Ahead of the curve
Vermont agency prepares itself and its clients for new federal health care reform regulations
By Len Strazewski
Health care reform rings a warning bell at many independent agencies. New federal regulations are changing benefits plan designs, health plan marketing and agency compensation across the country, and could undermine agency profitability.
The Richards Group in Brattleboro, Vermont, faces some of the toughest reform challenges, but has already reorganized its benefit services to comply with new state insurance regulations—and take advantage of strategic opportunities they provide, says managing principal and employee benefits specialist Tom Scull.
Founded in 1948 in Brattleboro, The Richards Group has evolved through three generations of family ownership. It has grown to more than 80 employees with seven offices in its home state and New Hampshire. Thomas Insurance & Benefits in Rutland, Vermont, was the agency's most recent acquisition, completed just before the end of 2012.
Thirteen employees work in employee benefits operations which generate more than 30% of agency revenues. Benefits, Scull notes, have had the fastest organic growth rate in the agency of the past 10 years. Commercial property/casualty insurance has also grown—but more through acquisition—so the overall ratio of P-C to benefits has remained stable over the past several years.
Health care reform changes, however, could upset that pattern of growth as employers reexamine their benefit plans or shift their business to state insurance exchanges. An employee benefits agency for more than 30 years, The Richards Group plans to hold tight to its business by targeting the unique needs of its large and smallest clients to prepare for a future that is likely to disrupt the decades of agency/client relations, executives say.
Change is inevitable, Scull says, but he notes that despite new federal regulations and the resulting state insurance exchanges, employers are still likely to need the guidance of agent and broker benefits experts—even though some employers may decide to opt out of providing group health benefits.
"Employee benefits are still the second largest employer expense (beyond salaries)," he explains. "And even though the law will allow employers to withdraw from group benefits, the majority is likely to continue to provide benefits to remain competitive in their ability to recruit and retain top employees.
"But the majority of employers also do not give this expense item the attention it deserves," he says.
Health care reform changes, however, provide the agency with a fresh opportunity to connect with its larger clients at the highest executive levels, to review their options and develop multi-year strategic plans that will carry them through the transition.
Scull says the agency still maintains strong relationships with the human resource departments that manage day-to-day benefits issues, but has focused more on educating and advising top executives—chief executive and chief financial officers—who oversee corporate investment in human capital for large companies and manage benefits budgets.
These employers are likely to need more guidance—not less—to successfully navigate the new regulations and redesign benefit plans to comply with the likely changes, he says. Agency executives meet with large clients on a monthly basis to help them track performance and stay informed on the latest benefits developments.
Leading among the challenges for smaller employers, he adds, is the introduction and implementation of state health insurance exchanges. Though the Patient Protection and Affordable Care Act mandates all states to have insurance exchanges to sell group and individual health plans, Vermont will require all small employers—50 employees and under—to purchase insurance through its exchange.
As a result, Richards Group has reorganized benefit operations into exchange-based and non-exchange teams, reflecting the unique needs and services of the clients in each category. The agency has three teams serving larger clients with more than 50 employees and one team focusing on smaller clients who will be required to buy coverage from the exchange in Vermont and may be likely to buy coverage from the New Hampshire exchange.
Jackie Brady, an account executive and large group team leader, oversees service for 10 of the agency's largest clients, ranging from 200 to 500 employees. Cost continues to be the biggest concern of this employer group, she says, but fallout from health care reform is fast becoming another dominant concern.
"The Northeast is known for having some of the richest employee benefits in country," Brady explains, "and many of our clients have rich, rich plans. They are concerned that they may be subject to the Cadillac tax for excessive benefits, and how that will affect their cost structure.
"Employers are asking us how they can plan for their future as costs continue to increase and as the regulatory environment changes," she says. "As they decide whether or not they want to continue to provide health benefits, they are asking, 'What is the best fit for us?'"
Brady says that about 90% of larger employers have already implemented consumer-directed health plans such as Health Savings Accounts (HSAs) or Health Reimbursement Accounts (HRAs) and many self-fund some portion of health claims.
Leading health plans in the area include CIGNA Health, BlueCross/Blue Shield of Vermont, Anthem Blue Cross of New Hampshire, and the regional Mohawk Valley Plan (MVP Health).
Many of the employers have made strong commitments to wellness programs, usually choosing wellness services supported by their health plans, such as Accountable Blue from the BC/BS plans or the agency's own wellness partners.
Employer-paid ancillary benefits such as vision care and dental insurance are common, often packaged with health plans or available through voluntary benefit plans.
The Richards Group is projecting out costs and impact through 2017 as a first step in developing a strategic plan and exploring various plan design options, including plan options that offer new levels of self-funding and prescription drug carveouts, Brady says.
Scull says many of the agency's larger clients are likely to move toward a defined contribution model, identifying an individual pre-tax cash allotment that employees can use to contribute to an employer-sponsored health plan, buy individual health insurance or invest in ancillary or voluntary benefits such as vision care, dental insurance or short and long-term disability insurance.
Scull also says The Richards Group has moved many of its larger clients to fee-based compensation where allowed by state regulation, representing the broader consultative process and wide range of benefits-related services available to the clients.
"We are converting everything we can to a fee basis, with the exception of voluntary benefits that are strictly commission-based," Scull says. "It is important that we demonstrate to our clients the return on their investment in our services and the appropriateness of our compensation."
Barbara Harris is an employee benefits advisor and team leader of the small business exchange group that will be purchasing health benefits from the Vermont exchange. State regulations prevent agencies from charging for exchange-based purchases, but the small businesses are still important to the agency, she says.
The agency represents about 800 small businesses, many of which have five or fewer employees, but this niche accounts for about one-fourth of the firm's benefits revenue.
Harris acknowledges that the agency may lose some of this small business revenue as the employers shift to exchange purchases or abandon group benefits. But until next year, the businesses require help in analyzing their and their employees' positions.
Some businesses may need to continue to sponsor group benefits or add new benefits to keep their competitive positions. Others may want to help employees qualify for individual health plan subsidies.
However, she says local employers are unlikely to abandon their role as benefit plan sponsors. "Employers are very used to their role as benefits providers and are most likely going to remain committed to providing employees with quality health care," she says.
In anticipation of so much change, The Richards Group has also expanded and diversified benefits services to provide more sophisticated options to non-exchange employers. For example, the agency is a member of United Benefits Advisors in Indianapolis, Indiana, an organization of 140 benefits specialists in North America and Europe. UBA provides members with benefits best practice expertise, technology tools and an annual benefits benchmarking survey.
Scull says UBA helps the agency provide Internet-based benefits technology, national consulting services and regional and industry competitive information.
The agency has also developed a partnership with Kersh Health in Plano, Texas, a wellness company that provides levels of wellness programming that range from employee health education to comprehensive health screening. The company has patented movement measurement systems called Qscore and Kinetic Activity Monitor, used in tracking healthy activity that can be incorporated into health promotions and activities.
Internally, the agency provides health advocacy services staffed by a medical claims specialist who can respond to employee questions and concerns and help them navigate the sometimes-complicated health care and health plan processes.
The advocacy service is very popular with employers and individual employees and helps the agency differentiate its service proposition, Scull says, but the agency has yet to turn the service into a distinct revenue steam.
The agency is considering increasing human resource outsourcing services, Scull adds. Human resource departments continue to clamor for support from their agencies, Scull says, and employers continue to reduce staff in human resource departments.
Len Strazewski is a Chicago-based writer, editor and educator specializing in marketing, management and technology topics. In addition to contributing to Rough Notes, he has written on insurance for Business Insurance, Risk & Insurance, the Chicago Tribune and Human Resource Executive, among other publications.