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Turning Medicare Headaches Into Broker Opportunities

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Retiree health benefits have been in the headlines for much of 2006–and the bottom line has been grim.

Here are some examples:

–Large companies, such as General Motors Corp., Detroit, are spending so much on retiree health coverage that they either are losing money or are struggling to compete in a global economy that forces them to cut overhead to the bone.

–Many seniors had trouble getting vital medications and complained bitterly about expensive co-pays, as states transitioned their Medicaid population to the new Medicare Part D prescription drug plan. In addition, many retirees continue to drag their feet on signing up for Part D, reluctant to make choices about options they don’t understand.

–Government agencies are increasingly under fire for generous retiree health benefits that soak up dollars and deplete budgets that should be providing services to the public.

The backdrop for these headlines isn’t encouraging. Health care costs continue to rise at double-digit rates across the country. Baby boomers are beginning to leave the work force, skewing the population toward retirees. Diseases are becoming more complex to manage and costlier to treat.

At the same time, benefit agents, brokers and consultants are seeing an increasingly challenging and competitive market. The products and services they successfully have sold in the past are becoming price-sensitive commodities, with customers focused on cost rather than added value or differentiation.

Does the future hold more of the same–or can brokers look at the convergence of these issues and find an opportunity to turn the headlines and frustrations to their advantage?

Certainly the latter as brokers should position themselves as problem solvers rather than product pushers. By creating a health care benefit strategy that gets employers out from under their headaches, brokers can create a long-term relationship with their customers that will pay dividends well into the future.

What can you offer employers? A new approach.

For decades, benefit consultants advised companies to pool retirees with active employees for health care benefits–a strategy that was fine before prescription drug and other health care costs soared and when active workers outnumbered retirees, who usually didn’t live long after leaving the work force.

Today, companies are urged to carve out retirees from the active population and address their health care needs with a separate plan. The benefits for companies include:

–Reducing the costs of administering retiree health care. This includes taking the burden off overworked human resources staff, shifting the cost of health care processing and oversight, and reducing accounting responsibilities;

–Consolidating into one single plan and eliminating the patchwork of contracted health care providers that most national companies are forced to put together when they self-insure;

–Taking the costs for health care commitments to retirees off the current books by turning them into an ongoing, certain expense instead of a future, estimated liability; and

–Beginning the process of recasting the responsibility for retiree health care, shifting from a defined benefit commitment to a defined contribution approach that provides more stability in future expenses for the company.

Brokers who are wary of Medicare Part D because of the negative headlines should know the time is right to view the prescription drug program as a real moneymaker. In 2006, many companies opted for the federal government’s 28% subsidy to continue their existing retiree drug plans. But now they are suffering under the weight of the federal government’s considerable administrative burden of qualifying for the subsidy and are searching for a way out.

What’s more, many companies are abandoning the subsidy as too costly and are seeking private-sector solutions to their prescription drug headaches. One large Midwestern manufacturer, for instance, gave up the subsidy and is saving 55% on out-of-pocket costs and also sliced co-pays for retirees in half just by going into the private market. That’s just the beginning, as many more employers will shift their retirees to Part D in 2007.

The savvy broker can begin calling companies, not merely to offer a price quote but to help potential customers adopt a new strategy. By providing a customized solution–which can include an employer Medicare Part D solution, small group plans and other options–brokers can turn 2007 into a year of opportunity.