Getting Over The New Normal

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” Charles DarwinMichael turpin

In her 1969 Book, On Death and Dying, Dr Elisabeth Kübler-Ross describes the five stages of grief.  Over a 27 year career marked by mergers, acquisitions, and perpetual change, I have come to accept these five stages as necessary rites of passage that humans must endure as they navigate the inevitable shoals of change. It seems we all must endure denial, anger, bargaining and depression before we finally break through to acceptance.

While we all intellectually agree that our healthcare system is broken and is in profound need of change, most preferred that all the heavy lifting required to reduce healthcare costs as a percentage of US GDP, occurred on someone else’s watch.  As Woody Allen once quipped, “ I don’t mind dying.  I just don’t want to be there when it happens.”

We know that chronic illness, escalating costs, opaque and uneven reimbursement practices, and a $ 38 Trillion unfunded Medicare obligation would eventually bring the nation to its knees.  However, it suddenly felt like the confederacy of agents, brokers, and consultants were passengers on a bus with no breaks that was careening toward a cliff of profound change.

And then it actually happened: health reform.  Prognosis: Uncertain.

Denial – Most brokers and agents objectively looked at reform as a flawed proposition as it failed to address fundamental cost drivers that were clearly contributing to unsustainable healthcare costs.  Brokers were witnessing 20%+ increases for small business, a limited marketplace of insurers, huge barriers to entry for competing health plans and a supply side of providers that were up in arms over serial under reimbursement from the government and a Darwinian reimbursement environment where only the strong could survive.  Our employer clients were angry with increases, predisposed to market their insurance each year to a limited field of insurers, consumed with avoiding disruption and content to cost shift to employees through higher deductibles and co-pays.  It seemed no one was willing to touch the third rail of healthcare – affordability.

High performance networks, promotion of primary care, an emphasis on personal accountability for health improvement and value based plan designs seemed too complex, cumbersome and indecipherable for many small, mid-sized and larger employers who felt they little capital left with employees to impose additional changes.  This reticence to be early adopters of critical cost management programs and the nature of fully insured pooling by carriers for smaller employers, conditioned employers to consider health insurance a commodity. Most brokers happily moved at the speed of their reluctant clients and remained in step with their insurance partners.  Instead of focusing on risk identification, and mitigation, the industry focused on risk transfer, a generation of brokers and agents built wealth but did not seem willing to risk provoking clients out of their own death spiral.  An entire industry was in denial.

Anger – As the Obama administration shifted its strategy from health reform to insurance reform, denial turned to anger as the industry found itself in the vortex of a poison populism. As insurers were pilloried for for-profit practices, and other third party players were painted as parasites draining the system of its sustainability, brokers felt their blood pressure rise.

The seeming hypocrisy of underfunded Medicare obligations, deficit financing by states facing billions in debt, a generation of consumers on the slippery slope toward chronic illness, employers overwhelmed and averse to change and an opaque and increasingly inflexible oligopoly of insurers – – led brokers to feel victimized and marginalized in the debate.

On the other side of the aisle, legitimate questions arose around broker value as critics witnessed commissions that rose with medical premiums and a lack of transparency on base and contingent compensation.  There was difficulty in determining value for services that did not seem to bend the medical trend curve, and seeming relationships of mutual convenience between insurers and brokers that created potential for conflict of interest.

When reform recently passed, brokers gazed across a horizon line of regulations and did not like what they saw.  Brokers recognized legislation as the first step in addressing fundamental flaws in the system but understood clearly that the Patient Protection and Affordable Care Act was uniquely focused on access and insurance market reforms.  It would not materially change the trend line impacting private employers – – in fact, it could very well make it worse in the near term.  Insurers driven by demands as public companies and possessing fewer levers to pull to impact rising medical loss ratios had become less flexible and defensive.

Brokers also recognized incentives in the new legislation that could accelerate the erosion of employer sponsored healthcare as costs would inevitably rise from increased adverse selection, government cost shifting, a new vouchers system allowing individual opt outs and less onerous penalties that could create tempting incentives for employers to drop coverage.

Questions are now being asked: Will the minimum loss ratio calculation pressure carrier’s retentions to where they will begin to unilaterally cut commissions?  Will insurance companies attempt to disintermediate us? Am I prepared to defend my remuneration in the brave new world of transparency? If I convert my larger clients to fee based remuneration will my margins be severely impacted?

Will my lack of size or premium with insurers make me less relevant and more susceptible to unilateral actions? Do I possess the resources necessary to compete in a world where impacting claims costs will be more relevant than entertaining, shopping insurance and adjusting plan design options? Will state connectors attempt to supplant my role as an advisor?

As costs increase in the near term from mandated plan design changes, underwriting restrictions, Medicare cuts and minimum loss ratios, will companion legislation not be far behind that establishes a state or federal rate authority to artificially control prices? Judging from the insanity in Massachusetts – a market exclusively managed by non-profit insurers, universal coverage has led to an affordability crisis and the most expensive healthcare in the US.  Are we headed over this same cliff?  Will a public option reemerge if we cannot reduce barriers to entry for new players to offer employers more choice? Am I going to end up living in a card board box ?

Bargaining and Depression– Career professionals are already beginning to rationalize.  “ We have until 2014 and many of the impacts will not be felt until 2018 and beyond. “  Others whistle in the dark, “ I just need to make it until my kids graduate college.”  This period of bargaining is a mental feint to prolong change as long as one can to avoid the pain of conforming to a new normal.

Some brokers may just sit down in the middle of the road resigned to a belief that if the insurers do not get them in the form of reduced compensation that employer sponsored healthcare will slowly erode and an increasingly crowded and qualified mid-sized and larger employer brokerage and consulting market will leave them little if any role to play.

Some are taking these changes very personally.  These brokers are becoming lightening rods in their local markets and catalysts elevating the discussion and debate about what next needs to happen to achieve access AND affordability.

They have accepted the axiom that any unsustainable trend eventually ends and that it has now happened on their watch.  Attention is focusing on how they can become focal points for local, regional and national change, They recognize they are not bystanders and third wheels but they are key influencers and the nexus between the supply and delivery sides of the business.  They recognize that they must write the next chapter of health reform and not merely be waiting to read each subsequent installment. Their grief has been brief, their anger channeled, their bargaining and depression endured and their entire focus now is on shaping the next stages of change.

Acceptance – Eleanor Roosevelt once said, “each person has a choice to either light a candle or curse the dark.”  The best and brightest in the brokerage community understand that to broker is to consult and to consult effectively, one must enjoy a trusted relationship with a client.  Any practice that erodes that trusted role should be avoided – especially if it is a legacy practice of an industry did not do a good job in changing our opaque and disconnected third party payer system.

Transparency creates enormous opportunity to delineate value.  If value is defined as “outcomes divided by cost”, the successful post reform broker will delineate their services, the outcomes they hope to achieve and the costs of the services they will provide.  Historically, many commission-based clients did not always know broker remuneration, did not employ service contracts and judged a good outcome as the absence of service disruption.  The world has changed.

Consolidation will create odd bedfellows and strange alliances.  However, in the brave new world, advisors must drive value across an entire employer organization.  While insurers will be struggling to dispel the notion that they are not worthy of margins beyond those of a utility, brokers will need to convey value and if they cannot achieve the critical mass and resources required to compete, they will lose business.

The pressure to create competition and choice may help lower barriers to entry in markets and create new competitors to traditional carriers.  More choice for employers requires more advisors to assist them in navigating through the minefields of competing carrier practices.  As companion legislation continues to evolve, the need to serve clients as a legal and compliance interpreter will be essential.  Merely copying new laws and emailing complex regulatory language to customers will weed out lower performers.  Clients want to know: How and when does this effect me?  What should I be thinking about?

Clients will require help in attacking the last frontier of healthcare – employee health and well-being.  The desert of good intentions is littered with the skeletons of ineffective wellness plans that merely nudged individuals toward healthy lifestyles.  True risk mitigation will require leveraging every aspect of the law to intervene to improve public health.  The best and brightest will recognize that a healthy worker is less likely to file a workers compensation claim.  A healthy worker will miss fewer days reducing absenteeism and costs associated with replacement workers. Population Health management will become as standard as loss control for property and workers compensation programs.  It is motivating to think that by structuring a preventive care plan properly, we can detect asymptomatic illness and significantly reduce the rate of lifestyle based chronic illness.

A Brand New Day: Health reform is not terminal.  However, it will require everyone to change.  We are entering a strange, new universe forged out of intended and unintended consequences.  However reform is also a relief because it is the beginning of a process (however unsavory) to arrest an unsustainable trend.  As citizens, free market capitalists and parents, we do not want to leave our children holding the bag with record deficits and massive public debt.  We always knew the process of taming entitlements and changing a dysfunctional third party payer system would be messy.  As most in Congress lack the political will to take on affordability, it will fall to us.

Regardless of the twists and turns in these first few chapters of what will most certainly be a Dickensonian saga, there will always be a role for smart, motivated, transparent and intellectually curious brokers and consultants.  The sooner each of us concludes our stages of grieving and gets on with accepting the new normal, the better chance we have to lock arms and demonstrate that we can be highly influential in a creating a better and more efficient healthcare system for tomorrow.

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17 replies »

  1. Gang,
    I have to admit this is not an industry crowded with Mensa members. And to some degree the industry flourished because the distrust of the insurers was greater than the question of value of the intermediary. Like any industry or even in healthcare, there are highly competent practitioners and low lifes. Most get paid by commission but increasingly fee based remuneration is the basis of pay – makes things cleaner and eliminates any perceived conflict of interest as to who the consultant is there to represent.
    There are some very talented firms and people that provide great advise to clients on how to structure compensation and benefit plans that attract and retain talent. They also have been effective advocates for some clients when they are dealing with increasingly opaque underwriting practices and complex benefit laws and designs. There are actually employers with negative trend due to their commitment to health and well being, value based benefit designs, eliminating barriers to care for chronically ill, creating incentives for engagement and penalties for lack of compliance ( not getting your A1C test when you are diabetic and it is covered at 100% )
    Employee Benefit brokerage is a worldwide industry. Brokers exist in every country around the world. Being based in Europe and the Middle East from 2000- 2003, I worked with brokers ( call them consultants, advisors, ombudsman etc ) from 30 different countries. They advised corporate clients ( mostly employers larger than 50 employees ) on a range of issues regarding A) compliance ( laws regulating health insurance , pension, employment law etc), B) benefit plans ( a range of benefits programs to supplement national health coverage – in most instances, employers bought supplemental coverage for their employees to allow them to opt into a flourishing private healthcare system, C) administration and communications ( regulatory reporting, employee communications around compensation and benefits, human resource administration and service outsourcing ) and finally, D) issue resolution ( seems some of the individuals that accessed the national systems did not always get their issues resolved in a satisfactory way – something called red tape ….) For what it is worth, when we do finally default into a single payer system and I believe we will out of economic necessity, there will be less red tape because there will be less discussion with the payer.
    So, in MC 2.0, some brokers – mostly larger, well resourced consultants who understand that this is a business not about procurement but advising – will thrive in the new normal. The intermediary that stops changing and does not understand that transparent systems are ruthlessly efficient will simply disappear. This is a mature, slow growth industry.
    To the Frank1, I only wish I got paid per word. As for my view of the future of brokers, my offering is one part catharsis, two parts reality and a tsp of empathy – and it is completely potable.

  2. Michael,
    Great article. I couldn’t agree more, specifically concerning your take on brokers. What our system needs to do is leverage data and technology. Transparency will also help to expose the cost drivers. The Brokers and carriers are making money hand over fist. Their income increases with the annual increases of premiums. Where do you think their vested interest lies?
    I work for http://WWW.WellNet.COM , we have a web-based platform which houses medical, Rx data, and coordinated/specific wellness programs. Our proprietary software analyzes, uses predictive models, and engages the employer’s unhealthy portion of their populations in order to drive down costs.
    The annual procurement process is broken. Cost shifting, reorganizing plan design, and reducing benefits are only band-aids to the issue. A businesses 3rd to 5th highest line expense needs daily management not annual and/or quarterly backwards viewing.
    Educating people about generic alternatives and implementing incentive based wellness programs have immediate affects. When are we going to finally get rid of the broker and the unsustainable status quos?
    Data is the key and turning it into actionable information is the name of the game.

  3. Writer must be a lawyer. Paid by the word. When 10% would (1) get to the point and (2) save everyone time and money.
    Obama will be defeated, but the writer made it easy for the Rookie President.

  4. not sure of that was sarcastic or not MG but I’ll say thanks just in case it wasn’t.
    So far forgoing attorneys has worked very well when I have. To many are crooks and those that aren’t charge more an hour then I make a week.
    We all know WebMd made Doctors ilrelavant.

  5. Nate – You would choose to represent yourself in a civil/criminal court or rely upon your own resources to diagnosis a medical problem? Good luck with that.

  6. in 35 years of “reform” every time congress passes anything major they create more work and entire new industries. Small group, even more then large group, will need the assistance of brokers to comply with all this as they don’t have the staff or resources.
    ARRA COBRA is a great example, every time there is an extension phones ring off the hook asking what they are suppose to do.
    Do we offer insurance or pay the penalty, please do the math for me
    And the one we can always count on, X group of politicians just passed Y law and our premiums are going through the roof becuase of it, what can we do?
    I see a whole new market for brokers selling individual, carving sick employees out of group plans and putting them on guarantee issue individual policies. If as an employer you can pay a $2500 fine or what ever it is but save $100,000 in claim cost why not?
    Another new line of work, brokering or selling time slots to physician office visits. With the shortage we are about to have an appointment will be gold. Single guy can use it as a pick up line, ya babe I gots a monthly 2 o’clock appointment drop that rich good looking guy with the nice car and suit that can’t even get you in to see a doctor. Wonder if I could start booking appointments for 2014 now?

  7. Here is a very safe statement: brokers will become less necessary for segments of the industry (individual and small group markets), but they will not disappear entirely. At least, not as a result of this round of reform. I don’t see how it affects large group at all.

  8. how are they different besides the obvious speciality in which they pratice? You don’t need an account to do your taxes or books, you choose to hire one because it is easier then learning it yourself. Same with Attorneys and doctors. Your paying for someone else’s time becomming a master of their field.
    You don’t need to pay an agent 3%, there are many that will settle for less. Are the services of an agent worth 1%? The problem with RE agents is they charge 3% no matter the price, its our crisis in real estate I am sure congress will be addressing any day now. 3% of a $40,000 condo doesn’t cover expenses. 3% of a million dollar home is a waste and overpaying.
    I don’t care for attorneys, with a little work a file most corporate documents myself and represent my self in small cases. Same could be said for every profession I listed, that is the point.

  9. “Have you ever used or are you also suggesting we do away with Real Estate Agents, Attorney’s, Car Salesman, Accountants, and even doctors?”
    Apples and oranges Nate. Attorneys/Doctors/Accountants are generally different from real estate agents & car salesman.
    As for doing away with car salesman and real estate agents, the answer is largely ‘yes.’ With all of the information on pricing available today on autos including what it costs a manufacturer to make a car & get it to the dealership, the auto salesman has largely become redundant. I can just as easy shop online and get price quotes for the exact model/features I want in a car. Plus, I don’t need some auto salesman to tell me how a car drives.
    Same on real estate agents who charge a ridiculous commission on their service in comparison to what they actually accomplish in most cases. It is not as easy to shop for a house as a car for a couple of reasons but I could gladly forgo the outrageous large fee that real estate agents charge to do the education & legwork myself.

  10. “As citizens, free market capitalists and parents, we do not want to leave our children holding the bag with record deficits and massive public debt.”
    In the early 1990s, projectors draw upon historical norms and assumed that Baby Boomers would save at near although somewhat lesser rates than their parents. Well, for several reasons it turned out that Boomers have saved about a 1/3 of a rate of their parents.
    Worse yet, neither side is serious about the deficit. The fools on the right continue to preach the mantra of ever decreasing taxes (capital gains, estate taxes, corporate taxes) on everything but payroll taxes and bloated military spending that is around 15% of GDP and the jokers on the left continue to spend on a huge clip & even look at ways to expand Medicare benefits & coverage.

  11. “Instead of focusing on risk identification, and mitigation, the industry focused on risk transfer, a generation of brokers and agents built wealth but did not seem willing to risk provoking clients out of their own death spiral.”
    True from the one employee broker office in some rural town up to the large national brokers. You would never be blamed if you just spread sheeted BUCA and told them to pick one. Even now employers aren’t holding their brokers responsible for finding and implementing solutions, all of which leads me to argue the crisis isn’t as bad as people claim or they would do something about it.
    Peter and Mark couple questions for you, and as much education as you can absorb at no cost.
    Have you ever used or are you also suggesting we do away with Real Estate Agents, Attorney’s, Car Salesman, Accountants, and even doctors?
    They all perform the same task an insurance broker does. None of them are required, you can manage your own books, argue your own case, and even diagnosis your own illness. Surgery might be tough but I am sure your spouse can Google it. Hopefully you realize the ignorance of your comment.
    So you should now have progressed pass the thoughtless argument that brokers serve no purpose to asking, what value they provide. First you would be correct in saying some brokers have no value. Just as some Attorneys, Doctors, Accountants and other professionals also have no value and actually cause considerable harm. They are they exception.
    A broker first serves a clerical function of obtaining quotes. Off the top of your head name the top five carriers in your market and their fax number. If there were no brokers people would be forced to shop on their own which can be highly inefficient. This is proven out in Auto Insurance where the average person only shops every 5 years and looking at State filings something like 75%+ of auto policy holders could have a cheaper policy if they did. It is a pain shopping the entire market, hiring someone to do so saves time and money.
    Second they are an independent and educated resource for comparison. Can you look at two network directories and tell which one is better? How does Insurance company A pay claims compared to Insurance company B? If I need this treatment will it be covered and how do I file the claim. In summary how do you aggregate the knowledge of thousands of people without calling thousands of people and asking, this is what a broker brings to the table.
    Service is Third. Do you have all day to stay on the phone arguing with your carrier on why a claim wasn’t paid? Do you even understand why they say it wasn’t paid. A broker can cut through all that and have a solution before most people even comprehend the EOB. Again hiring a broker is far more cost efficient then doing it yourself.
    Peter you display this logic deficiency all the time, you gladly pay $1.20 for what should only cost you $1.00 all day. Mark no idea what your problem is. You obviously never worked with Medicare or anything like universal coverage. People hire consultants, universal version of a broker, to manage their interaction with Medicare all the time. What do you call the attorney’s who represent people with SS and Disability and Medicaid. They are performing the same work a broker does in the system designed by universal coverage. Little hint for you, if you think a broker is expensive check out what Attorneys make per hour.

  12. If your healthcare policy needs brokers and salespeople then you have the wrong policy.

  13. Brokers need to consider that there may be no role for them (and no commissions) in the future. They only exist because of our inefficient, fragmented method of financing insurance. As we move to universal coverage, they (and their costs) should go away.

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