From the May 2011 issue of Florida Underwriter •Subscribe!

Preserving Employee Benefits

Agents, Employers, and Employees Are Immersed in a Sea Change as Benefit Plans Evolve

One year into the uncertain world of health care reform, with a nation struggling through a turbulent economy, the realm of employee benefits is in transition. Benefit brokers and agents, along with business owners and employees, are caught in this current of change, moving from the traditional employee benefit packages into unfamiliar waters as offerings, regulations, and needs continue to evolve.

The benefit agent’s role is vastly different from what it was just a few years ago. Brokers and agents are required to be more dedicated and creative than ever. Because employers must remain competitive to attract and maintain valued employees, they are looking to their benefit specialists for new and creative answers. Employer clients are struggling to find new ways to cut costs while offering satisfying benefit packages, even if it means looking elsewhere for benefit administration or advice.

The Changing Role of the Agent
In years past, it was not difficult for health care brokers and agents to maintain a relatively satisfied and stable client base. Many brokers founded their businesses by primarily promoting health benefits, and held a consistent client base on that alone. Staying in contact with customers and offering satisfactory service and support was usually enough to ensure that a book of business was reasonably safe.

The day of the health-only agent is gone forever. Today’s benefit agents are finding themselves making substantial changes to their business models in order to shift with the marketplace and best serve their clients. That means diversifying their books of business and sharpening their advisory skills.

With the passing of the Patient Protection and Affordable Care Act (PPACA), business owners and human resource professionals are turning to their agents for guidance and support in interpreting health care reform. A recent MetLife poll found that 57 percent of employers with fewer than 500 employees say they will be relying on their consultants, brokers, and agents today more than ever. However, with the recent debates regarding medical loss ratio, professionally licensed benefit specialists are finding themselves in the position of having to defend their roles as agents. Amid the multitude of daily responsibilities of a benefits agent are the roles of advisor and consumer advocate. As benefit specialists, they are also conduits for the consumer, medical provider and insurance carrier, and an integral part of small businesses, often assuming the role of their clients’ human resources department.

Employers Must Change, Too
Understandably, over the past several years employers’ primary focus has shifted to the recession and the difficult business climate at hand. With increased attention being placed on expense control, business retention, and cost shifting, employee satisfaction has not been an immediate focus for many employers. With the decreasing economy came fewer open employment positions and therefore fewer voluntary resignations. The perception was that employees were simply grateful to have a job.

There is no doubt that for the general workforce, employment is precious, especially in an unstable economy. However, workers are increasingly finding themselves dissatisfied with their current employment. In MetLife’s 9th Annual Study of Employee Benefit Trends conducted during the fourth quarter of 2010, data indicated that employees may be ready to seek out alternate employment opportunities; a startling one in three employees hopes to be working elsewhere within the next 12 months. 

A satisfied workforce is in large part the very foundation of business growth. As the general working population has grown dissatisfied and loyalty to the employer has waned, it has become abundantly clear that employers must re-prioritize employee satisfaction or find themselves with unanticipated setbacks in employee retention and productivity as economic recovery increases.

A New Perspective on Benefits
Employers, many of whom have relied on the one-plan-fits-all approach to employee benefits, are now finding it necessary to make substantial changes. Due in part to escalating health care costs and the recession’s impact on employees and employers, agents are now tasked with creating strategies to replace the standard benefit package. This new approach must be one of choice and flexibility, where benefits can be an effective tool for re-establishing satisfaction and loyalty among employees. The MetLife study found that employees who are satisfied with the benefits offered by their employer are nearly three times as likely to express a strong sense of loyalty to their employers.

While nearly all workers have been impacted in some part by the recession, their financial and benefit needs, views and priorities differ greatly, due in part to age, behavior, and life management styles. This can translate into workers having vastly different feelings toward benefit offerings. To remedy the inflexibility of the single-offering benefit package, employers need to offer a variety of products and services that satisfy a diverse employee base while staying within employer and employee budget constraints.

Today’s employees are looking for non-medical benefits such as life, disability, dental, vision, identity theft, and legal services to round out their health benefits. However, while employees need versatile benefit offerings, employers are not always able to fully fund the program. Benefit brokers and agents can help employers find ways to reallocate resources in order to offer more customized benefits. Agents also should advise employers that workers looking for these additional benefits are usually prepared to pay part or all of the cost.

One successful way to create a diverse benefit package is to introduce voluntary benefits. According to Steve Israel, a Florida broker and board member of the Florida Association of Health Underwriters, “To offset costs and to preserve an effective benefit package, employer groups of all sizes are looking to the inclusion of voluntary products within their benefit offerings in order to meet the demanding need for products not sponsored by the employer. Voluntary benefits, the costs of which (for the most part) are borne by the employee, afford the advantage of pre- or post-tax payroll deductions. The broker or agent will then guide the employer as to which tax status is most beneficial to the employee.” Israel added, “I have also had employers find that increasing group health deductibles and then including a paid medical bridge program has allowed them to further reduce employer premium expenses.”

Medical Trend Plays a Part
Based on surveys and interviews conducted nationally with health plan executives and employers, as well as extensive reviews of hospital-based health plans and analyst reports, PricewaterhouseCoopers’ (PwC) Health Research Institute estimates that the national medical growth trend is expected to decrease from 9.5 percent in 2010 to 9 percent in 2011. Looking closer to home, renewals received from the Blue Cross and Blue Shield of Florida small business segment are currently reflecting medical trend at 11 percent, unchanged from last year.

The PwC report points to the following three deflators that will help hold down medical trend:

  • Employers moving network benefits toward pre-managed care benefit design by increasing deductibles and replacing co-pays with co-insurance. By requiring workers to spend more out-of-pocket at the point of care, employers believe they are reining in utilization of services and drugs. The number of employers using co-insurance for physician visits has nearly doubled, and one-third use co-insurance for brand-name drugs, according to the survey.
  • Generics continue to eat into brand-name drug market share. About $26 billion in drugs are expected to go off patent in 2011. Generics, which account for as much as 80 percent of all prescriptions in some plans, continue to erode the market share of brand name drugs and remain a drag on medical cost trends.
  • COBRA costs are expected to return to more normal levels in 2011. A combination of declining unemployment and expiration of the COBRA subsidies is expected to lead to reduced enrollment in COBRA in 2011.

The biggest inflators of the medical trend based on PwC’s report will be in provider costs, which make up 81 percent of the medical benefit:

  • Cost-shifting from Medicare is expected to increase as hospitals see their rates cut for the first time after seven years of increases that nearly matched or exceeded inflation increases.
  • Provider consolidation is increasing, which is expected to increase their bargaining power. The number of physicians involved in mergers or acquisitions in 2009 was 2,910, nearly twice that of 2008. In addition, 2010 has seen record activity. Payment changes, embedded in the federal health reform law, also encourage models that align financial incentives among providers.
  • Spurred by stimulus funding that begins in 2011 and Medicare penalties that begin in 2015, hospitals will invest billions of dollars into certified electronic health record (EHR) systems. While many hospital systems were planning to implement EHRs soon, the government’s new regulations dramatically condensed their timelines to invest in technology, IT staff, training, and process redesign. Health care CIOs surveyed by PwC said they will make their largest investments to meet the new EHR regulations in 2011.

Cost Shifting Is Here to Stay
Changes in benefits are dictating that employees become more engaged in their own health and wellbeing. With more employers transitioning to high deductible health plans, and traditional PPO and POS plans shifting from co-pays to co-insurance, employees are taking on additional financial responsibility for their health.

Because of these cost-sharing features, employees must evaluate  how they use their benefits and become more engaged in efforts to improve their health and reduce unnecessary utilization.

Education and Communication Are Key
Education and communication are significant components of a successful benefit package. With the implementation of more diverse benefit offerings, education and communication become even more important. A thoughtfully comprised offering will only be as successful as it is understood and utilized by its participants.

Brokers and agents should make it a priority to assist employers in the delivery of the Employee Benefit Statements to ensure that the true value of the offerings is effectively and correctly communicated.

As the world of employee benefits evolves, one thing is clear: Businesses offering benefits to their employees expect to have the flexibility to choose insurance programs that best meet their needs and objectives and are of value to their employees. They also expect to have access to professional, state-licensed and educated insurance experts to guide them through the process.

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