Whew! So you have done a lot of work, fact finding, employee surveys, compliance risk evaluation, proposal generation, etc. So now you have tons of information, what the heck do you do with it? If you can put it into a clear, concise, multi-year strategic plan you can create a long-term relationship with clients that can virtually lock out the competition.
It is now time to start looking at some of the strategies that can separate ourselves and our clients from the "annual premium/product scramble". By planning and implementing long-range solutions to core problems we can take definitive steps to start to cure some of our industry's core problems...PROACTIVELY!
In order to develop a long range strategic plan, you must become very familiar with the intricacies and integration of Section 125, HSAs, HRAs, FSAs, etc. You must also know how they interact with the Internal Revenue Code, ERISA, HIPAA, FMLA, state regulations, etc. Though we are not CPAs or Attorneys we are the starting point, the spearhead in the battle for the change that the health care delivery system requires.
One nice thing is that you don't have to be the expert in everything if you have good strategic alliances to support your efforts. One of the primary jobs of the broker is to develop key relationships and motivate the client to action. Good strategic alliances can support you as you develop your own special expertise. Remember the old adage "do what you do best and outsource the rest". Don't get me wrong here; I am not saying that you don't need to become knowledgeable. But when you are getting started in the business, you can become functional quite rapidly by cultivating good strategic alliances, including a veteran broker as a mentor.
In the balance of this article we will take a look at the "building blocks" of preparing a long-term strategic plan and the most common strategies. Each of these strategies will be discussed in detail in future articles.
Remember, as with the "Benefit Strategies Proposal" discussed in my June article, your presentation needs to be condensed into an Executive Summary of not more than two pages. Detailed information on recommendations is contained in reference sections. As an example, one of the sections will be the standard employer sponsored group proposals. This and other sections will often have a one-page synopsis of the information contained in that section.
BENEFIT PLANNING STRATEGIES
At this point in the consultative process, you have already established the value of developing a working partnership between the employer and their employees. You have adequate information to make specific recommendations as to plan design and product integration. You can also quantify the financial impact of your recommendations. This gives you the unique ability to set a standard against which to evaluate the plans performance over time and to make necessary adjustments to achieve company objectives. It also enables you to counter any employer objections to employee time for education and communication of benefits. In normal situations you can show the employer $2 to $3 return for every dollar invested in employee education the first year.
Strategy #1 – Employee Education and Engagement
In an article appearing in the June 12th issue of the Wall Street Journal titled "How Safeway is Cutting Health-Care Costs". It clearly points out that educating their employees and rewarding them for healthy behavior can have a dramatic impact on the cost of healthcare. In part it says "during the four-year period (2005-2009), we have kept our per capita health-care costs flat.....while most American companies costs have increased 38% over the same four years."
Well, you say, that may be good for the corporate giants but I work with the "micro-groups", the 2 to 50 employee companies. We have to start somewhere. We can't leave all the glory to the big boys. Considering the potential alternative (single payer), and understanding that we are part of the problem, lets start now to work for constructive change.
One other thing, the small employer can offer, is a much better controlled environment for effective education than the large employer. The mega-corporations tend to automate and use information technology and internet communication solutions. As "efficient" as this may be, to get the maximum results requires a controlled educational environment and personal interface with professional educators (the insurance broker).
Strategy #2 – Defined Contribution Benefit Payment Strategy
The prevalent employer payment strategy in place today is "defined benefit". The employer defines the benefits they will provide and the employee picks up the cost not covered by the employer payment. This may be simpler to communicate, but provides no cost transparency. When the employer continues to pay the same percent of the premiums, usually a substantial increase, the employee perception is that the employer is "paying the same" (OUCH!). On the other hand, if the employer increases their contribution by less than the premium increase, the perception of the employee is an employer "take-away" (OOOOUCH!).
With defined contribution the employer defines a dollar amount to be spent per employee on benefits and communicates that to the employee. The employee then decides on the benefits to be purchased and how to spend the employer money. Employee education is critical to success.
Defined Contribution puts the product decision and much of the premium considerations in the hands of the employee. It also provides complete transparency in the cost and value of the benefits offered. Another value is that an increase in the employer contribution, that is less than the medical premium increase, is communicated as a raise!
Strategy 3 – Consumer Driven Health Care
It should be mentioned here, the National Association of Health Underwriters (NAHU) has a wonderful Consumer Driven Health Care (CDHC) Certification. It's available to members and non-members and gives a good overview of how this type of plan works. As one of the instructors of this course I can verify it gives the technical background and requirements of how CDHC works with case studies to put that information into practice.
Health Savings Accounts (HSAs), these have gotten lots of press. Suffice it to say, that there is sufficient flexibility in these plans to allow for creativity in plan design and implementation that focuses on achieving employer objectives while more effectively meeting employee needs. To achieve good participation, however, requires skilled enrollers to help each employee "do the math" based on their own demographics and risk tolerance.
Health Reimbursement Arrangements (HRAs), this type of plan design offers the employer great flexibility in plan design to achieve employer objectives. However, it is somewhat more complex than an HSA. It requires the preparation of a plan document and distribution of Summary Plan Descriptions (SPDs) to participating employees. Depending on employer objectives, employee needs and product availability (varies by state), this type of plan design can offer significant cost savings to employers and enhanced benefits to employees.
Strategy #4 – Section 125 Modifications and Enhancements
I have often been asked by brokers "I don't make any money selling FSAs.....so why should I promote them". The fact is FSAs and other modifications to an employer's Cafeteria Plan can create significant employee income tax savings which can be leveraged into new premiums with very little effort if things are setup correctly. There can also be significant employer savings that can be added to their bottom line or converted to employer-sponsored contributions.
Flexible Spending Accounts (FSAs): these accounts allow employees to set aside money to pay for out-of-pocket medical and dependent care expenses without paying taxes on the money. As the expenses are incurred, the funds can be drawn upon to pay for qualified expenses from the account, again, without having to pay taxes. This is tax avoidance at its best. The employer saves matching FICA taxes and in some states Workers Compensation premiums on employee salary reductions. Be sure and check with your state on this one.
Premium Reimbursement Accounts: as "portable" voluntary benefits are becoming more prevalent in the market, it is becoming quite common for a new hire to own a voluntary benefit from a former employer. This plan benefit allows employees to pre-tax premiums on qualified insurance products they currently own or may purchase. The employee can reduce their pay by the amount of premium they are paying and be reimbursed by the employer. Or the employer may pay the insurer directly for the employee. This is a pretty slick tool for achieving additional employer and employee savings. Oh, by the way, these savings can also be leveraged into new premium quite easily. The name of the game is "Find the Money".
Transportation & Parking Accounts, these can be effectively utilized with employers located in dense population areas where employees pay for parking or mass transit to get to work. Again they can produce employer and employee savings that can be leveraged into new premiums.
Adoption Assistance, this option doesn't really fly well unless you are working with larger employer (1,000 or more employees). It is, however, a benefit that you should be familiar with.
Strategy #5 – Voluntary Benefits
I could go on almost forever here. There are a plethora of options almost too many to mention. The important point to make here is to be very careful on the product selection and implementation strategy. Feedback from employee surveys (addressed in my September article) is very important in choosing the products to be offered now as well as at future enrollments. Offering too many options at one time can cause communication and education challenges that can cause confusion and diminish participation.
The opportunity to increase client revenue is significant but, unless you are in a very large agency that is positioned to effectively implement voluntary benefits, development of a strategic alliance with a good enrollment firm is essential. One thing to be aware of in establishing such an alliance – you don't need a voluntary agent or enrollment firm to sell this concept to your client. However, they are important for effective implementation. Voluntary benefits are an essential part of a well-crafted health and welfare benefits plan. You can stay in control of the client relationship and take less of a risk in losing a case due to enrollment problems.
RISK ASSESSMENT AND RECOMMENDATIONS
One of the easiest ways get a Broker of Record (BoR) from an employer is to identify a compliance risk that the employer is exposed to that should have been taken care of by their current broker. Much of the time, brokers are comfortable relying on the insurance carriers to keep the employer in compliance. This can be a fatal error when their client is approached by a professional consultant. Compliance, therefore, is an essential element of a sound strategic plan.
A few critical observations about compliance issues; we are not accountants or attorneys. We should keep our assessment to "diagnosis". Leave the treatment to other professional advisors (part of your strategic alliance team). Your assessment and observations should be supported with site references that can be evaluated by the appropriate professional advisors. Much of the time Third Party Administrators (TPAs) can provide the necessary solution.
Common Compliance Problems
ERISA Discrimination: Frequently we find that employers are treating individual employees, usually a relative or personal friend of the owner, on a "special" basis. An employee will have "negotiated" a special deal that is different from other similarly situated employees. The premium is simply paid by the employer and deducted as an employee benefit (BIG OOPS!). This is by no means the only benefits discrimination you may encounter but is the most prevalent. Diagnosis of this type of problem is often difficult and requires careful and meticulous gathering of plan information. We frequently do not identify this type of violation until the individual enrollment meeting, required by the introduction of voluntary benefits.
Section 125 Compliance Problems: There are several problems to be identified here. The most common include:
1. No plan documents – the employer can't produce any of the required documents necessary to have a valid cafeteria plan. The most common: 1) A plan document or, if the employer is using a TPA, a "Plan Participation Agreement". 2) A Summary Plan Description (SPD) which must be given to all participating employees, even in the smallest groups.
2. Different group and Section 125 plan years – This can easily cause election change problems because of the "irrevocability rule" of section 125. There are only 14 "exceptions" to this rule and none of them include a group insurance "open enrollment". Occasionally there may be a "significant" premium increase (a valid exception to the rule). However, it would not include an employee who is dissatisfied with their HSA plan and shifts back to a standard PPO or HMO plan with a higher premium. Each change must qualify on a case by case basis. This creates a significant potential for compliance violations.
3. Offering benefits not provided in the plan document – the most common error here is when an employer adds an HSA plan to their medical options without modifying their plan document to provide for HSA salary reductions.
4. "Constructive Receipt" – operating a Section 125 plan without a plan document. This occurs where an employer does not have a Section 125 Plan (POP or Flex) and is offering employees that do not participate in the medical plan extra salary or bonuses ("cash"). This is a cafeteria plan in its operation. When this violation is caught, all employees covered by the medical will be taxed on the amount of money received by employees being paid to opt-out. They have "constructively received" that money as ordinary income.
COBRA Compliance: This is a biggie! An employer that is large enough to be required to comply and not large enough to have a full time COBRA administrator will often be doing COBRA "in-house". If this is the case there is a very high probability that they are out of compliance. In this case, at the very least, a competent professional or TPA should "audit" their practices and procedures. This "good faith" compliance practice is included in a report of the Committee on Finance of the United States Senate, the 100th Congress 2nd Session Senate Report 100-455. Enough said here.
Wow! This has been a pretty mind bending experience. Suffice it to say we are operating in a very hazardous mine field when setting up health and welfare benefits for our employer clients. We must be continually vigilant and constantly updating our knowledge base to effectively advise and refer our clients to keep them in compliance and at the "cutting edge". This is what capitalism and competition is all about, improving the consumer experience.
Opportunities abound for the broker that is willing to put forth the effort to be become truly consultative in their marketing strategy (a real differentiator). You can expand your product base and improve your bottom line. You may also want to make sure that you have a good E&O policy in place.