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Part 3, The Benefit Strategies Proposal

"Setting the Consultative Sale"  The Benefit Strategies Proposal – Changing the paradigm

If you had a chance to read my April and May articles then you have a good feel for the educational foundation you need and what you must do to maintain it. You also have a good grasp on the information that you need about an employer and their current benefits to use that knowledge to prepare the initial proposal for the employer's evaluation. We call our initial proposal the "Benefit Strategies Proposal".

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In order to start dealing with the root causes of healthcare inflation and other delivery system problems, group brokers must change their focus from a "premium/product focus" to "needs based" long range planning solutions. The purpose of the "Benefit Strategies Proposal" is to change the employer's benefits paradigm.

 

To do this effectively, brokers must begin to start working with their clients before the medical renewal is received. It takes time to do the work necessary to thoroughly assess the appropriate strategies. In many cases it even makes good sense to implement plan enhancements mid-plan year to minimize communication and education problems caused by taking on too much change all at once. 

There are several basic things to understand at this stage of the consultative sales process. First, this proposal should contain no product information. General information on the strategies that you present in the proposal, of course should be included. This is necessary to support the recommendation of the strategies to be evaluated with their partner, the employee. Information on Health Savings Accounts, Health Reimbursement Arrangements, Section 125, etc. can be included in separate sections of the proposal to support your recommendations. But it will not include any specific product or carrier information.

The most critical aspect of a well crafted Benefit Strategies Proposal (and the subsequent Strategic Benefit Plan Proposal) is to condense the "crux" of your presentation into an Executive Summary that is not more than two pages long with plenty of "white space". This can be a difficult task but allows presentation of the proposal to the Decision Maker(s) in 30 minutes or less. If the presentation exceeds 30 minutes it is with the Decision Maker's permission to discuss specific questions that arise from the Executive Summary. This is a dramatic change from the one to two hour review of spreadsheets commonly seen in a traditional product-driven sales process.

There are two objectives to be achieved in the presentation of the Benefit Strategies Proposal.

1. Get the employer's agreement that development of an employer-employee benefits partnership is essential.

2. Get employer approval to conduct an Employee Benefits Survey to evaluate the employee's needs and attitudes about benefits.

Objective #1: The foundation to a consultative benefits selling strategy is employer acceptance of the need for a working employer-employee partnership in benefits. This is probably the easiest sale you will ever make. Employers are being crushed by the paternalistic approach to benefits and are looking for relief.

To develop a partnership you must identify the shared responsibilities of the partners. These responsibilities need to be clearly laid out in this proposal because it sets the stage for the needed change in paradigm. The shared responsibilities we include in the proposal are:

Employer Responsibilities

1. Offer a competitive benefits package

2. Make an adequate contribution

3. Provide good support services

4. EDUCATE THE EMPLOYEES

Employee Responsibilities

1. Learn to make wise benefit decisions

2. Become a prudent consumer

3. Adopt a healthy lifestyle

4. PAY THEIR FAIR SHARE

Without employee involvement (partnership), we will never be able to deal with many of the root causes of the inflation in healthcare spending as a percent of GNP. With consumer engagement and education we can start to deal with these causative factors:

  • Over utilization of Defensive medicine
  • Life-style abuses
  • The aging population (HSAs)
  • The uninsured population
  • The underinsured population
  • Even medical malpractice

Now, here is one of the reasons that this is such a golden opportunity for us. If we can We can convince our legislators that consumer engagement is critical to solving the healthcare crisis. Consumer engagement requires education and we have a large, extant force of well educated and trained "teachers" to accomplish the task (the current health underwriter)!! But we have to be up to the task, educating the consumer takes far more than distributing brochures and doing an annual, voluntary, 20 or 30 minute group meeting with employees. We must start to deal with all the varying needs of the consumer and when we do, we can be well compensated for the extra effort in the sale of supplemental benefits.

 

It should be mentioned this type of strategic approach to benefits planning requires the group broker to work as a part of a team of professionals. We must learn to work effectively with, accountants, financial planners, attorneys, specialty product vendors, enrollment professionals, administrators, etc. The Group Broker or the Financial Planner has the key client relationship and one or the other will work as the Captain of the benefit planning ship. The key to working as part of a team is to approach the market with an attitude of abundance rather than scarcity, to make the pie bigger rather than trying to get a bigger piece of a smaller pie.

Objective #2: The key to a successful strategies presentation is to sell the employer on the benefits of conducting an Employee Benefits Survey to solicit employee input and participation. This is critical to the development of a working partnership with employees. In my next article, I will explain in detail how the employee survey is utilized to help develop a strong employer-employee partnership. Suffice it to say at this juncture, a carefully crafted employee survey not only engages the employee in the partnership but also enables the broker to determine the financial impact of the long range strategies that are recommended

Risks and Strategies to be Assessed and Evaluated in the Proposal

The strategies and risks to evaluate are actually fairly standard at this point in the process. Many of these risks and strategies will be dealt with in detail in future articles. They bear mentioning now because they need to be edified in the proposal.

Most of the problems and opportunities fall into a few general categories. The complexity and creativity comes when dealing with the design flexibility available within the individual strategies.

Common Compliance Risks

It is not uncommon when working with a broker's prospect (as opposed to a current client) that we have actually obtained a Broker of Record letter very quickly and easily by identifying a compliance problem. There are three major areas where we find these risks exposures. In dealing with risk assessment, great care needs to be exercised because our job, in many cases, is to identify the risk and refer to other professional advisors, not cure the problem. Cure is usually the job of an attorney, accountant or TPA hired to do administration.

First and most frequently, COBRA administration problems can be identified. There is one simple question that helps identify potential compliance risks. A question to be asked when a prospect is doing in-house administration of COBRA might be, "When was the last time you had your COBRA practices and procedures evaluated by a competent outside third party? I have never had an employer say that they have had that done. I also get a lot of "we don't have anyone on COBRA so we aren't worried about that."

Remember most COBRA audits and court cases are initiated by a disgruntled former employee who may not have even wanted to enroll in COBRA.

Second, very frequently we find Section 125 compliance problems. Many times the employer cannot produce a plan document, summary plan description or even an election form. Often, they don't know the administrator or who drafted their document. The risks here are many and serious:

1. No document – no plan

2. The Cafeteria Plan Year is X/1 with a Y/1 medical plan year – potential annual election rule violations

3. HSAs implemented and run through as a Section 125 without restating the plan to accommodate the HSA provisions required by Section 125 – Big Oops.

Third, is violation of the non-discrimination requirements of ERISA. Employers will frequently provide differing contributions for individual employees without regard to any business classification or standard. There are, of course, many other ways employers may violate ERISA's complex requirements and it is our job to make sure that the employer gets competent council when these situations arise.

Needless to say, when talking with a CEO or CFO and exposing any of these risks, the sale is quite easy and goes forward without presenting any product. Though there is nothing that can be done to correct these problems retroactively, most can be corrected going forward, usually by the first of the next month and with little or no cost to the employer.

These, of course, are not the only risks to which an unsuspecting employer may be exposed when not properly advised. But, they are a few of the more common ones. Compliance issues can be identified with a well crafted Discovery Form or Fact Finder discussed in my April article.

Design Strategies To Be Considered

Defined Contribution Payment Strategy: The employer defines the contribution amount per employee to be spent on benefits. In its simplest form the employer contribution can be split into two accounts. The first account is a "Benefit Defined" account that must be used for a specific benefit or lost. At minimum this account must be large enough to satisfy minimum employer payment requirements for the group contract. The second account is a "Flex Credit" account. This account, the employee can use for any benefits on the menu if not used for core benefits. Though this can be used as an employer cost shifting strategy, it is significantly more palatable for the employee than simply being asked to cough up more money (parenting). The trade off for the employee is that they can more effectively utilize employer contributions to tailor benefits to their individual needs.

The name of the game here is called "Find the Money". Low commission group premiums can be shifted to significantly higher commissioned voluntary products. It also eliminates waste by allowing employees to opt out of benefits they don't need or want and use employer money for desired benefits. "Find the Money", YOU WIN!!

This design strategy is the cornerstone of a working employer-employee partnership. We call it employee empowerment (partnering). Most of the time this is an acceptable trade off for the employee required to share a larger part of the financial burden.

Section 125 Options: Section 125 offers so much more in opportunity for the employer, employee and broker than just the simple "POP" plan. Remember, the name of the game is "Find the Money"

  • Flexible Spending Accounts – this is not only a great tax saving device to the employer (matching Social Security and in some states such as California, Workers Comp) and the employee (Federal & State income taxes and Social Security). Also when done in conjunction with the implementation of carefully selected voluntary benefits offers a source of new premium dollars. "Find the Money", YOU WIN!!
  • Parking & Transportation – for highly congested population areas where public transportation is utilized or employees must pay for parking. This again is a source of saving for the employer, the employee and the saving is a source of premium dollars for the broker. "Find the Money", YOU WIN!!
  • Premium Reimbursement Accounts – Many times, especially in lower income groups employees will buy less expensive individual insurance products at a lower cost than the employer provided plan. These premiums can be funneled through the Cafeteria Plan providing payroll tax saving for the employer and income tax saving for the employee. Again, guess what, the savings is a source of new premium dollars. "Find the Money", YOU WIN!! Are you starting to see a pattern here?
  • Consumer Driven Health Care: High deductible health plans linked to a qualified self funding mechanism are also an excellent way to play the "Find the Money" game.
  • Health Reimbursement Arrangements (HRAs) – In many cases the smaller premium requirement will encourage employees to add their dependents or take the coverage. (this also helps with the uninsured population). "Find the Money", YOU WIN!!
  • Health Savings Accounts (HSAs) – Premium differential between a traditional medical plan and an HSA qualified medical plan can be leveraged into voluntary benefits such as long and short-term disability, supplemental medical or life insurance. All important benefits. "Find the Money", YOU WIN!! Special note: employees that won't spend $40 or $50 of their own money for insurance will convert group premium differential (usually the "employer's money") into benefits and still put $100 to $150 into an HSA account where they understand that they can generate a guaranteed 25% to 30% return the first year with no risk. If you don't know where that high return comes from, read my May article.
  • Non-qualified high deductible PPO or high co-pay HMO Options – Again the game is called "Find the Money".
  • Even without the attractive HSA or HRA pot of money these options may encourage employees to cover dependents or make the choice to convert some employer medical premium dollars into other more important benefits such as disability insurance. YOU WIN AGAIN!! Is the opportunity coming into focus yet?
  • Consumer Driven Health Care: High deductible health plans linked to a qualified self funding mechanism are also an excellent way to play the "Find the Money" game.
  • Health Reimbursement Arrangements (HRAs) – In many cases the smaller premium requirement will encourage employees to add their dependents or take the coverage. (this also helps with the uninsured population). "Find the Money", YOU WIN!!
  • Health Savings Accounts (HSAs) – Premium differential between a traditional medical plan and an HSA qualified medical plan can be leveraged into voluntary benefits such as long and short-term disability, supplemental medical or life insurance. All important benefits. "Find the Money", YOU WIN!! Special note: employees that won't spend $40 or $50 of their own money for insurance will convert group premium differential (usually the "employer's money") into benefits and still put $100 to $150 into an HSA account where they understand that they can generate a guaranteed 25% to 30% return the first year with no risk. If you don't know where that high return comes from, read my May article.
  • Non-qualified high deductible PPO or high co-pay HMO Options – Again the game is called "Find the Money". Even without the attractive HSA or HRA pot of money these options may encourage employees to cover dependents or make the choice to convert some employer medical premium dollars into other more important benefits such as disability insurance. YOU WIN AGAIN!! Is the opportunity coming into focus yet?

Voluntary Supplemental Benefits:

Suffice it to say here that the variety of voluntary benefits is too extensive to address in this article. The initial proposal must address this issue, however, because the supplemental benefits are critical to a well designed benefits program. These benefits and how they are implemented will be the topic of a later article.

The best way I can illustrate the importance of their inclusion in the proposal is evidenced by the results. According to the Social Security Administration, Fact Sheet January 31, 2007 70% of the private sector workforce has no long-term disability insurance. Well above 90% of the broker clients that we work with implement both long-term and short-term disability on a voluntary basis after conducting an employee survey. And, we attain a 60% to 70% participation level most of the time.

Some of the common supplemental products that we evaluate with the employees on a regular basis include:

  • Long and short-term disability
  • Supplemental life insurance
  • Supplemental accident insurance
  • Supplemental hospitalization
  • Long term care insurance
  • Catastrophic illness
  • Group legal serviceslement

 I will share more details on this and the other strategies in future articles. But I think you can see that the opportunities are almost limitless. The thing you need to be careful of is not to overwhelm the employer or employee with too many new options all at once. Product selection input is another benefit of the employee survey.

"The Next Step" is the last section of the Benefit Strategies Proposal and consists of a "Partnership Agreement" and a timeline for completing the Employee Benefit Survey. Rather than charging employers a fee for the survey (we do show a fee schedule with cases over 50 lives) the Partnership Agreement allows for the survey to be done free of charge with no obligation for the employer to take any action on our recommendations. The employer does agree that if, based on the results and analysis presented in the Benefit Strategies Proposal, the employer feels that the recommended plan changes would be advisable that they will give our Broker a Broker of Record letter and allow him/her to implement the recommended changes. For a CFO or CEO this is almost a "no-brainer". This agreement is 95% of the sale and the broker hasn't presented a single product.

Completing this step and effectively avoiding the landmines and potholes, positions the broker with a marketing strategy that truly differentiates them from the competition. An example of how large a differentiator this can be, we recently completed a case in Irvine, California with a new broker to us Anthony H (Anthony is a recovering benefits addict). Anthony had been romancing a cold-call prospect (a mid-sized company doing a "management carve out") for about two years. Finally about 45 to 50 days before the plan renewal Anthony was asked to be one of three brokers to present a proposal. Because of the time crunch I was not even available to help him present the Benefit Strategies Proposal. He did it by himself and sold the employer on conducting the survey. Anthony and I presented the Benefit Strategies Proposal together very soon thereafter. Needless to say, we were the only ones presenting a three year strategic plan. We were also able to answer a number of questions about the new COBRA changes the other brokers couldn't. The bottom line, we got the BOR and didn't even show a spreadsheet. The two competitors were the current broker and a relative of one of the officers. Pretty slick Huh?

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