling points.
"I don’t know how an exchange that is automated on the computer will be able to do anything more than present you with various health plans available," he says. "You are not going to be able to push back and ask for a better offer."
Joanne Sammer is a New Jersey-based business and financial writer.