Compelling the consumers: benefits brokers can provide the traction employers need to switch workers to consumer-driven health plans.

Let's play microeconomics. You are a distributor of a product that has been experiencing annual price increases of as much as 20% for several years. Your revenue is a percentage of that ever-climbing price. When the price goes up due to external factors beyond your control, so do your commissions. Do you want things to change? Of course not.

But on the demand side of this economic model, the customers of this product have reached the saturation point and can no longer absorb the higher and higher prices.

Such is the predicament facing America's employee benefits brokers. They advise corporate customers on what health insurance plans should be offered to employees. That job has become much easier in many ways because insurance carriers have been consolidating aggressively, limiting the number of policies available to employers. In virtually every market, there is at least one carrier representing at least 30% of policies sold.

At the same time, the cost of health coverage has been compounding at alarming rates for years--from 12% to 30% annually. The ability of brokers to negotiate bargains has dwindled. With an apologetic shrug of the shoulders they walk into renewal meetings blaming the state of health care for the unavoidably high premiums.

For several years now, employers have tried to limit their own costs by shifting more and more of the cost increase to employees. The only recourse for a company nowadays is to quit providing health benefits altogether or search for a radically different approach.

Employers Drive Transition

The price escalation is untenable for all parties--for employers because they cannot predict and manage their benefits costs year to year, and especially for employees who have been forced to relinquish more of their paychecks to fund higher premiums. Enter a remedy that has been bubbling underground for some time: consumer-driven health care. Place a fixed amount of health-care money in the hands of employees and dependents, engage them in the process of making smarter decisions about medical care and see the cost of health care equilibrate. In essence, the rationale is if they spend money from their own account, people will more judiciously consume medical care. Ultimately, doctors and hospitals will take the black box off the price of services and become more competitive. Then, Americans can behave like real consumers, buying medical care like they buy auto insurance.

Complement this account with a high-deductible health plan and consumers are protected in times of catastrophic expenses. The premiums of high-deductible health plans can be as much as half that of their traditional counterparts--an amount employers would gladly pay. Many companies are even willing to direct some portion of these savings into Health Savings Accounts or Health Reimbursement Arrangements for employees to use until the high-deductible plan kicks in.

The broker advising a client on how to control health costs will inevitably need to put a consumer-driven health strategy on the table, replete with a high-deductible health plan and Health Savings Account/Health Reimbursement Arrangement. These new accounts are not insurance policies, and there are no appreciable commissions to be earned on them. Worse yet, the premiums on the high-deductible insurance plans are cut dramatically. Thus, agencies risk giving up a large chunk of revenues as they escort their customers into the world of consumer-driven health care. It seems the incentive is there to not rock the boat until the client starts leaning over the side.

So what do brokers really think about the consumer-driven health trend?

Managed Care Deja Vu 

Those in the business from the late 1980s into the 1990s would note some uncanny similarities. Like consumer-driven health care, managed care was an inevitable repair to an unsustainable state of affairs. Indemnity plans imposed no discipline on patients or providers to keep costs in check. Premium costs were rising without bound. The Health Maintenance Organization and its spin-offs offered a ray of hope. Brokers were initially skeptical and not too thrilled about what this meant to their businesses. Workload increased because HMOs created more educational burden for brokers who had to help their clients wean employees from going wherever they wanted for care. More devastating was the impact on an agency's bottom line because HMOs carried lower premiums.

Were the brokers the first in line to promote managed care? Only the most progressive who were able to see the handwriting on the wall became early adopters. They opportunistically mastered the sale of these programs to grow their businesses. Despite a slow start, managed care was a force to be reckoned with, and the laggards eventually followed.

Survey: Brokers Optimistic 

Despite the doomsday prospect of commissions slashed by the transition to consumer-driven health care, there is surprising optimism in the broker community. In May 2006, OnlineBenefits Inc. conducted a survey to gauge the group benefits broker's perception of consumer-driven health care. Of the 330 respondents, 62% are producers or business owners; the rest are account managers and administrators.

Clearly, the principal reason to adopt consumer-driven health care is to rein in health-care costs, as opposed to a softer objective such as employee empowerment. To that end, nearly six of 10 believe consumer-driven health care is a step in the right direction toward cutting costs, but do not believe it's likely to be the silver bullet (as did 19% of respondents). In contrast, employers who responded to a similar OnlineBenefits survey placed tremendous emphasis on the power of consumer-driven health care to increase employee awareness of health-care costs. Encouragingly, very few brokers think consumer-driven health care is going to be a failure.

With regard to financial gains, 41% of broker respondents think the advantages go to the employers, and then consumers and financial institutions. True, brokers aren't on the short list of winners, but they are not expecting to take a substantial financial hit. Over the next two years, half of them predict their revenues will be unchanged by consumer-driven health plans while 24% see revenues being only somewhat reduced. That said, only 4% think they will greatly increase their earnings. Given the cautious approach to consumer-driven health care by brokers in general, there is a real opportunity for forward-thinking, aggressive firms to dramatically expand clientele. While the old-line players spend their time justifying why consumer-driven health care doesn't work, progressive advisers will consult clients on why consumer-driven health care should be adopted and win broker-of-record appointments accordingly.

Revenues aside, 28% of brokers are excited about the prospects of consumer-driven health plans, and 62% are open to the challenge. Brokers have historically survived countless waves of change. Indeed, only 9% of survey respondents are hesitant about what consumer-driven health care means to their career. No one is ready to exit the business just yet.

It's clear that brokers have been boning up on consumer-driven health care. Already six of 10 respondents have experience implementing a program for clients, and they have turned primarily to carriers and then to educational seminars, colleagues and Web research to gather what they know.

Consumer Activity

It's too early to find brokers who are installing consumer-driven solutions en masse to their client base. Three of four report that fewer than 10% of their clients have adopted HSAs or HRAs so far. Only one-fifth of brokers say that 10% to 25% of clients are on board today. By 2008, adoption is clearly expected to pick up steam: Three-quarters of the brokers expect up to 40% of their clients to have consumer-driven health care, though few anticipate uptake to surpass 60% of their customers. But even two years out, brokers believe a considerable number of employers will not have dipped their feet into the consumer-driven health-care pool.

Employers are curious, though, with 75% of brokers saying their average client is "hesitant about CDH but looking for more information." Only 5% of the respondents' typical clients express no interest to date.

Top Concerns

When brokers were asked what troubles them most about consumer-driven health care, the highest number of responses circled around employee education. Consumer-driven health plans are foreign and complex to people who have grown accustomed to $20 copays, and human nature resists change. As one survey respondent said, "Education of employees does not seem to be where it needs to be. Employees need to buy into the idea of consumer-driven health care before it is given as an enrollment option, much less a mandatory one. We need really good education tools ready-made to retrain the way they think."

A second major concern is for the welfare of plan participants. Many brokers expressed doubts about consumers' ability to fund and manage their accounts. "It will cause employees who are not financially savvy to go further into debt," commented one broker. Others speculated about health risks if consumers do not seek medical care when they should in an effort to curb out-of-pocket costs.

This leads to the more skeptical view held by brokers that, without greater transparency of cost and quality from providers and carriers, the desired long-term cost savings are not attainable. As expressed by one survey respondent, "We are just cost-shifting from employers to employees, and the consumer is not educated enough or willing to change their habits for this to make a lasting economic impact." Some feel that doctors, hospitals and administrators are not making the policy changes required to promote consumerism fast enough to keep pace with the proliferation of consumer-driven health plans, hastened by employers looking for the quick fix.

What Brokers Can Do

Recognizing that the employee is at the heart of a successful consumer-driven health-care implementation, brokers unanimously feel they can and should play a role in helping employees become better health-care consumers. Nearly half the survey respondents believe they should provide employee portals with plan education, wellness and enrollment capabilities. The other half believe their responsibility only goes as far as advising the clients on how to educate and supplying benefits-education materials.

As for online tools, brokers identified the following as their top five wish list capabilities for consumers:

* Financial modeling (80%)

* Health plan communication (78%)

* Wellness programs (69%)

* Drug information (65%)

* Physician quality rating (60%)

Change always creates trepidation for some, opportunity for others. The same type of brokers who capitalized on managed care in its heyday likely will find clever ways to strengthen their businesses in the consumer-driven health environment. That will certainly require a commitment to employer and employee education and willingness to provide expanded services. The demand curve for consumer-driven health plans is among employers. It's time for the broker community to supply the products, lest someone else step in to do it for them. May the best brokers win.

Key Points

* Despite the prospect of smaller commissions, brokers advising clients on how to control health costs will inevitably need to offer consumer-driven health plans.

* Brokers are surprisingly optimistic about their prospects in a transition to consumer-driven health plans.

* Brokers expect employee education to be a major challenge.

* Many brokers fear for the welfare of employees unable to fund and manage health savings accounts.

Brokers' Revenue Expectations

50% of brokers expect revenues to be unchanged by consumer-driven health plans over the next two years

4% of brokers expect big increases

24% of brokers expect revenues to be somewhat reduced

Source: OnlineBenefits Inc. survey of 330 brokerage firms

How Brokers See Their Prospects

28% excited about consumer-driven plans

62% open to the challenge

9% hesitant about impact on their careers

0% ready to exit the business

Source: OnlineBenefits Inc. survey of 330 brokerage firms

Consumer-Driven Health Care Activity as Reported by Brokers

75% say fewer than one in 10 clients have adopted Health Savings Accounts or Health Reimbursement Arrangements

20% say one in 10 to one in four clients have adopted them

75% say they expect as many as four in 10 clients to have them by 2008

Source: OnlineBenefits Inc. survey of 330 brokerage firms

Contributor John J. Gedney is president of OnlineBenefits Inc.