Brave New World

Enacting the early provisions of healthcare reform has been relatively easy, but there is a minefield ahead that threatens to blow up the business model for employee group benefits brokers—if not destroy them.

The Patient Protection and Affordable Care Act of 2010 was front-loaded with easy-to-understand changes that seemingly no one could argue with. Who doesn’t want children to be covered by their parents’ policy until they are 26?

Benefits brokers have already seen their compensation model changed as a result of reform, but now there is a time bomb ticking in their world. Beginning Jan. 1, 2014, the so-called pay-or-play provisions of the act kick in, and many businesses are turning to their benefits brokers for help figuring out how to proceed and, more importantly, for help with the costs to execute the required changes. That double blast of increased expectations is causing many brokers to rethink how they do business. And although 2014 is 18 months away, the changes affect bottom-line decisions today.

“It’s a brand new field, and most benefits brokers—I don’t care how good they are—have very little inkling on this stuff,” says Robert Munao, a founding principal of T&H Benefits. “Unless you do it every day, you have no clue what you are talking about. You’re integrating with payroll companies, you’re integrating with the client, and you’re integrating with the employees. You’re doing all that back-office that brokers never have done before. But it’s going to be part of your job in 2014, so you better learn it quickly and you better be trained on it or partner with someone. There’s a multitude of solutions for how you can get there, but you have to focus on it now.

“Our brokerage world is going to change, both on pressure on compensation and also on services that we must provide. That really requires brokers to expand their horizons as to what they are doing today to what they need to be doing a year and a half out. Today the ones that are ahead of the curve are much better suited to handle a client’s needs.”

Jim Blaney, CEO of Willis North America Human Capital Practice, says the looming pay-or-play deadline has already spooked some small brokers.

“The local/regional broker that is completely focused on the transaction of placing insurance coverage is going to have a very difficult time surviving if the act stands,” says Blaney. “We’re seeing this in the marketplace. The larger national and global brokers, such as Willis, are getting solicited by the agents and brokers who say, ‘Hey, can you be my backroom? Can you provide HR consulting and wellness consulting and legal and compliance resources for my client in exchange for part of the fee or commission?’ Because frankly the utility of the broker has become far, far more expansive than just placement of coverage.”

There are more than 750,000 licensed insurance brokerages in the United States. The majority are small operations, some employing just a single broker. Traditionally, a broker would shop the carrier marketplace for his client to find the best deal, but that’s not enough anymore. Beginning in 2014, every American must have health insurance, and large employers—those with 50 or more full-time employees—must offer minimum essential health insurance or pay a minimal penalty to the federal government.

Additionally, individual states must put health insurance exchanges in place through which individuals and small groups can purchase health insurance from carriers. States that don’t could see the federal government step in and operate an exchange for them.

For most non-elderly Americans, health insurance is provided through an employer-sponsored plan. An estimated 151 million people received health insurance coverage from their employer or a spouse’s employer in 2009.

Employers must examine several scenarios before deciding whether to continue to provide healthcare coverage or to stop coverage and pay the penalty. (Additional penalties could be imposed if an employer’s coverage does not meet affordability standards for lower-income workers.) The act also contains several new benefit and administrative requirements that may increase employers’ costs. For example, beginning in 2018, employer plans with costs above specified limits will be taxed on their excess spending. Brokers must be able to help small employers navigate the new regulations to ensure proper coverage.

“These are just services small employers never thought they needed and never asked prior to the reform act,” Blaney says.

Complicating the examination is the uncertainty of the law’s future. The U.S. Supreme Court is expected to weigh in on the matter this month. Some businesses are waiting until the court acts before deciding how to proceed. That may be a fatal mistake, Munao says.

“Right now, all I can deal with is what’s going to happen,” he says. “And if what’s going to happen is still going to happen, it’s going to be mass chaos for an employer. And they’re not going to like it, and they’re going to expect their broker to partner with them, and if they don’t partner with the right broker they’re dead.”

William Ziebell, executive vice president of Gallagher Benefit Services, says he believes small businesses eventually will come around.

“A lot of employers are still in denial,” Ziebell says. “Quite a few of them are waiting around hoping the law is overturned.”

Despite that hope, most companies, he also says, will continue to offer their employees healthcare and other benefits, regardless of how the court rules on the Affordable Care Act. “Even if the law is affirmed,” he says, “most clients are electing to stay in the game.”

Because the play-or-pay penalties are lower than the cost of providing health coverage, low-wage workers could use tax credits to buy insurance in the individual market. That creates more financial and administrative burdens for employers to consider.

Ziebell agrees the small, local broker could struggle to keep up with client demands in the future. Simply shopping for the best quote, he says, won’t be enough.

“Helping people understand the changes that are coming and all the decisions they have to make and how critical those are to the future of their company is their new role,” Ziebell says.

The new regulations represent challenges for many businesses, he says, and one misstep could cause a business to go belly up.

“These are game changers that could change their business for them,” Ziebell says. “We’ve seen businesses trying to get their employees under 30 hours. Instead of 300 employees at 40 hours a week, it may be 400 employees at 30 hours a week. We’ve seen some outsourcing staff so they don’t have to deal with it. This is going to affect a lot of industries.”

Regardless of the Supreme Court’s ruling, most agree the reform has already significantly altered the way brokers are paid.

“Healthcare reform in general has changed the way the employer has looked at our business in terms of what they expect from us,” Blaney says.

Those changes affect the way businesses deal with their brokers.

“The mere fact that the carrier community has changed the methodology by which they pay their brokers has changed the conversation that the broker is having with their client to more of, ‘What do you do for me beyond this one event a year, which is my program renewal?’” Blaney says.

“If the act was struck down tomorrow, we would still be left with an opportunity to innovate and create what I think are solutions that employers need. I don’t think any of us disagree that the delivery of healthcare in the States today leaves a lot to be desired.”

Employers, he says, will still need strategies to manage the demand for healthcare and, thus, its cost.

“If the act is struck down, I don’t believe for a minute that the carrier community will say, ‘Everything goes back to the way it was. We pretend this never happened.’ I do believe that, if the act is struck down, employers will continue to seek greater utility from their broker consultants. I do believe the age of the generalist is gone.”

Blaney says that, to succeed in the future, brokers must expand their menu of services to include providing added value for the client.

“And if the act doesn’t survive,” he says, “that will be its legacy — its effect on commissions and fees that will present an opportunity to the middle-market employer to demand greater utility from the broker consultant.”

Karen Frost, strategy and product development leader at Aon Hewitt, says the act has forced her firm to be nimble.

“If the law is completely considered unconstitutional and completely eliminated,” Frost says, “there will be components of the law that we’ll have to work with our clients to decide how they want to handle. For example, the age 26 mandate. Many of our clients have updated their plans to expand coverage to age 26. It won’t be as simple as just shutting it off. We have to work individually with our clients to make sure that’s how they want to change their plan rules going forward.

“We serve the large-employer marketplace. Our employers have to think about if their coverage is sufficiently affordable—9.5% of modified adjusted gross income. If I have to pay 9.5% or less, it’s considered affordable. If I have to pay more, then some of my employees could be eligible for the subsidy in the state exchange. That’s the piece that employers are concerned about now: the affordability component.”

Munao describes 2014 as a “battlefield and a monster.” He says those brokers who aren’t preparing for it now won’t survive.

“I’ve done this for 30 years now, and being a benefits broker used to mean being an advisor to a client,” Munao says. “You got them bids, you got them markups from a different carrier and then you’d tell them what to do and you walked away. That job has changed now, where a broker is expected to have solutions for the HR department, which includes the benefits administration.

“It’s finally sinking in to employers that, ‘I have to do what? And who is going to help me with this?’ If a broker doesn’t have a solution in place or at least is talking about it, he’s going to be an ex-broker because our world has changed so dramatically. You don’t walk away…and then go back 12 months later. It’s a weekly, daily assistance to that client, and much more so because of the law changes that are going to occur in 2014.”