Retail brokers may find that wholesale benefits brokers can help them navigate a changing landscape as the historic healthcare reform law takes effect. While healthcare reform presents serious challenges for brokers, there also may be opportunities for those who can offer clients greater value.
One wholesaler predicts: “Federal legislation will give benefits brokers and wholesalers a ‘financial haircut.’ We expect commissions from carriers to be cut. Quite simply, there will be less money and smaller margins.”
Restrictions on carriers and employers will translate into pressure on retail brokers. Among the challenges are medical loss ratio requirements, the inception of so-called community rating—a set of universal underwriting guidelines that threaten to handcuff underwriters—and tax consequences for employers that don’t comply with the law’s provisions.
“This is a ‘who moved my cheese’ moment for retail brokers,” says Sam Fleet, president of AmWINS Group Benefits Division, referring to the best-selling business book on organizational change by Dr. Spencer Johnson.
Fleet says he’s not sure if changes will spur or stifle growth for benefits wholesalers. “Big players don’t seem to be showing any interest in wholesaling employee benefits,” he says. “Competition at the wholesale level is usually confined to regional general agents and general agents who sell some specialty products. That’s about it.”
Fleet says that success in benefits wholesaling at the national level requires an extension of the traditional wholesale model beyond that of a purely transactional broker. AmWINS Group Benefits operates in three verticals: the distribution of wholesale products, outsourcing administration, and underwriting products. “We develop, distribute and administrate. We don’t take the risk. That’s all we don’t do.”
In March, the company introduced the AmWINS Specialty Pharmacy Protection to the marketplace. “The cost of drugs keeps going up. They range from hundreds to hundreds of thousands of dollars monthly, depending on the severity of the condition. Employers don’t want to self-fund these costs,” Fleet says. “This product fully insures for the cost of specialty drugs; it provides the employer with predictable cash. This allows them to continue to self-fund other benefits costs.”
Targeting drugs made sense for two reasons: the rising cost of specialty pharmaceuticals and the influx of more complex products. Both place tremendous strain on self-insured clients. “Today there are more than 200 specialty pharmaceuticals available. A decade from now, more than 400 are expected to be handled by specialty pharmacies,” Fleet says.
Rodger Bayne is the vice president of marketing and development at Group Benefit Services, a benefits wholesaler and administrator based in Hunt Valley, Md. The company’s more than 200 employees work across three offices in Maryland and Pennsylvania, offering wholesale products and services nationwide. Many of its clients are large p-c brokerages that have their own benefits division.
“Our broker clients often send their in-house benefits folks to us to utilize our system to generate quotes from multiple carriers simultaneously, as they might in a future health insurance exchange,” Bayne says. He expects the exchanges, required under federal law by 2014, to duplicate or engage much of the technology his firm already uses.
The wholesaler’s payroll services protect brokers from competitors with an ulterior motive. “Brokers use us because they are concerned that larger payroll services will come directly to the customer and attempt to take over the benefits administration and workers compensation,” he says. “We’re seeing this becoming commonplace.”
Group Benefits Services acts as third party administrator for self-funded plans, which allows the group to be rated on more specific features and gives employers more control over premium.
“For our self-funded plans, the employer hires us as TPA,” he says. “We put the plan together based on their specs. We handle the claims.”
Bayne believes healthcare reform, if left unchanged by the next Congress, will spur growth in self-funded plans.
The new law includes heavy restrictions on employers offering plans to groups with more than 50 lives. If one of those groups discontinues coverage or offers coverage that is unaffordable, the tax implications are substantial.
“However, the law doesn’t stop employers with fewer than 50 lives from abandoning their plans and sending employees to fend for themselves in the individual marketplace,” Bayne says. “There’s a growing belief that many smaller groups will be dissolved. An alternative is to set up a self-funded plan.”
There’s no question that benefits offerings can help p-c brokers keep business on the books. As Fleet says, brokers have three options: buy a shop, build a shop, or work with a wholesaler. And with new standards and regulations set to trounce the status quo, even seasoned benefits retailers could use some new solutions. Bayne stresses that bringing in a specialist costs less than retailers think. He says that in most cases the wholesaler is compensated by the carrier; the retailer still maintains their full commission. In describing the role of the benefits wholesaler, maybe Fleet said it best: “We are around healthcare. We’re on the fringe. That’s where we live.”