By Joe Markland and Mike Davis
This article is being written after an open and honest discussion with my benefits broker friend Mike Davis this morning over breakfast. Mike is a 30-year veteran in the business who had already sold his first benefits business around 10 years ago. After some in depth thinking we drew the same conclusion as it relates to the employee benefits business. A tsunami is coming at the employee benefits broker and most don’t see it, but it is out there. This tsunami can reduce commissions from $30 PEPM to $15 PEPM overnight. For those not prepared it could be catastrophic, however for those prepared, there may be fertile ground on the other side. Regardless, it is coming.
Mike – While this is something I have thought of as inevitable for several years, this renewal season has somewhat sealed the deal in my mind. Large increases and even a non-renewal in a market where recent tax law changes are giving employers an “out” have made me conclude it is imminent. The problem with employer-based health insurance is the perpetual gamesmanship required to find a different or better risk pool. Solutions like hiding in the pool, self-funded, level-funded, referenced based pricing, captives, and associations are all short-term solutions designed to “game the system”. In reality, the types of plans or funding are segmenting the risk pool which contributes to the larger problem of rising health care premiums in America. Many don’t want to admit this, but we are all whispering to ourselves that this is the reality. As a result, health insurance and then health care is about to change in significant ways and distributors like myself need to act or get wiped out. The phase-out of the current system and opportunity to morph has just begun.
Joe – I have been watching this market for some time and have conducted webinars and written articles about the “Coming End to Employer-based Insurance”. I will be honest, I have taken many arrows from brokers who have not liked my message, though my message is simply based on listening to people like Mark Bertolini, ex-CEO of Aetna, and an advisor to Donald Trump. Both are saying that employers should not be in the middle of health care. Bertolini took action selling to CVS. Trump through Executive Order made an individual policy tax deductible and allows the Employer to use the HRA as a contribution conduit for their contribution. They spoke. I listened and acted myself by forming my new company, N4one HR and Benefits, that is designed to thrive whether the health insurance market changes or doesn’t.
We aren’t saying the sky is falling for the sake of selling fear. From others perspective the current employer-based healthcare market is already very broken. Employers and employees’ skies are already falling because the cost burden of health insurance is significantly impacting profitability and for the individual their personal financial health. For much too long the existing ecosystem of carriers, brokers, and administrators have simply pushed the costs around. And the argument that health insurance costs are high because the cost of healthcare is high will fall on deaf ears. Healthcare costs are high because the current health care financing models do not create incentives to control costs. Those incentives need to change which include empowering the consumer.
Employers are sick and tired of being in the health insurance business. Some have started the process of getting out by looking to offer individual products through an HRA. There will be some this year, more next year, and before long there will be a Tsunami moving to individual options. We believe that after the election the deduction for health insurance will move away from the employer and to the individual, ending traditional group health insurance forever.
People and businesses are slow to change. Employees at Blockbuster were Netflix subscribers and Blockbuster could have bought Netflix. We think this is your Blockbuster moment. The Tsunami is coming. We don’t know when it will hit but it could be much sooner than anticipated. It really doesn’t matter to a certain extent because if 5% of your clients want out and you don’t know which 5% then you need to address them all. This must start NOW as the renewal season has begun, and the law takes effect for this renewal.
We have built a model that we believe can help a broker not only survive but thrive when this wave hits. However, it takes careful planning, hard work, and flawless execution. This takes time and scale. Our model shortens that time and delivers the scale needed.
Mike – Joe has been talking about this for some time. I was a doubter too (as to so soon), but his predictions have come true. A simple stroke of the pen and the world has changed. It can change even more. His argument about market dynamics simply makes sense. I read 3 weeks ago of Cigna’s re-entry into the individual market, then the same last week of United. The ACO/Value Based tight network plans are emerging from commercial carriers and Health Systems as well. While difficult for an employer to choose one ACO plan that serves all, if each individual can choose on their own, the viability increases exponentially…not to mention the individual’s ability to purchase very rich or very lean benefits to suit their needs. Like you, I can’t take the chance that the market doesn’t change. As the saying goes, “Hope is not a strategy.”
Our solution requires three things:
• First, prepare for a world where you can handle twice as many clients with the same amount of staff. This can happen in a future world where service demand decreases substantially as it is supplanted by on-line/telephonic enrollment and member services.
• Two, expand your revenue capabilities by expanding your product/services capabilities.
• Third, market, market, market, the new value proposition to sever existing relationships
We think that the small brokerage firms with deep local knowledge and relationships, and entrepreneurial work ethic, armed with the technology tools and support can adapt most quickly…. yet they don’t have the capacity or capability to do this on their own without a significant capital investment. Our solution is to do this in a shared services model through our N4one HR and Benefits organization, which is an organic broker consortium that will grow and be directed by its’ members. This isn’t merely a technology buying group or scaled product procurement Broker Association. It is a business transformation company.
We are looking for just a few brokers per geographic area to bring a new model to market. Collectively, with a unique value proposition, professional marketing, and educated and armed professionals on the front lines, we can do something great for employers and their employees. However, it requires some clean thinking and a willingness to change. If interested give us a call at 508-498-7591.