When President Obama signed the Patient Protection and Affordable Care Act into law on March 23, 2010, big changes for insurance agencies got underway. Though the industry has monitored the legislation closely, it is complicated and difficult to understand. As a result, an education process began to take shape for agents to understand the impact of the law as we move forward.
Part of the challenge is that the rules for implementing the new law are still being written. Nevertheless, now is the time for small agencies to start looking toward the future and making changes to remain viable.
For small agencies that work primarily with businesses that employ 25 individuals or less, this is especially important. Many of the changes under the new law could affect how small businesses choose to provide benefits and what benefits they provide.
In particular, the creation of state insurance exchanges in 2013 could have a tremendous impact on where employers purchase health insurance. According to the government plan, the exchanges will make insurance more affordable by pooling individuals and small businesses together to bring costs down. Initially, the exchanges will only be open to employers with 100 employees or less.
If the exchanges are indeed a more cost-effective option for smaller employers, they could cut many agents out of the health system.
Small agencies have three choices going forward: invest in the technology and infrastructure to support large groups, merge with a larger agency that has those capabilities, or move toward a more worksite-focused strategy.
Option 1: Investing in technology
Investing in the technology that is needed to service large groups and keep up with new regulations established by the PPACA, many of which still remain unknown, has its risks. But, as with all risks, it may also have its rewards.
Before you dive in, you should know a few things about your market. First of all, know your local area well. Are there many large groups in your area? Do they have established relationships with their current agent? Those are the kinds of questions you need to answer to determine if your investment would have adequate potential for return.
Option 2: Merging with a larger agency
Regional agencies are growing in popularity and will likely continue to do so in the near future. If you are a small group agent considering merging with a larger agency, make a list of attributes you would like the company and its owners to have. Larger agencies can help you grow your client base by providing the technology, customer support, and infrastructure needed to meet federal requirements and service larger group clients.
Option 3: Refocus your strategy
Imagine if 70 percent of a business was small groups and a large percentage of those businesses went with the insurance exchange option. Most small agencies could not survive that kind of loss. Instead of the health and life insurance strategy they have pursued for many years, smaller agencies should begin diversifying their expertise through worksite benefits such as cancer, long term care, and other supplemental policies, which will not be available through insurance exchanges.
Though benefits may be less expensive, the new challenge for employers will be educating employees about the benefits they are eligible to receive through the exchange. That’s where small agencies can add value to their relationships. By focusing on the sale of worksite products and offering employee education on all plans, small group agents can remain a valuable resource to their clients. Maintaining the client relationship will help agents produce better sales of the true ancillary products such as: key employer insurance, buy-sell policies, individual life policies, and of course, the new products that will be developed for payroll deduction cases to specifically address the gaps created by the exchange plans. If there is anything certain about health care reform, it’s this: change is on the way, and change always creates opportunities if you look at the glass as half full.
In order to best serve our clients, agents working with both large and small group employers need to be as educated about the exchange as possible. Stay on top of all the regulations and implementation plans being developed. Stay informed on the latest information by subscribing to newsletters from carriers. Also keep in mind that some of your best resources are the leaders in your industry and your worksite carriers that have a vested interest in health care reform.
The bottom line: Be a resource for your clients, think ahead, and be informed.
David Combs is director of ancillary product for Arison Insurance Services, Inc., a full service employee benefits brokerage offering a comprehensive array of insurance and financial products for individuals and businesses. He can be reached at [email protected] or 606-877-4267.