While the presidential election will determine the long-term future of the Affordable Care Act, new research from Arthur J. Gallagher & Company reveals that a growing number of employers aren’t waiting for November to take action – and that action could displace brokers from their longtime role in small group health insurance.
The 2015 Benefits Strategy & Benchmarking Survey, which collected data from roughly 3,100 US employers, found that more than half experienced a 5% increase in health insurance premiums this year, and one in four endured jumps of 10% or more. The ongoing pricing pressure is causing companies to consider alternatives that would cut costs, but still allow them to offer benefits that attract and retain top employees.
Unfortunately for brokers, these alternatives don’t always leave them in a financially sustainable role.
While some businesses are opting for telemedicine or narrow network plans (projected to include 27% of all employers by 2018), by far the biggest growth will be in defined contribution plans.
These reimbursement structures, in which employers provide workers with a lump sum to use in purchasing their own insurance, are still gaining traction. Just 2% of employers use defined contributions, according to the Gallagher survey, but that’s expected to jump an additional 15% by 2018. That’s a whopping 650% increase in just two years.
The findings reflect earlier efforts to divine employer intent with regard to group benefits. A 2014 report from Towers Watson and the National Business Group on Health found that as many as three in four employers weren’t certain whether they would offer health benefits to their workers in 2024 – a record low since the two industry bodies began surveying employers nearly 20 years ago.
“That is very much a function of the uncertainty swirling around in the healthcare landscape right now,” said Randall Abbott, senior strategist at Willis Towers Watson.
Two years later, that uncertainty is still present. Attracted by the savings, ease of use and potentially more suitable plans in the individual marketplace, employers are considering the defined contribution strategy much more seriously than they have in the past – particularly in light of the expected passage of the Small Business Healthcare Relief Act, which would explicitly endorse the use of pre-tax employee reimbursement schemes by companies with fewer than 50 employees.
While brokers can advise and help facilitate such arrangements, it does often mean a significant loss of commission for the broker. Many companies adopting defined contribution plans refer employees to the broker, who can help select individual plans through the Affordable Care Act marketplace, but rapidly decreasing commissions in the space aren’t enticing many to stay in the market.
High costs and poor financial performance has led several carriers, including heavyweights like UnitedHealth and Anthem, to decrease and even axe the money they pay brokers for selling and servicing plans on the exchanges. Despite the fact that brokers are involved in between 40% and 60% of exchange plan sales, depending on the state, this behavior has only increased as insurers look to cut costs.
“Certainly when you look at what goes into servicing clients, it’s much greater than [just selling plans],” said Keegan. “At what point will agents and brokers even want to stay in this business?”
For some, that point has already passed. Insurance brokers in Connecticut, where both remaining exchange insurers are considering cutting commissions, have threatened to leave the exchange if those plans go forward.
“Many of my colleagues have already positioned themselves to exit,” said Westport, Connecticut broker Mary Jennings.
Group health clients in 2025? Maybe a few
1 in 4 businesses see group health rates rise more than 10%: Report