If you work with companies with fewer than 50 employees, I know what keeps you awake at night. Your No. 1 priority is preserving your small-group revenue.
The 2015 group renewals coming soon may force many small employers to drop health insurance. How high will these renewals be? An agency client of mine in Kentucky discovered that the early-renewals for 2014 he did last fall would have averaged a 26% increase. More recently, a Connecticut broker just got a 39% hike for a June 2014 renewal. Brokers across the country tell me that most of their small groups will not absorb the 25% or 35% rate increase that many will see.
Back in December, I predicted that a large number of employers in the under-50 market driven by the anticipated costly 2015 renewals would move to the defined contribution (DC) model of financing benefits. Or, I hypothesized that they would simply drop benefits if not given the DC option.
The great news is that brokers who are already moving their small groups to DC are not only retaining the revenue from these groups, but many are increasing it as much as 50% by offering worksite voluntary benefits.
My consulting client Bill Hughes, of Hughes Benefits in Waco, Texas, recently moved a group client to defined contribution. Bills experience serves as a powerful case study in how DC can help you save and increase your small-group revenue.
DC case study
Bills client, a construction firm with 18 eligible full-time employees and 18 non-eligible hourly employees, was a $6,000 medical account for Bill. The employer, which had a $150,000 medical spend, announced they were through with benefits and dropping the health plan completely. As a result, Bill introduced the client to the defined contribution model. The construction firm could continue to offer benefits, pay the same or less than the current benefits budget and fix the benefit spend at a certain level.
The owner decided to contribute $100 pre-tax monthly, $1,200 per year, to each employee, plus a salary bonus for health insurance. Bill and his staff met with each employee and enrolled most in the federal public exchange, since all were subsidy eligible. A benefit counselor also met one-on-one with each employee to educate and enroll them in supplemental worksite voluntary benefits, in this case accident, critical illness and short-term disability. Seventy percent of the employees bought one or more of the new supplemental plans.
For the business owner, he is able to continue offering benefits and now has a fixed and predictable benefit spend year over year. Oh, and his $150,000 yearly benefit spend fell to $100,000, dropping $50,000 off his bottom line. Think hes happy with Bill?
As for Bill Hughes, he converted a $6,000 medical account to DC and earned more than $9,500 in total compensation. Thats $5,150 in voluntary commission and $4,500 in individual health commissions (6%). His compensation increased over 60%. Defined contribution for benefits: Employees win, the employer wins and the broker wins. BOOM.
