Orange County’s insurance brokers who deal with small- and midsize companies may have to evolve and broaden their services as healthcare reforms come into effect in the next couple of years.
“Brokers in the group space will need to become fee-based advisers or perish,” said William Kaley, president of Colony West Business Risk Solutions in Orange. “Healthcare reform will be a boon for brokers who can adapt and a bust for brokers who are unable to position themselves as such.”
The Patient Protection and Affordable Care Act, which requires individuals to have health insurance by 2014, mandates that employers of more than 50 employees to provide healthcare coverage or pay a penalty. The so-called play-or-pay rule stipulates company penalties of $2,000 to $3,000 per employee.
Employees still must find health insurance if a company opts to pay the penalty and will be able to do so through state exchanges offering an array of insurance options. But that could have serious consequences for insurance brokers if a high proportion of smaller employers drive employees into exchanges.
“There are concerns among brokers that [exchanges will] replace what the brokers are doing,” said Sheldon Blumling, a partner at the Irvine office of Atlanta-based law firm Fisher & Phillips LLP and part of its employee benefits practice group.
“The long-term implication could be that broker roles for group business disappear completely, as more and more employers opt to let employees go through exchanges,” Colony West’s Kaley said.
Chris Martin, president of the Precept Group brokerage in Irvine, said many business owners may do the math and see a better deal from paying a penalty.
“Smaller companies can save quite a bit of money,” Martin said. “The average insurance cost is somewhere around $8,000 to $10,000 around a year. The idea of paying only $2,000 might look like a good deal for smaller companies. The thing is, the employees might have to pick up the cost.”
Employees at larger companies might go that route, too, he added.
“Even some 40% of large employers said they’re going to look at discontinuing offering benefits and simply pay the fine, letting employees find insurance on their own,” said Martin, citing a nationwide study done last year by New York-based consulting firm McKinsey & Co. “There’s going to be a lot of different considerations an employer has to look at.”
The question for brokers is how to adjust to the environment so that their work is still relevant.
“Businesses are still going to need somebody to navigate all this for them,” Blumling said.
Camilla Marlow, senior vice president at Sullivan Curtis Monroe Insurance Services LLC in Irvine, calls for a need for brokers to transition into a consultant role to help with a broader range of issues.
Knowledge Needed
“The days of simple insurance placement are gone,” Marlow said. “Brokers are expected to have a strong knowledge and service offering in areas such as financial planning, human resources, technology and communications. Our customers will look to us to assist them with not only an understanding of the regulation and how it affects them but also ways to meet the layers of requirements from employee notifications to reporting [and] cost containment.”
Meantime, the healthcare reform’s 15% cap on overhead spending by insurance carriers includes broker expenses.
“So there’s a squeeze on the amount of commission that brokers can earn,” Blumling said. “If the carriers need to find ways to increase their profits, one obvious way is to reduce the amount of commission they’re paying.”
Better Control
Precept is among brokerage firms offering to help business owners gain better control over costs. Its CarePlus program ties together insurers, employers and employees, with about 50,000 participating workers and 40 employers, most operating in OC.
“We’ve been able to negotiate with health plans to actually give credit to employers that hit certain health results,” Martin said.
“We did it not just because of the law but because we could see there was a sort of healthcare bubble forming,” he said. “With the rising demand for healthcare, providers are going to be able to charge more. We have to have a plan in place where our customers aren’t looking at significant cost increases.”
Martin said companies participating in CarePlus last year reported better cost management compared with carrier norms. Companies also said 55% of employees have taken health assessments versus a carrier average of 2%.
“The best thing as an employer is to reduce the demand for healthcare,” Martin said. “We wanted to get our customers prepared to deal with the fact that we’re going to have much higher demand for healthcare, mainly because of lifestyle choices and 85 million Baby Boomers hitting peak years.
“And because of the nature of the OC business community being more entrepreneurial and innovative, OC business owners are very interested in hearing about these type of ideas. They’re nimble and small enough to take action.”
