There are a lot of folks in our industry either in serious denial or acting like frightened ostriches. In a recent issue of EBA I wrote that "Obamacare" just doesn't matter ... if you are willing to reinvent your agency to both adapt to the new realities and capitalize on the new opportunities.
It seems that not everyone, however, is ready to hear that news. A number of brokers have contacted me to state - often in rather colorful language - that they see no reason to make that kind of radical, drastic change to how they do business. After all, they point out, just as I wrote in that same article, they've survived and done fine after other major regulatory changes in our industry without changing their business model.
They are right about that last part. With every major new federal regulatory regime up until now, the industry has first cried, "The sky is falling," and then fairly easily adapted to the new realities.
From ERISA through HIPAA, the benefits industry - carriers and agencies alike - absorbed the changes, even found opportunity in them, and life continued much as it had since the 1960s. Until 2010 and the Patient Protection and Affordable Care Act.
There is an important difference between PPACA and what's come before. The major regulatory changes before PPACA were largely superficial and did not affect the underlying structure of the benefits industry. While brokers had to learn to work with and accommodate new compliance requirements, the fundamentals and the foundation of the carrier/broker and broker/client relationship remained largely untouched. Broker compensation, funding, plan design, and the broker role were mostly unaffected.
Today, however, the sky isn't falling but the ground is shaking. Health reform is a massive earthquake that has demolished the industry's foundations and represents the most wrenching structural upheaval ever seen in our field. Put into geological terms, PPACA would be the equivalent of an earthquake registering, let's say, 9.2 on the Richter scale, the same magnitude of the 2004 Indian Ocean earthquake, causing what is known as the South Asian tsunami, one of the deadliest natural disasters in recorded history.
PPACA's regulatory tsunami, which makes landfall on Thursday, Jan. 2, 2014, will be just as brutal - inundating the benefits landscape and drowning every benefits agency that doesn't seek higher ground.
Still not fully aware of the magnitude of the coming tsunami, most benefits agencies continue in their old ways - such as the ones who tell me they don't have to change - even though they've have had to roll up their pant legs as the initial waters of PPACA rise above their ankles.
But the growing roar as 2014 and the tsunami approach tells the tale. The very future of small group health insurance is in question. You've heard much of the evidence. Lockton Benefits Group has predicted that almost 20% of employers may drop their employee health care coverage. McKinsey & Company projects that 30% of firms likely will eliminate their employer-sponsored insurance once the state exchanges are in place. While opinions vary wildly on the actual impact that guaranteed issue and the exchanges will have on employer-sponsored small group insurance, there is no question that in 2014 PPACA will change the rules, the incentives and the options facing employers. It's certain that some percentage of employers (my guess: 35% to 40% within three years) will drop their small group coverage.
Benefits agencies stand to lose a large percentage of their book - unless they change their strategy and business model.
Agency compensation is also in question and under fire. Again, no surprise to you unless you've been living in solitary confinement. PPACA's medical loss ratio requirements first led medical carriers to reduce commissions, savagely for individual health plans, less so for group medical plans. But the changes are continuing. There is a trend in small group of the carriers moving to a per-employee commission, delinking commissions from premiums to end the upward commission creep due to medical inflation.
Now, in an even more troubling trend, leading medical carriers are moving to eliminate commissions entirely for large group plans (over 50 or 100 lives, depending on the carrier), forcing brokers into a fee-for-service model. While not all carriers have yet imposed this new compensation model nationwide, there's no doubt this is the future for large group medical.
Benefits agencies stand to lose a major percentage of their revenues - unless they change their strategy and business model. So the industry is changing in structural ways, and benefits agencies have begun to feel the impact. And PPACA hasn't even been fully implemented yet.
But those agency leaders that recognize the imperative for change and are prepared to adopt a new business model can avoid the ravages of PPACA that many agencies will experience as their businesses crumble.
With the full tsunami hitting soon, does this mean the industry is doomed? Should benefits brokers be looking for a new job selling life insurance? No, of course not.
Does it mean that agencies must change how they do business? Yes, I believe so.
After all, I entitled my new book, DO OR DIE: Reinventing Your Benefits Agency for Post-Reform Success. The "do" in the title is all about changing your business model and how you do business so that you can survive the current crisis and capitalize on the opportunities that the crisis is creating.
The Chinese character for "crisis" rightly includes the characters for both "danger" and "opportunity." With the crisis in the benefits industry, the danger for agencies is obvious.
MarshBerry, one of the industry's leading mergers & acquisitions consulting firms, states that the benefits agency with revenue below $2.5 million will struggle to survive. They project that over the next eight years the number of benefits agencies with annual revenue less than $2.5 million will decrease 28.6%, while the number of agencies above $2.5 million will increase 26.3%, according to Leader's Edge magazine's 2011 M&A Review.
That's well over one in four smaller agencies that will cease to exist, either from closure or acquisition, over the next several years. And I suspect that's too conservative. Either change or expect to be acquired or out of business within five years. Do or die.
The opportunities are not as obvious, but they are certainly there.
Crisis, chaos and change always create opportunity. PPACA is changing the rules and changing incentives. The earthquake is blocking old revenue streams, but opening up new revenue opportunities for the smart brokers and agency leaders.
Both despite and because of health reform, employers are facing more challenges than ever around their employee benefits, including:
* Continued medical inflation;
* Increased compliance requirements;
* New benefits funding options;
* Employee health management;
* Meeting the benefits needs of four generations;
* Employee retention & recruitment;
* Benefits communication; and
* Benefits technology options.
Employers need for their brokers to provide guidance, expertise and help with a wide range of problems for which the employer doesn't have solutions and opportunities the employer simply doesn't recognize. Yet, few agencies are prepared to go beyond spreadsheeting the medical and jiggering the plan design. These agencies occupy the lowest ground in the industry and are the most at risk from the coming flood waters of PPACA. They have no future unless they are willing to change.
The future belongs to the benefits agency that will climb the mountain and move beyond the spreadsheeting of the past to the higher ground of providing consultative services, innovative technology solutions to HR problems, wellness and health management services, superior communications, and value-added services. This is the opportunity.
For more than 60 years, most benefits agencies have continued to operate on an agency business model that developed in the mid-20th century. Even though we are well into the 21st century, few agencies have moved beyond that 20th century model. I admit there has been little incentive before now for agency principals to make the change. But, now, to survive PPACA and take advantage of the new opportunities, the visionary agency leader will reinvent his business as a 21st Century Agency and move into this century.
So let me repeat myself. For those progressive agency leaders that are willing to reinvent their agency for the new opportunity, PPACA just doesn't matter.
The ticking clock that matters isn't PPACA's countdown to 2014. The sound you should be mindful of is the sound of the competition clock ticking away.
The race isn't against the implementation of PPACA, it's the race with your competitors to be first to market with the game-changing strategies and business model that will allow you to capitalize on the new opportunities and dominate your market.
"Now would be the time"
A couple of years ago, while driving in downtown Nashville during a heavy rainstorm, my business partner, Scott Cantrell, and I saw a man on the sidewalk with a large umbrella.
But even with the rain coming down hard, he was holding his umbrella by his side, closed. "Now would be the time," Scott commented wryly, as we watched in disbelief as the downpour soaked the man while he held his furled umbrella useless at his side.
You have to wonder about the guy, walking in the midst of a rainstorm, carrying an umbrella but never using it.
There may have been little incentive in the past for an agency to adopt a modern business model, but PPACA is about to hit our industry like a tsunami and render your old business model totally obsolete. You have access to the 21st Century Agency model; now would be the time.
[Excerpted from Griswold's new book, DO OR DIE: Reinventing Your Benefits Agency for Post-Reform Success.]
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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