The Topic - Broker Survival -- On Feb. 6 we started a discussion titled "Where do Brokers Fit into the New World of Private Exchanges?" In that discussion we made 11 suggestions for you to examine not only to survive but to thrive! Today we are going to address Numbers 3 and 6:
- 3) Become the Menu Builder for the Plans, Programs, and Services offered through the Exchanges to the Employees. For efficiency the Private Exchanges will desire standardization. As the Broker/Trusted Advisor, you can assist with the ongoing task of evaluating the Employer's and the Employee's needs, what they can afford, and what differentiates one plan, program, and service from another.
- 6) Help the Employers and Employees shift to a Defined Contribution Model as it applies to the overall benefit plan design. This includes - in addition to the menu building as mentioned above - assisting the Employer (generally working with the CFO) in developing an ongoing budget for benefits - along with the allocation of the "dollar credits" to the Employees by classification without discrimination.
3) Become the Menu Builder of the Employer's and Employee's Benefit Choices
Fact - Brokers can have the most important role in helping to create a menu of Employee Benefits that best meets the Employer's needs and those of their Employees. Becoming the Trusted Advisor to Clients means you must research, present, and facilitate the implementation of the entire benefit package/menu throughout the year. That is how, as the Trusted Advisor, you become indispensable in creating an ongoing set of benefit solutions to support their Client's business objectives. While compensation for advising has traditionally been generated by commissions, shrinking commissions and increased demand for expertise is opening a market for Fee Based advising.
Switching Your Compensation to a Fee Basis as a Menu Builder - A Five Part Plan.
Why Switch? With the advent of PPACA/Obamacare, Public Exchanges, and MLRs - as well as the Carrier's desire to save money and increase profits - the health insurance commissions of the past have been slashed or disappeared, leaving little room for earning even a meager living as a Broker who works exclusively in the health insurance market. The Solution?
Transfer your expertise of the past to the present to provide the Strategies and Solutions Employers and Employees need.
Become an avid student of the various Benefit/Business Solutions offered in the Health Plan,Voluntary/Worksite, Ancillary, and Tax Advantaged Plan Markets.
- Assist Employers in being compliant with PPACA/Obamacare, HHS, DOL, IRS, etc. regulations and guidelines that could create penalties, fines and taxes.
- Inform Clients about the status of your commissions - be transparent - and make sure they understand that the fees are now required to provide your quality services.
Become your Client's Trusted Advisor (Teacher) - Build Trust and Add-Value! Charge on a Fee-for-Service Basis for your integrative Menu-Building Research, Presentations, and PPACA Compliant Implementation. Remember that Employers pay fees for Legal Services, Accounting, and other Consultants.
What are the Consequences of Ignoring Your Best Role as a Menu-Builder? - We all know that the insurance industry - and its relationship to its Brokers - has been changing for the past number of years. In fact, the definition of who will be a Broker is changing even more rapidly as technology companies - ie. Private Exchanges - show their magic to Employers and gradually insinuate themselves into the menu-building process by offering to discount their services by becoming the Agent-of-Record. This happened with payroll companies like ADP and PayChex.
The problem for the Employer and to the advantage of Brokers? The “menu-building” process is becoming more fragmented with several Brokers and possibly Public and Private Exchanges involved with all parties attempting to sell Plans and Services. In many cases no one - except possibly the HR Department - is looking after the needs and financial capacities of the Employers and Employees. Result? In the absence of a Trusted Advisor, real solution-driven menu building is disappearing. This is a great opportunity for Brokers to become the Trusted Advisor and select a menu of Plans, Programs, and Services to meet the Needs and Price-Points of the Employers and Employees. At the same time, the Broker can finance his work and earn a substantial profit!
6) Introduce a Defined Contribution Employee Benefit Plan Design - As your Client's Trusted Advisor, introduce them to a Strategy and Solution - Defined Contribution - that permits the Employer to budget their costs and contributions to the Employee's Benefits (year-by-year) while providing the Employees personalized choices of Plans, Programs, and Services.
Your Clients' Defined Contribution Plan can be functional with traditional Enrollment Methodologies or in the emerging Private Exchanges. Yes, you can do this! Most Brokers have at least a passing notion of how a Defined Contribution Plan works. The concept has been circulating for almost 25 years! In many ways they are a Cafeteria Plan on steroids! To get us all on the same page, though, let's define it. Then let's determine how this type of architecture integrates with the new concept of a Private Exchange Marketplace to support both the work of the Broker as Trusted Advisor on a fee basis.
How does a Defined Contribution (DC) Plan Design Work?
First Action: The Employer fixes a per Employee Benefit Dollar (Credit Amount) for the Fiscal Year (For Employees by classification without discrimination). A DC Plan allows the CFO (or the equivalent) to create a fixed dollar budget line contribution (the “defined contribution”) each year to be allocated to a benefit bank for Employees to purchase Plans, Programs, and/or Services from a menu of Benefits. Although the dollar number may reflect the current market costs for Plans (including the Health Plan Choices) to some degree - usually adjusted annually - that decision is solely up to the Employer. The Company usually predicates its decision on how its benefit dollar contribution per Employee stacks up against its competition in the labor market to ensure that it can attract and retain the most productive Employees to advance the Employer's goals.
Second Action: The Employer - working with the Broker as Trusted Advisor - "Prices" the plans in the menu of benefit choices offered to the Employees to meet the Employer's Business Objectives. The pricing of one Plan over another may be artificially increased or decreased compared to the actual cost. This strategy can influence migration of the Employees from one Plan to another per the Employer's goals! As an example, a HDHP/HSA could be priced to cost fewer benefit dollar/credits than its actual premium compared to a more traditional PPO that could be priced up. This would cause the Employees to "migrate to the HDHP/HSA. The Employees then could place the saved benefit dollar/credits in an HSA.
Third Action: The Company Encourages or Requires Married Employees to Obtain Coverage under the Health Insurance Plan of their Working Spouses - if available. Under a DC Plan, all Employees can be required to carry the Company's basic Health Insurance Plan (or better) or demonstrate that they have coverage elsewhere, most often through their Spouse' Employer's Plan.
When an Employee demonstrates that he/she has Spousal coverage, or possibly Individual/Family Coverage - the Employer makes available additional benefit dollar/credits - generally substantially less than the Employer's actual cost of the Health Plan - but substantial enough for the Employee to purchase Voluntary/Worksite Plans to build a "Portfolio of Benefits". This encourages the Employee to utilize the Spouse's Heath Plan and creates substantial savings for the Employer!
These benefit dollars/credits should not be convertible by the Employees into cash, but should be used in the selection of Plans, Programs and/or Services - selected by the Trusted Advisor - in a Traditional Enrollment or on a Private Exchange.
Fourth Action: The Employer, working with you, its Trusted Advisor, develops a menu of Voluntary/Worksite, Ancillary, and/or Tax-Advantaged Benefits to place into the traditional Enrollment or the Private Exchange Marketplace. Based on the goals of the Employer and the types of Plans that Employees would like to have available (often determined by a survey), you - as the Trusted Advisor - researches the Voluntary/Worksite, Ancillary and Tax-Advantaged Benefits markets to isolate the best-of-class Carrier/Providers and Plans available at the best costs for the Employees and their Families. At this point you come to agreement with the Employer on the menu of Benefits to be offered to the Employees and their Families.
Fifth Action: Having secured the "Agent-of-Record" from the Employer - you should contract the Carrier/Providers offering the selected Plans, Programs and/or Services to work-out the specifics. Now, in addition to a Fee-for-Service as Trusted Advisor with respect to your Research; Presentations; and the Selection of PPACA/Obamacare complaint Health Plan Options and other Plans, Programs, and Services, you can add to the revenue stream with commissions for Benefits which Employees purchase through your Clients' enrollment with or without a Private Exchange. Note - We highly recommend transparency with the Employer in regard to your compensation. Remember - the Employer is also in business to make a profit and knows the Trusted Advisor must be compensated!
Sixth Action: As the Trusted Advisor, you work with your Employer Group - and the Private Exchange - to design the Education, Communication, Enrollment, and Data Management processes. Without an across-the-board Employer Management "buy-in" to this process, achieving a dynamic and successful Employee participation in the Enrollment will be disappointing to all parties.
Since the CFO or equivalent has determined the DC dollar amount, that person should be front and center, by whatever communication means works in the Employer's culture, to personally engage with all Employees in the Plan's explanation, benefits, features, and process. Likewise, it is imperative that Managers understand the DC Plan and reinforce the message shared by the CFO to all their Department's Employees.
Note - You as Trusted Advisor could also be instrumental in selecting the Private Exchange the will be utilized by the Employer and the Employees. This positioning further places the you between the Employer and the Private Exchange as the Employer's decision-maker!
Conclusion -- Marching Boldly into the Future as the Employer's and Employee's Trusted Advisor - Building a Menu of Employee Benefits Utilizing a Defined Contribution Benefits Model and assisting in developing the Education, Communication, Enrollment, and Data Management Process with or without a Private Exchange. You take charge!
Yes, there is a lot of work to becoming a Trusted Advisor. You make it possible for the Employer to:
- Take control of how much they spend for Health Care Benefits.
- Contain Benefit Costs while enhancing the Employee's benefit choices.
- Reduce the staff time and cost of selecting Benefit Carriers/Providers and the Plans, Programs, an Services to be offered.
- Meet the Benefit Needs of Employees and their Families to Create Peace-of-Mind.
- Remain Competitive in their Markets for Employee hiring and retention.
- Establish Compliance with PPACA/Obacare and avoid Penalties/Taxes.
- Work with a Private Exchange without giving-up control
In our Opinion -- The only way for Brokers to continue to be a relevant and profitable part of the Benefits Decision-Making Process is to become the Trusted Advisor to the Employer and Employees. As the Employer's "Lead Partner" in Employee Benefits design, selection, and Implementation with a focus on cost-containment the Broker becomes a valuable asset to the Employer! Carriers, Plans, Programs, Services, Government Regulation, and Private Exchanges my come-and-go but the Broker will remain at the Employer's side and well compensated!
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