Americans have come to expect the best in health care. We have a choice of well-trained physicians and specialists, access to the latest diagnostic and therapeutic procedures, modern hospitals and the newest and best prescription drugs. We want the best care when we are sick and preventative care to keep us healthy. And we want all of this at little or no cost to us.
Along with expectations for comprehensive health care, we have also come to expect health insurance as an employer-provided benefit. Employers are, in fact, the primary source of health insurance for most workers. For many working Americans with employer-provided health insurance, comprehensive health-care costs as little as a $5 or $10 co-pay.
From the employer’s perspective, meeting employees’ expectations for health insurance benefits is a significant expense. Many employers, especially small businesses, are struggling with rising premiums. Many have shifted some or all of the cost of health insurance to their employees or have eliminated benefits to reduce costs. As employers shift costs and redesign plans to limit or eliminate benefits, the number of Americans with inadequate insurance-the underinsured-grows.In spite of expectations for universal, comprehensive health care, over 40 million people in the United States have no health insurance. For most of these people, the issue is not that they do not work. The majority of the uninsuredsapproximately eight in 10work but do so in low-wage jobs with no health insurance benefits. Or they have part-time or temporary jobs where they are not eligible for employer-provided benefits or they are among the growing number of self-employed people who say it is increasingly difficult to find affordable health insurance.
It is in this climate of high end-user expectations, employer frustration and growing numbers of uninsureds and underinsureds that health insurance professionals work, challenged by the following market trends:
- Health care and prescription drug costs are increasing rapidly
at rates that far outpace the general rate of inflation.
- Premiums continue to increase, fueled at least in part by escalating
prescription drug costs and mandated benefits.
- There is a reduction in alternatives for affordable health insurance
caused by insurance carriers withdrawing from the market.
- Commissions have been capped by insurance carriers to reduce expenses.
- Health care is becoming increasingly more complex.
Increasing costs, decreasing
Michael L. Kerley, executive vice president of the Association of Health Insurance Advisors (AHIA), the health conference of the National Association of Insurance and Financial Advisors, notes that “we will never reduce costs unless we are willing to forgo medical care. And that is unacceptable to most Americans.” Frederick W. Joyner, AHIA’s president and president of Carolina Benefit Administrators, Inc., in Winston Salem, N.C., shares a similar view. He adds that consumers have been insulated for many years from the true cost of health care.
Today, few people can afford health care without insurance. The latest procedures and the newest medicines are staggeringly expensive. According to Fred R. Bean, CLU, partner in the firm of Bean, Hamilton Corporate Benefits, of Little Rock, Ark., “health care costs are going up and there doesn’t appear to be anything in the future to slow that inflation.”
Bean says that managed care—one popular approach to controlling costs in the 1980s—made a dent in stemming rising costs. But it seems to have run its course. Kerley agrees, pointing out that without managed care, we would be in a worse position than we are now. “Current costs are driven by the addition of benefits that consumers want and an amazing array of mandates at the state and federal levels that reflect consumer demand,” he says. In addition, the escalating cost of prescription drugs is a factor in the current cost spiral.
Health insurance agents can play a vital role by helping legislators understand funding options and the real cost and impact of mandated benefits.
The addition of mandated benefits comes with a significant cost that is shared by everyone who is insured. Spreading risk and cost over a large number of people is, after all, a fundamental element of insurance. Costs paid by insurance carriers are passed along to insured policyholders in the form of increased premium. But, according to Kerley, employers are reacting to rate increases of 18 percent to 35 percent. These reactions are not new, but the phenomenon seems to be reaching crisis proportions.
Tim Poland, a broker and account manager with Employee Benefit Design in Reston, Va., expresses some concern about the double-digit rate increases he has seen. With compounding like this, employers’ premiums will double in three or four years. Poland says that some employers feel they can’t stand much more. Stephanie Abbott, CLU, an independent agent with Abbott Financial Services in Chantilly, Va., explains that customers are frustrated with prices and, sometimes, service. Then, she says, “they want to change carriers. The problem is that there are not many alternatives for clients who are unhappy.”
Jack Dewald, CLU, RHU, president of Agency Services, Inc., a regional insurance brokerage firm and third-party administrator headquartered in Memphis, Tenn., says there has been a massive reduction in the number of insurers offering health coverage. He adds that “only four or five national carriers provide coverage to small groups, and they do not offer coverage in all states.” In addition to the national carriers, each region may have a couple of smaller health insurance providers.
Employers are not the only ones reacting to higher prices and fewer options-some advisors are also feeling the pinch. They are frustrated, Dewald explains, because they feel there is a limit to the number of times they can go to their clients with double-digit rate increases and few or no alternatives. Poland agrees that some agents don’t want to deal with health insurance anymore. He says it takes time to forge relationships with vendors and to learn about the products and services, only to lose clients at renewal.
Frank Thompson, co-owner of The Thompson Agency of New England, says that selling health insurance is scary for some agents because there are many chances for disputes over rates, claims and service. In an article posted on his website, Thompson gives an example of how carriers are withdrawing from some markets. He writes, “As was the case in the neighboring New England states of Vermont, Massachusetts, and Maine, New Hampshire’s initial market reform legislation resulted in the precipitous departure of many (actually, most) of the individual carriers from the state.”
Changing commission structures
At first glance, it would seem that spiraling costs would mean more income for health insurance advisors who are traditionally paid a percentage of the premium. But this is not the case. Most carriers have capped the commissions they pay to producing agents. According to Dewald and Thompson, there is a tendency to base renewal commission on the initial enrollment premium rather than on the renewal premium that may have increased by more than 20 percent. This offers less incentive for agents to fight to keep a case in force in the face of rising premiums.
Everyone agrees, however, that serving the client is more important than finding the best commission rate. Bean and Abbott look at the ratings of the carrier and the service the carrier provides. Then it’s a tradeoff-they can accept a slight reduction in commission, when the service is there.
Being A successful advisor means seeking creative solutions to meet client needs at affordable prices.
Escalating premiums and reduced commissions are not the only issues financial advisors must grapple with. The business of health insurance has become more complicated, and there is every indication that it will become more so.
Even with fewer carriers, there are more types of insurance available. There are health maintenance organizations (HMOs), preferred provider organizations (PPOs) and various types of managed care options. But knowing the insurance plans is not enough. To work in the health insurance market today, advisors must know the applicable laws—laws such as COBRA, HIPAA and ERISA. And it is helpful to understand government-sponsored plans, such as Medicare and Medicaid.
Being a successful advisor also means seeking innovative solutions to meet clients’ needs at affordable prices. Bean says that “the agent cannot simply read the carrier’s product brochure-he needs to know where the costs are and what creative solutions are available.” One solution, he says, is the Sec. 105 Plan—a medical reimbursement plan with high deductibles that are partially reimbursed by the employer.
But he adds that agents and advisors need to know the market because the liability is becoming greater. Joyner agrees and notes that the rising number of errors and omissions claims is evidence of increasing liability.
The more things change
What does the future hold in this climate of market complexity, spiraling costs and fewer options? It is difficult to say with any certainty. Arnold M. Katz, CLU, president of Brokerage Concepts, Inc., in King of Prussia, Pa., believes we may have only seen the tip of the iceberg of escalating costs. He points out that medical advances are on the horizon that will drive up costs. For example, gene therapy may be available in 18 to 24 months. This type of treatment is not only new; it is also expensive.
There is also some concern that the government may intervene and create some type of national system. Kerley says that the idea of a national health-care system has been debated since the 1930s, with some believing that only the government is big enough to handle the rising costs of health care. Others feel that even the government cannot afford to bear the costs.
Dewald says that some people thought we were heading toward some form of government intervention prior to the terrorist attacks of Sept. 11. This type of thinking seemed reasonable when there were surpluses and the economy was growing and expanding. But with the federal surplus disappearing and many state governments in financial trouble, government intervention seems doubtful in the near future.
Joyner believes that employers will continue to be the primary source of health insurance for most workers but will ask employees to share more of the cost. As employees pay more, they will demand more options to reduce costs. They will buy and use insurance more like individual policyholders who often choose higher deductibles after weighing the costs and benefits.
Partially self-funded plans are an option for some groups, especially those in single-payer states. They tend to manage costs by tailoring coverage to a specific group’s need, but they require an understanding of plan design, reinsurance contracts, plan administration and ERISA. While advisors and small groups may benefit from the knowledge of a third-party administrator in these complex areas, advisors must still have sufficient understanding of the components of these plans to get the desired results.
A defined-contribution approach to cost sharing is also gaining attention. The idea behind these plans is to cap the employer’s responsibility for health insurance by involving employees in selecting and paying for the benefits they want. Bean says this approach needs to be accepted by carriers, agents, employers and employees—everyone needs to learn more to know where it will fit.
One defined-contribution approach has the employer providing a base plan and allows employees to select optional benefits. The problem with this approach, according to Dewald, is that designing a product that does not increase adverse selection, and therefore premiums, is difficult.
With another defined-contribution approach, the employer allocates a fixed amount of money for employees to purchase their own coverage. Joyner says the problem with this approach is that individual plans are not guaranteed issue, potentially leaving some employees without coverage.
If the problems can be overcome, however, a defined-contribution approach may have merit for the small-group market. Offering multiple plans with numerous options allows employees to decide how to meet their health insurance needs at prices they can afford. Joyner believes that if consumers understand the available options and the economic impact of their choices, they will make more informed choices. And when consumers are paying higher out-of-pocket costs, there will be some control over use.
The current trends and the upcoming health-care debate place even greater demands on health insurance advisors. The bottom line, according to Joyner, is that they have to change how and what they market. Even though there is concern about the future, there is opportunity. Bean says now is an exciting time because there is demand. Dewald agrees with this view, adding that there is a vast market for agents to help people meet their health insurance needs. And Thompson is encouraged by legislation that has recently been passed in New Hampshire that will restore choice and competition.
Advisors can prepare for upcoming changes by taking a number of steps, including:
- Forming strategic alliances with health care specialists
- Taking advantage of educational opportunities
- Educating their clients
- Selecting insurance carriers that offer solutions that are in everyone’s
- Becoming involved in the political process
To achieve success, Bean says that health insurance advisors need to be more professional than ever before. To work in the small-group market, they need to be employee benefits specialists; if they are not, they need to team up with specialists. In fact, according to Dewald, some agents who have only a few health-care prospects are already forming strategic alliances with agents who specialize in health insurance coverage.
Some advisors with only a few prospects are already forming strategic alliances with agents who specialize in health insurance coverage.
The current climate also calls for a process of continuous learning. While it takes an enormous amount of time, Katz says advisors must have technical knowledge to be effective at meeting their clients’ needs. In addition, health insurance professionals need to educate consumers so they can understand what inflation in health care costs means. They can’t have the low deductibles and co-pays of the past, and the issue of increasing costs needs to be raised periodically to help clients manage their expectations.
The internet is a powerful tool in this area, according to Joyner. It has lots of information. Rather than buying services via the internet, Joyner believes that consumers will become educated about health care options and costs online. While they may learn and shop on the internet, they will buy from agents.
He also says that to be successful, it will become increasingly important to work with carriers who are committed to solutions. Agents should look for carriers who:
- Are committed to the agent system and to the small-group market
- Can help them understand the carriers’ target market
- Offer an array of product options that allow clients to make choices
based on the trade-off between price and benefit
- Can support a multi-step sales process that allows employers and
employees to manage their budgets
- Can create internet tools to support education and sales
Taking part in the political process is also critical, adds Bean. Because legislators respond to their constituents, advisors can play a vital role by helping their legislators understand health-care funding options and the real cost and impact of mandated benefits.
Rebecca C. Williams, CPA, CLU, ChFC, LUTCF, is a principal in Weikart & Williams, LLC, a training design and consulting firm in the Washington, D.C., area. You can reach her at email@example.com.