Offering a health insurance solution to clients can make you a hero
By Michael J. Moody, MBA, ARM
Employee health insurance coverage has become the number one challenge for chief financial officers. They are very receptive to new ideas that can help limit their company's liability in this critical area.
The current hardening property/casualty insurance market is proving to be a concern for many property/casualty insurance agents and brokers. Rising rates, shrinking capacity, extended underwriting processes and angry customers have left many agents and brokers thinking about their career choice. Despite these day-to-day ordeals, some agents and brokers realize that while things are bad on the property/casualty side, they are worse on the health insurance side. They realize that if they could find a viable solution to the current health insurance crisis for their customers, they could significantly expand their business.
Such a solution is available--and it was the topic of a recent one-day seminar in Chicago. The solution, "consumer-driven health plans," can provide a unique opportunity for property/casualty agents and brokers to integrate health insurance products into their operations. While the property/casualty market may be in disarray, the health insurance business has been described as a "train wreck." And with annual increases projected at 10% to 30% per year for the next three to four years, who can dispute this characterization? According to Julius G. Alberico, CEO for Humana-Chicago, the current situation has left many employers "frozen, like a deer in the headlights."
The problem no longer is confined to the human resources department. In fact, Tom Lerche, senior vice president for Aon Consulting, pointed out that employee health insurance coverage has become the number one challenge for the chief financial officer. It now has the attention of upper management, and they are very receptive to new ideas that can help limit their company's liability in this critical area.
While consumer-driven health plans are an emerging concept, and there is not a universal agreement regarding the exact design of the business model, one approach appears to be dominating the current offerings from insurance providers. This approach is centered on a plan that utilizes a high deductible combined with catastrophic insurance protection. Funding of the deductible portion is via a health reimbursement account (HRA) to which the employer makes a contribution.
A recent IRS ruling (Rev. Rul. 2002-41) has cleared the way for the use of the HRA for eligible health care expenses. Ashley Gilliham, associate at Alston & Bird, LLP, noted that HRAs could now be used to satisfy the plan deductible, co-payments and out-of-pocket expenses. He also noted that any unused amounts that are left at the end of the plan year are permitted to be carried over to the next year. This eliminates the "use it or lose it" feature that the IRS had adopted with regard to Section 125 regulations. Additionally, the ruling states that any amounts deposited in the HRA will be tax-free for the employee. While Rev. Rul. 2002-41 did not provide everything that employers would have wanted (e.g., portability between companies), it represents a significant improvement over the previous IRS position. The ruling should greatly accelerate the implementation of consumer-driven health plans.
While there are a number of reasons for the projected increases in the health insurance area, one of the key reasons is that managed care has come to the end of its usefulness. At this point, everyone is frustrated with the current health care system, according to Daniel "Stormy" Johnson, MD, former president of the AMA and World Medical Association. "It is full of disconnects and represents an administrative nightmare," says Humana's Alberico. Movement to the consumer-driven health plans will empower the employee/consumer to make more cost effective choices, which over time will reduce the overall cost of health care. Alberico notes that managed care actually did a disservice to employees because it introduced the concept of "behavior without consequences." That is one of the major reasons for the current health care crisis.
A number of speakers noted that the consumer-driven health plans appear to be the most viable long-term approach to slowing the increasing cost of health care. They noted that currently a number of carriers offer consumer-driven health plans. In essence, they fall into two groups:
Start-up Companies--A handful of innovative companies began offering consumer-driven health plans about two to three years ago. These companies have the most experience with this product but suffer from limited health care networks, according to Aon's Lerche. Among the leaders in this group are Definity Health, Luminos, Destiny Health, myhealthbank, Health Allies and Health Market.
Established Provider--Over the past six months to one year, a number of well-established insurance providers have begun developing and offering consumer-driven health plans to their customer base. At this point, most of these programs are still being fine-tuned and as a result are offered only in limited areas. Carriers that have introduced consumer-driven health plans include Aetna, United Health Care, and Humana.
There was universal agreement among that the seminar presenters that employers can no longer afford to not get the employee involved in the purchasing transaction. As Scott Keyes, senior group and health care consultant for Watson Wyatt, said, "It is simply not an option."
Successful results from a consumer-driven health plan, however, depend heavily on changing the behavior of the employee/consumer. It will be important to switch the employee's focus from the current entitlement mentality to one of an empowered consumer. In that regard, a significant amount of targeted communication and education must be directed at the employee. Most of the insurance carriers that offer these products can assist with this important aspect.
The one question that was addressed over and over during the one-day session was: Are consumer-driven plans the answer for today's rising health insurance costs? Most of the speakers did feel that this approach will be the answer to controlling the long-term cost associated with employee health insurance. However, many were in agreement with Aon's Tom Lerche who noted, "This is like a highly rated minor league prospect that is called up to the big leagues midway through the season." Mr. Lerche added that, while the prospects are bright, "most people realize that he should have spent another year in the minors, but the majors need him now." In a perfect world, consumer-driven health plans should have had another year to mature, but they are needed in "the majors" today. Accordingly, we should expect continued evolution of these products over the next year or two.
For property/casualty agents who are looking to expand their operations to include health insurance products, the movement to consumer-driven health plans provides a unique opportunity. Today, the CFO has had to step into this traditional human resources turf. And, according to Aon's Lerche, the CFO has no loyalty to the current health insurance programs or providers. Additionally, CFOs are excited about the potential of limiting their corporation's liability for health coverage. It would appear that agents who are willing to bring innovative products such as consumer-driven health plans to the attention of the CFO should expect a high degree of interest on the customer's part and a wonderful cross-selling prospect for the agent or broker.
In order to support the educational efforts of interested parties who want to learn more about this unique situation, Rough Notes is publishing a Web-based newsletter that is specifically geared to consumer-driven health plans. An advertisement on page (xx) provides details about the newsletter and, for a limited time, readers of Rough Notes can obtain a $50 discount on an annual subscription. *
The Author
Michael J. Moody, ARM, is managing director of Strategic Risk Financing, Inc. (SuRF). SuRF is an independent consulting firm that has been established to advance the practice of enterprise risk management. The primary goal of SuRF is to actively promote the concept of enterprise risk management by providing current, objective information about the concept, the structures being used, and the players involved.