Filed Under:Agent Broker, E&S/Specialty Business

Adapt to PPACA

From changing revenue models to the rise of the individual policy, an evolution is underway in how health insurance producers do business.

In a 2012 study from eHealth Inc., less than one-third of small businesses polled knew if they needed to provide healthcare insurance for employees. Research conducted earlier this year from the Kaiser Family Foundation revealed that 42 percent of Americans didn’t know if the Patient Protection and Affordable Care Act (PPACA) had been signed into law or not.

Uncertainty may reign outside the insurance sector, but independent agents and brokers are quickly getting up to speed on the details of healthcare reform and its implementation timeline. Agents also are learning how fundamental changes in the way people purchase health insurance will shape the agency of tomorrow.

Related: Read "PPACA Creating 'New Clients, Prospects and Mergers.'"

Trusted advisors take center stage

The confusion surrounding healthcare reform plays to agents’ expertise as trusted advisors, said Andrew C. Harris, CIC, CPCU, president and CEO of Liberty Insurance Assocs. in Millstone Township, N.J. and president of the National Assn. of Professional Insurance Agents (PIA National). He said that agents may be uniquely qualified to guide people through the various mandates and legislation related to PPACA.

“Who else has the insurance knowledge, the relationships with the clients, and the ability to inform, educate, and roll out these programs other than insurance agents?” he asked. Employers and individuals already look to agents for direction in the risk management process, and Harris said that producers are the “logical solution” to the need for far-reaching education as the country transitions into healthcare reform.

Related: Read "Producers' Role in the Insurance Exchanges."

The need for reliable guidance is so great that the services available through agents and brokers may soon have nearly as much value to clients as the products themselves.

It’s a shift that will cause agents to take on a more consultative role going forward, said Jay A. Jensen, CPA, managing member at Insight Benefits Group in Bloomington, Ill. “Clients today are just very unclear on what all this healthcare reform really means, how it’s going to affect them, and what they have to do,” he said.

People have a lot of questions, and Jensen said the lack of understanding among clients is likely to create opportunities for agents to build stronger and potentially more lucrative relationships with them. “The more complicated it gets, the more these advisors are needed,” he said. “Agents have got to change their roles from more of a sales product provider to a professional consultative advisor.”

Brokers will be called upon to demonstrate their advisory skills early in the process, as employee-focused communications get underway in earnest. The burden on employers to provide new information (summary of benefits coverage, details of exchange availability, etc.) is growing. Even if employers choose not to offer coverage and instead direct their employees to an exchange, many of them will still be affected by new requirements.

Jonathan Bryer, vice president at Liberty Insurance Assocs., pointed to one mandate that goes live on Oct. 1. “It’s when employers of any size, whether they offer coverage or not, are compelled to notify all employees of the existence of the state exchange.” That holds true whether the employer is in a state using its own model or in one of the 26 states that have opted for a federally run exchange.

To ensure compliance with these new regulations, many clients will look to agents not only for guidance on what is required of them, but for help in understanding other obligations and the timeframes for each phase in the rollout. “Whether it’s a new client or an existing client, we have to lay the foundation of what they need to do,” Bryer said. He encouraged producers to consider drafting the necessary documentation for clients, who may be dealing with a crush of reform-related activities as well as the bustle typical of open enrollment, which is happening around the same time for many companies.

Staying updated

Brokers will need a detailed understanding of PPACA before they can provide clients with knowledgeable advice. Bryer participates in the National Assn. of Health Underwriters (NAHU) at the local and national levels. “We were just at a 3-day conference with educational classes held by various experts,” Bryer said. The organization also emails updates and even offers a mobile application, so agents are alerted to the latest developments no matter where their work takes them. Bryer said another approach that he’s found helpful in preparing the agency to anticipate clients’ needs is to learn more about healthcare insurance reform in Massachusetts, a program that has similarities to PPACA.

Agents will likely find other resources that are helpful in coping with evolving compliance mandates and a growing workload of one-on-one interactions. Calculators are available that show how health insurance decisions will affect individuals as well as ­businesses. They’re one of the tools to help guide clients to the solution that best fits their needs, Jensen said. A calculator can give employers insight into a variety of what-if situations by “taking all of the clients’ data—their population, their current health plan, income of the employees, and other factors needed to do an analysis—to see, when Jan. 1, 2014 hits, what the financial impact is if they keep their plans exactly how they are, if they reduce their plans to, say, the minimum that’s required under the law, or if they terminate their plans altogether,” he said. The more advanced calculators will also help agents provide a picture of what any penalties or taxes may look like depending on which route the employer chooses.

The changing revenue stream

Although the types of support that agents and brokers offer are still evolving, a more fundamental change is how they’ll be paid when the health insurance exchanges come online. Unlike group policies, which will route directly through the carriers, insureds going through the exchanges will be on individual policies.

“They’ve taken a page out of the senior care market,” said John Sarich, vice president of strategy at Coconut Creek, Fla. -based Vue Software. “They’re not paying commission per se, but paying a fee that is somewhere in the $6 per member per month range.” That’s about a quarter the typical fee seen by agents working in the group market under the current structure. “Consequently, agents are going to take a very big hit,” Sarich said.

Along with the change in the pay formula and additional time needed to educate clients on each step in the PPACA process, the purely administrative service load on agents is also going up. Because producers will now be exposed to far more individual policies, some potential downsides could be on the horizon.

“They’re going to have to deal with all of the late pays, cancellations, and reinstatements,” Sarich said. Other support programs are also dovetailing into the exchange system, giving agents a host of new tasks they haven’t had before. “In addition to being the agent as they talk to a potential insured, if they identify that a person is eligible for food stamps or any kind of federal social programs, they’re supposed to sign them up for that as well,” Sarich said.

Among the challenges, opportunities

Increased responsibilities combined with a squeeze on compensation are resulting in pressure within agencies to deal with the current benefits dilemmas in a sustainable way—a situation that Harris believes is really an opportunity for agents who can think outside the conventional client relationship. Rather than dealing with just the employer, agents will now have direct access to employees—lots of employees. “If we start looking at voluntary benefits and products that we might be able to sell to employees, it’s just possible we could make up some of the compensation shortfalls,” he said.

Products and services such as wealth management and disability coverage may provide good inroads to this new client base. But agencies that aren’t ready to recognize and seize on these potential opportunities, that instead choose to “live and die by group insurance,” could find their revenue stream slowing to a trickle, Harris said.

And although much of the landscape remains a moving target, with uncertainty about how the future will unfold and how consumers will react to their new insurance options, remaining ready to see opportunities and pounce on them will be key to survival. “Insurance agents are very resilient,” Harris said. “They’re very knowledgeable, and as long as we can take advantage of that knowledge, we should be able to get through this and help our customers and our customers’ employees navigate through this.”

Keeping the potential for an increased voluntary benefits market in mind, producers will be in a prime position to provide employees with products that meet a new set of needs born out of the recession. “Employees may now need to rebuild assets,” said William C. Barr, CEO of Portland, Ore. -based LifeMap Assurance. “If there are benefit opportunities that allow employees to rebuild assets—assets that historically may have sat in their homes or in their savings accounts, and that are significantly depleted now—an agent has an opportunity to bring good value there.” More employees will also be looking for ways to protect the assets they do have. This may lead to fruitful discussions about products such as critical illness coverage, short- and long-term disability and dental plans.

Related: Read "Private Exchanges a Solution, but Not for All Insurance Agents."

Life insurance products are likely to be fertile grounds for astute agents, Barr said. “Many employees don’t realize that the life insurance typically offered to them through their employer, which is a wonderful value, terminates at the point they leave employment. Agents are now in a great position to help educate them around how to make purchases for permanent life.”

Younger populations of employees are becoming more interested in life insurance products, perhaps because they realize they may not enjoy the rate of growth in their personal assets—such as their home—that their parents did. It’s this greater desire for asset protection that could drive increased interest in life insurance and other voluntary products.

Healthcare reform is sure to prompt changes and tough decisions within agencies—Does it make sense to focus on individuals or groups? How do we balance time commitments between advising clients and closing out administrative tasks?—and some firms will begin to grow in new directions. The ability to create a sustainable revenue stream may hinge on how well agencies identify and embrace the opportunities that are right for them.

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