If you care, be proactive and get involved in the political fray and lobby for your position whatever that might be. However, for most of us, that will not likely be a focal point of our energies. So what can we do that will be constructive?
Adapt
As we talk with benefits advisers all over the country, the forward thinking, the select few are looking at their existing customer base, capabilities and their own business models and are contemplating methods to adapt their practices. They are evaluating their client value proposition in light of today's market realities and emphasizing the expertise and capabilities that they possess and that will be relevant today and several years from now. To not at least consider the possibility of adapting appears to be extremely myopic and short-sighted.
So let's start with client segmentation. Which segment of the market seems least probable to initially be impacted by any governmental mandates or intervention? Will large employers, particularly those with self-insured plans be affected immediately or directly? It does not seem likely. They are managing their own destiny with the assistance of a broker, adviser, or third-party administrator and it's a mechanism that is working. Their employees have medical coverage. They often provide retirees some transitional coverage until they are Medicare eligible, or in some cases, a Medicare supplement.
Now these employers might take on some additional expenses if, as a society, we mandate some type of safety-net coverage for all citizens, but that's a different issue. It's not broken, why try to fix it? Particularly in light of the current budget deficits.
Probably the same logic applies to mid-sized clients as well, right? After all, they might also be self-insured. Or they could be experience rated. Remember, we are trying to analyze probable outcomes so you can make contingency plans your business can evolve rather than be jolted by unforeseen and unwanted upheaval.
But what about the small case market? Now that's a segment that seems ripe for change for a variety of reasons. Generally, their premiums are calculated using one of several options, including age-banded rates, composite or community-rated methodologies. Depending upon what jurisdiction you are in, premiums may have experienced double-digit rate increases for the last four or five years. And smaller employers make up the vast majority of businesses, so just their sheer numbers will mean that change of any magnitude will have a significant impact on most practices.
Think small
Small business owners are also feeling the impact of the current recession and are struggling to reduce expenses in response to shrinking revenues. Larger employers can "right size" their staffing; small employers can only reduce headcounts so much without going out of business. The pain is more acute. In a handful of states, business owners are moving away from fully-insured small group plans and are finding individual health policies to be a better economic value. Perhaps you have started to see this in your practice.
In many states, commission rates for this market segment have already been reduced, in some cases quite significantly. And in a number of jurisdictions there is a dialogue between carriers and regulators about no-load group health insurance. Without belaboring the point, this market segment appears to have significant potential for change.
You don't necessarily have to agree with this analysis, but you can't afford to ignore it either. What percentage of your client base is comprised of employers with less than 200 employees? If you're not sure, review your management information reports, or simply review your client files.
Bottom line, it's something you should know. If you are like most benefits advisers, this segment represents a high percentage of your total client count and a significant portion of your revenue base. So even if you are inclined to, you cannot ignore these factors and the potential ramifications to your livelihood.
So what can you do to mitigate any potential financial impact? What can you do now to adapt your business model to still have a compelling value proposition while generating the same or more revenue? Several strategies come to mind.
Consideration could be given to migrating your business practice to a consulting fee model and away from dependency upon commissions. Regardless of what might happen or who might be the risk-bearing entity, clients still will need your expertise, counsel and service. They will need a local advocate to intercede on their behalf regarding billing or claims issues. And if the change is too dramatic, an argument could be made that they will need your services even more.
So the only question is, how will you be compensated? It's not reasonable for you to provide all that expertise and service and not be paid, despite what some politicians may espouse.
If commissions are under pressure already and there is any likelihood that the downward pressure will be increasing, then you need to think about changing how you are compensated, right?
Again, you don't have to like the implications of this, but forward-thinking benefits advisers are not ignoring this matter. And many are changing to a consulting model.
Rethinking self-funding
Another strategy would be to consider small group, self-funded plans. Perhaps you have the expertise to create your own plan in conjunction with a stop-loss carrier, actuarial and underwriting partners and a third-party administrator. Owning a portion of a captive cell could be potentially quite attractive. And it has the benefit of providing you more control. It's something to consider.
Maybe you are not comfortable going it alone, so banding together with other benefits firms in your area might be a solution. After all, there generally is strength in numbers. Does this seem like a bold move? Yes. But these are not exactly normal times where maintaining the status quo is going to provide a satisfactory result either. Perhaps you can partner with a firm that already has expertise in the small group, self-funded market. There are a number of firms with expertise in this segment, and their numbers seem to be growing. Whether this approach is an option for your firm depends upon your capabilities, stage of life, and your risk tolerance.
For some, the business is getting too complicated, less rewarding and too demanding. So merging or selling may sound appealing. For those that do, that may address their personal agenda, if not their clients' issues. And we already have seen a rise in the number of transactions being consummated. Of course, that puts downward pressure on valuations and we have already seen the peak of the market. Likewise, the terms of transactions are not nearly so favorable for sellers as they were even 18 months ago. Nonetheless, we expect to see a growing number of "boomers" heading for the exit, particularly in light of the prospect of an increase in the capital gains tax rate effective in 2011.
Expand your offerings
Another strategy is to broaden your product set and begin to offer voluntary benefits to your clients and their employees. While voluntary products marketed at the worksite and billed through payroll deductions have been available for 30-plus years, they still have achieved a relatively small market share. That's probably because voluntary benefits have not captured significant benefit adviser "mind share". But that's changing rapidly.
Voluntary benefits are the only segment of the insurance industry that will see double-digit growth in the next three years (and have sustained that compounded growth rate for more than a decade). As more employers have capped or shifted benefits costs, health care plans have been redesigned frequently, resulting in gaps in coverages. Those gaps can be addressed with voluntary benefits at virtually no cost to the employer. And the compensation that can be generated can be quite substantial. If done properly, this can be a win-win-win for the employees, the employer and your practice. So you need to give this strategy serious consideration as well.
Consider these approaches. Discuss them with your team, your peers and, of course, your trusted business adviser. All of these approaches are viable evolutionary strategies, and they are not all mutually exclusive. Take a step back and think about your business from a strategic perspective. Evaluate your current organizational capabilities, client characteristics, and abilities to adapt and manage change. And remember, you can't always get what you want, but if you try sometime, you just might find that you get what you need.
Kwicien is managing partner at Baltimore-based Daymark Advisors. He can be reached at eba.benefitnews.com/podcasts.
