Twist of Fate

Here’s the bottom line on healthcare reform: It could have been worse. Much worse.

Benefits brokers will be in demand as the new law—with an eight-year “tail” of legislation out to 2018—creates a complex series of interwoven rules already indecipherable to anyone but an expert.

Employers who fail to understand those rules, or in some instances anticipate them, play a dangerous game of chutes and ladders involving both financial and reputational risk.

This complexity creates a need for experts. Just as more tax codes mean more laws, accountants and lawyers, confusion in the healthcare marketplace will create opportunities for brokers. Group benefits brokers serve their employer clients by navigating the murky waters of requirements and regulations. And these days their phones are ringing off the hook, and their email boxes are overstuffed.

“A lot of people are panicking right now, but it’s not necessary,” says Vinnie Daboul, who oversees the employee benefits practice at TD Insurance. “Some may get hurt, but for 95% of brokers it’s a good time to show what we can do. It’s time to reach out to prospects and clients and be the source of information about the new law.”

Add to that the fact that there are several changes that will take effect within six months of the law’s enactment, and the opportunities for brokers become even clearer.

“The multitude of new ‘decision points’ for employers creates a role for the broker as a trusted advisor,” says Scott Sinder, CIAB general counsel and a partner at Steptoe & Johnson. 

The Slugging Match

The healthcare package can be seen as a monumental achievement, the culmination of more than 40 years of effort to bring most Americans under the big tent of universal healthcare. But it was also the legislative equivalent of a heavyweight bout, a nasty battle in which Democrats and Republicans slugged it out in Congress, town hall meetings and on television with an eye toward November’s mid-term elections. Careful positioning kept brokers out of the ring and well behind the ropes.

“There’s not much that has a direct effect on our interests,” Sinder said in a conference call with Council members shortly after passage. It also kept the worst options for the industry off the table. “No single payer is the bright spot for agents,” says Wayne Walkotten, a senior vice president at MarshBerry, which consults for insurance industry clients. The industry also ducked the heavily pushed public option.

Alphabet Soup

HHS, MLR, SHOP—These are just three of the acronyms that will become a large part of brokers’ lexicon over the next several years.

HHS—The Department of Health and Human Services will be writing the rules spelling out how the new law will work. HHS Secretary Kathleen Sebelius comes from an insurance background (she was a two-term Kansas insurance commissioner and president of the NAIC) and has long been active on health insurance issues. 

Carrier MLRs—Medical Loss Ratios—are subject to minimums of 85% for large employers and 80% for small employers. If these minimums are not met, carriers must rebate the difference to plan enrollees. Self-insured plans are exempt from these provisions.

“This will have the biggest impact on brokers,” predicts Rob Lieblein, Hales & Co. managing partner. “If a carrier needs to reduce administrative costs to comply with MLR, broker commission is clearly a place to start. This can result in revenue compression.”

Tim Cunningham of Optis Partners agrees, though he notes, “There will always be a middle market that needs consulting services to help them through the government morass.”

Since commissions don’t strictly qualify as medical expenses, brokers will have to redefine what they do—or do without. The MLR comes into play in 2011, early in the eight-year process, so it leaves regulators little time for tweaking. The NAIC will be required to make recommendations to Health and Human Services on MLR standards.

Insurance Exchange

One provision—and something of a wild card—is a new system of state-run “insurance exchanges” that starts in 2014. The insurance exchange is a key element of the healthcare package and is considered so important that, if recalcitrant states (and there are several) don’t start one, Health and Human Services will do it for them.

The exchanges would offer coverage both to individuals (American Health Benefit Exchange) and businesses of up to 100 employees (Small Business Health Options Program, or SHOP). Each exchange would offer at least two competing plans (at least one of which must be a nonprofit plan) to help individuals and families purchase health insurance at competitive prices, with subsidies for those who can’t afford it.

There is some concern among brokers that these insurance exchanges will take away their business, particularly at the lower end of the market where they scramble to sell plans to small employers with 50 to 100 employees. Michael Sullivan, chief marketing officer of Atlanta-based Digital Insurance, says he’s heard that story over and over. “The exchanges add another level of complexity,” Sullivan says. “So while some people tell me ‘You’re screwed,’ others say ‘You’re actually well-positioned for the future.’ Even in an exchange environment, the role of the advisor is still important.”

In Digital’s experience with the exchanges in Massachusetts (see accompanying story), Sullivan says, the company has not lost much business to “The Connector,” the Massachusetts exchange that’s been in existence for several years.

Mission Creep

While exchanges will initially be limited to businesses with up to 100 employees, states could permit exchanges to cover businesses with more than 100 employees beginning in 2017. This has led to some concern over the possibility that exchanges will begin to lap over into brokers’ preferred space of middle-to-large companies. It’s already been hinted at in Massachusetts, where a “Business Express” program is ramping up.

But the Massachusetts experience suggests that this rarely happens, and Sullivan says coordination between the broker and the employer is the best way to keep this from happening. “Educate, differentiate and provide value-added services,” Sullivan says.

“For large employers, the concern is ‘employee flight,’” says Sinder. This is the threat that workers will opt out of their group programs and move to cheaper options on the exchanges. This would cost employers $3,000 for each worker who left, according to the new law, if he or she got subsidized coverage from the exchange.

Rising Costs

One important issue that the legislation did not address is rising healthcare costs, an area in which brokers are uniquely positioned to assist clients.

“My belief is the current law does nothing to reduce health costs and costs will continue to increase until employers and employees become more engaged in addressing the root cause of rising healthcare costs, which is usage,” Lieblein says. “Right now, we have no incentive to turn that around. In fact, if you go to a doctor with a headache, he’ll run every conceivable test to avoid malpractice.”

Lieblein thinks that larger employers will start looking at encouraging their employees to lead healthier lifestyles to bring down their overall costs. “The thinking is, ‘If I can have a healthier workforce, I can save money,’” Lieblein says. “Brokers can offer services like wellness and disease-management programs to help clients reduce costs.”

However, Lieblein also notes that brokerages will need to beef up their internal resources in areas like data analytics and wellness to provide these services. While this may increase brokerages’ costs, it will also expand their businesses.

“Compared to 12 months ago, I’m bullish on the employee benefit industry,” Lieblein says. “I believe those brokers who are willing to change their business model to adapt to a health, wellness and consumerism model or have already moved in this direction will ultimately be the real winners.”

Weighing In on Wellness

Wellness is a specifically mentioned and extensive section of the bill. Small employers could get “wellness grants” for up to five years, and all employers may be permitted to offer workers rewards of 30% (and in some cases even 50%) for meeting standards or participating in weight loss, smoking cessation or other wellness programs.

“The MLR includes ‘activities that improve healthcare quality,’” Sinder says. “To the extent that brokers’ commissions cover wellness activities, they fall on the medical costs side of the equation.”

In the best-case scenario, commissions could be replaced by broker fees: fees for wellness plans, fees to cut the cost of health insurance, such as creating a bundled payment structure for providers who wouldn’t have to pay separately for doctors, hospital service, and outpatient care, even plans that would lower the dreaded cost of lawsuits.

It’s Your Time to Shine

Brokers shouldn’t duck and cover. Instead they must teach their clients how to save money. Small employers can take advantage of new options, such as tax credits and wellness subsidies, but they will need brokers to help them navigate the rules and requirements.

There will be many opportunities to influence the rules that will back up this legislation, since its most important provisions won’t be effective until 2014 when the exchanges come in. The new law specifically says that brokers, as “individuals and entities with experience in facilitating enrollment in qualified health plans” can be involved with an advisory board that assists the exchanges. State exchanges can even contract with agents and brokers to carry out responsibilities, while insurers are excluded.

So now we come to the top line on healthcare reform—brokers are needed now more than ever before.

“Brokers need to be very proactive with clients to help them prepare for the changes to come,” says MarshBerry’s Walkotten. “Those who sit back and wait will lose out.”

“Brokers providing added value, and who understand that deliverables mean more than providing a spreadsheet to clients, will thrive and find opportunities,” says Cunningham.