Health care insurance is facing many changes in the years ahead. Perhaps it is time to look at the annual renewal process and agent/broker commission schedules.
After 50 years of corporate health care insurance, it is evident that the entire system is broken. Each year, companies, agent/brokers and health care providers go through an annual dance of renewal that is time consuming, wasteful of assets and negatively impacts employer and employee.
On average, 16 percent of small companies change providers each year.
With annual premium increases in double-digit percentages, there are incentives to change carriers or tweak coverage. All of the parties involved go through an expensive process to get the best deal possible.
Among the reasons that companies often change health care insurance providers is the fact that agent/brokers selling the policies are motivated by the commission structure to encourage switching.
Unlike property and casualty and whole-life commission practices, most health care insurance agent/broker commission payments are high in the first year and then drop dramatically in renewal years.
A smart agent would therefore shop for a better deal with another carrier and counsel the business owner to switch, thereby making a higher commission.
For a stockbroker, churning an account is a good idea in the stock market; but over the years, account churning has significantly impacted the health care insurance sector.
Add to this fact the reduced commissions with lower costing high-deductible plans and it is no wonder CDH/HSA plans face a hard struggle.
Three-year health care insurance
While many state regulators frown upon the idea of a three-year health care insurance option for companies, this concept offers several sound reasons to be considered.
Benefits for the purchaser/user:
Over the past four months, I have discussed this concept with big and small corporate managers most of who reacted positively to this idea.
“Every year around the presidents’ birthday holiday, my HR manager comes to me to talk about next year’s health care program,” one owner-president said to us. “Then for the next five months, we talk, plan and begin to get bids and ideas. This takes time away from other things that need to get done. Besides reducing that process in two of every three years, it would be nice to know for three years what my costs would be.”
A negative came up in talking with a state regulator in New Jersey, perhaps one of the most change resistant and politicized oversight group in the nation. She said the three- year option would lessen her control and oversight and her feeling that the present system worked best for companies and individuals. When it was suggested that only a specified group of companies would be involved, she said that the insurance providers would only choose firms with good health records, leaving the others in a pool that would require higher premiums.
Gradually over time, the growth of education towards wellness that is growing among all companies many companies would build up to standards that would enable them to join the select group.
One actuary said his firm has looked at this concept for five years and analyzed various scenarios. During that period, his company made more money using this concept than in an annual renewal basis for a majority of companies surveyed.
Since most American spend less than $500 on health care services during a given year, this approach makes sense. This idea would greatly aid in the building of consumer directed usage. More importantly, it’s a way to save money, time and resources at a time when companies, agent/brokers and insurance providers need to do so.
After 50 years of corporate health care insurance, it is evident that the entire system is broken. Each year, companies, agent/brokers and health care providers go through an annual dance of renewal that is time consuming, wasteful of assets and negatively impacts employer and employee.
On average, 16 percent of small companies change providers each year.
With annual premium increases in double-digit percentages, there are incentives to change carriers or tweak coverage. All of the parties involved go through an expensive process to get the best deal possible.
Among the reasons that companies often change health care insurance providers is the fact that agent/brokers selling the policies are motivated by the commission structure to encourage switching.
Unlike property and casualty and whole-life commission practices, most health care insurance agent/broker commission payments are high in the first year and then drop dramatically in renewal years.
A smart agent would therefore shop for a better deal with another carrier and counsel the business owner to switch, thereby making a higher commission.
For a stockbroker, churning an account is a good idea in the stock market; but over the years, account churning has significantly impacted the health care insurance sector.
Add to this fact the reduced commissions with lower costing high-deductible plans and it is no wonder CDH/HSA plans face a hard struggle.
Three-year health care insurance
While many state regulators frown upon the idea of a three-year health care insurance option for companies, this concept offers several sound reasons to be considered.
Benefits for the purchaser/user:
- The corporate client would know his or her health care costs going three years out.
- Wellness and other programs to decrease costs would have time to work and would be more appealing.
- In smaller firms, the impact of one or two major illnesses would be ameliorated over the 36-month life of the program.
- Employees would not face learning new procedures and perhaps new health care providers each year.
- The first-year premiums would probably include a higher than normal increase thus helping to build a reserve for following years, regulators permitting.
- They could limit the program to select companies with demonstrated histories going back three or more years.
- Any usage abnormalities would be smoothed out over a longer period of time.
- The paperwork necessary for adding or subtracting new accounts would be lessened.
- Monies from the premiums can be allocated in a way to smooth out variations in cash flow and profits more easily.
- They would be assured of a three year commission flow, at almost the same rate as prior offerings.
- Their workload would be reduced, as they would not need to resubmit comparisons in years two and three but only at the end of the third year.
- The threat from poaching by other agents would be lessened if not eliminated.
- The agent/broker could concentrate on selling ancillary products and services to his or her clients.
Over the past four months, I have discussed this concept with big and small corporate managers most of who reacted positively to this idea.
“Every year around the presidents’ birthday holiday, my HR manager comes to me to talk about next year’s health care program,” one owner-president said to us. “Then for the next five months, we talk, plan and begin to get bids and ideas. This takes time away from other things that need to get done. Besides reducing that process in two of every three years, it would be nice to know for three years what my costs would be.”
A negative came up in talking with a state regulator in New Jersey, perhaps one of the most change resistant and politicized oversight group in the nation. She said the three- year option would lessen her control and oversight and her feeling that the present system worked best for companies and individuals. When it was suggested that only a specified group of companies would be involved, she said that the insurance providers would only choose firms with good health records, leaving the others in a pool that would require higher premiums.
Gradually over time, the growth of education towards wellness that is growing among all companies many companies would build up to standards that would enable them to join the select group.
One actuary said his firm has looked at this concept for five years and analyzed various scenarios. During that period, his company made more money using this concept than in an annual renewal basis for a majority of companies surveyed.
Since most American spend less than $500 on health care services during a given year, this approach makes sense. This idea would greatly aid in the building of consumer directed usage. More importantly, it’s a way to save money, time and resources at a time when companies, agent/brokers and insurance providers need to do so.
