I’m on the road constantly these days, with a national tour for a workshop on cross-selling worksite voluntary benefits, on-site meetings with my agency consulting clients and quarterly summit meetings for our Agency Growth Mastermind network of agency owners. Southwest Airlines loves me. While I miss my wife and my bed at home, all the travel does allow me time to ponder what’s going on in our industry. Some thoughts …

ACA: Massive employer subsidy

The Affordable Care Act is one of the biggest government subsidy programs ever — for employers with lower-income employees. For companies that subsidize their employees’ health premiums, the federal government is offering to have taxpayers — instead of the employer — pay that subsidy for lower-income employees. By moving to a defined contribution benefits model for financing benefits and allowing subsidy-eligible employees to access the federal or state exchange, the employer now can subsidize (with post-tax dollars only) just the employee’s share of the taxpayer-subsidized premium.

For a taxpayer-subsidized employee with a $1,200 annual premium, what had been, let’s say, a $5,000 (80%) employer contribution is now just $960 (80% x $1,200) plus a gross-up to cover the employee’s taxes. The employer saves nearly $4,000. Far less cost for the employer and a lower out-of-pocket premium for the employee — a classic win-win. In the 50+ employee market, could these savings offset the $2,000 per employee penalty? Once employers figure out that they can offload a percentage of their premium contribution to the taxpayers and take the savings to their bottom line, defined contribution — especially for employers in the under-50 market — will explode.

The coming high renewals

Many states, but not all, are expected to see large double-digit 2015 small-group medical renewals. The investment firm Morgan Stanley recently released a report of average increases in 2014 small-group renewals, with 14 states averaging 20% or higher. With the 2015 renewals likely even higher, for many employers the increase will be simply too high to absorb. Then what? Many brokers tell me they’ve already moved their small groups to a high deductible. When does the employer say enough and drop benefits? The smart adviser will have options: defined contribution at least and, perhaps, self-funding. Without options, many employers will drop benefits entirely and send their employees to the exchange. Seeing these renewals, a small-group exchange I’m consulting with is preparing for massive growth.

The next — and last — broker

For an employer who receives one of these outrageous renewals, the first broker through the door proposing the defined contribution model likely will be that employer’s next — and last — broker. When explained properly, defined contribution appeals to many employers for multiple reasons. And once the employer moves to DC, you go from one client/benefit decision maker to many clients, i.e., the employees — the new benefit decision makers. When that happens, there’s no longer a broker of record to lose. With your employee clients now on individual health insurance and supplemental plans, you are their agent and they’re unlikely to change. You’ve just erected a wall around all that recurring revenue. Rinse and repeat and you can build a perpetual recurring revenue machine.

If you want to discuss any of this, check my schedule. I may be in your city soon!

Griswold is an agency growth consultant and author of DO or DIE: Reinventing Your Benefits Agency for Post-Reform Success. His Agency Growth Mastermind Network helps agency leaders reform-proof their firm. Reach him at (615) 656-5974, nelson@InsuranceBottomLine.com, or through 21stCenturyAgency.com.

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