As an employee benefit broker, what are you worth? It's a simple question that used to have a simple and obvious answer: You were worth what the medical carrier said you were worth - 3%, 5%, 7% - some percentage of the major medical premium. That's what you were worth. Get the account, do your job and you were paid some percentage of the medical. What you were worth was right there in black and white in the carrier contract.
But, now, for the first time in history, "What am I worth?" is becoming a question with no easy, black and white answer for brokers. And that points to one of the biggest and most fundamental changes wrought by the Patient Protection and Affordable Care Act.
PPACA caused a redefinition of the broker/carrier relationship, from commission to fee-for-service.
The carrier used to determine the value of the broker by the commission paid on the medical. The employer client, although ultimately footing the bill for the broker's comp, was not a party to the broker's valuation; the carrier made that call.
Driven by PPACA's MLR requirements, the carriers have decided they no longer want to be in the business of valuing brokers. With the beginning of the end of commissions on large group medical, and with small group compensation moving to a very small percentage commission or a per member per month model, carriers will no longer be establishing the broker's worth.
The dreaded model
The carriers are shifting the question, "What is a broker worth?" to the marketplace for employers to decide. And how does a client go about determining your value? They pay you a fee for your work. Talk about transparency. This is the dreaded fee-for-service model that most brokers fear. And rightly so.
The other day, reorganizing my office, I found one of my old cell phones. It is one of the first cell phone models, a Motorola design known affectionately as "The Brick" because of its large size and shape. You can imagine how foolish and out-of-date I would look walking around today using this antique cell phone. Yet, this phone is from just the early 1990s.
Most benefit firms still are using a 20th century agency business model, a relic from the 1960s based on a medical-commission compensation model. This business model delivered value with plan design, and shopping and spreadsheeting the medical. But as EBA Board Member Ron Leopold puts it in his foreword to my book, DO OR DIE: Reinventing Your Benefits Agency for Post-Reform Success, "Look up from your spreadsheets. Shopping rates is table stakes. Talking credible and legitimate business value is where the new action lies."
You wouldn't use a cell phone that's 20 years old. But your soon-to-be-obsolete business model is more than 60 years old, and no longer delivers sufficient value to the client. To stay profitable, remain relevant and keep your independence, you have to adopt a 21st Century Agency business model that brings your portfolio, marketing, selling and management current and up to date. (See my columns starting with the January 2012 issue of EBA.)
My old Motorola "Brick" won't even work with today's cellular phone system. Very soon, your old business model won't work, either. Now's the time to join the 21st century. It's do or die.
Griswold is an authority on both voluntary benefits and consultative selling. His firm, Bottom Line Solutions, consults with agencies across the country. Reach him at (615) 656-5974 or nelson@InsuranceBottomLine.com.
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