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Riding the wave of health care reform.


Untenable medical inflation. A seemingly bottomless housing crisis. Frozen credit markets. Outright economic recession. As if these waves of market and economic change weren't enough for health care brokers, there's a tsunami on the horizon-and it could bring in potentially disruptive regulatory health care reform. To a person, these waves of change create considerable uncertainty about the future of distribution.

Across the country, brokerages are reeling from the combined effects of a contracting, price-sensitive recessionary employer marketplace, a corresponding deterioration in brokerage income, but now also emerging legislation that could potentially threaten the fundamental health benefit distribution business model.


Much has been written about the financial crisis, and what it has done to the health care marketplace. More prospectively, the 2009 Benefits Selling-Oliver Wyman Broker Strategy Study focused on forward-looking impact of emerging legislation, and its implications for brokers and consultants. Highlighted here are leading legislative proposals, their possible implication for U.S. health care, and how they could impact the current health benefits distribution model. Based on these proposals, this article also will consider emerging survival strategies brokers might deploy to navigate today's environment.



At present, there are five dominant competing proposals being debated in Washington. Indeed, these proposals come at the issue from different vantage points, as evidenced by their sponsors:

1) U.S. Sen. Max Baucus (D-Montana)

2) the Association of Health Insurance Plans,

3) U.S. Sens. Ron Wyden and Bob Bennett,

4) the Commonwealth Fund and

5) President Barack Obama and Vice President Joe Biden.

While each plan mandates coverage, the means by which each proposal could create access could have significant implications for health benefits distribution. Specifically, three of the proposals include language about connector-like distribution. "Connector rerers to the means by which the state of Massachusetts offers mandated coverage access directly to individuals--without broker involvement. Three of the proposals also offer "public plan" alternatives to the private market. These public plans primarily take the form of either federal employee health benefit plans--or Medicare-like programs. Both Connector and FEHBP-like plans have the potential of removing the broker from the purchasing process.

All of these proposals render a world in which employer sponsorship may devolve. In fact, Oliver Wyman research suggests as many as 20 percent of employers sponsoring health benefits are already "benefit abdicators," either jettisoning these benefits or moving towards defined contribution programs that shift purchasing responsibility to employees. "This body of employers is likely to grow with speculation about alternative government-sponsored programs that could come available at presumably lower cost points.

The uncertainty of financial markets coupled with Washington's evolving agenda makes it very difficult to predict the impact to brokers and their business models. "that being said, based on the proposals identified here, Oliver Wyman estimates as much as a 40 percent chance that significant portions of the commercial market could be "off limits" to brokers. Further, legislation could lead to further market contraction that would directly impact broker compensation anywhere from 20 percent to 100 percent (benefit consulting not included in this calculation).

The uncertainty and potential magnitude of change being considered currently share some similarities to the early years of the Clinton administration. During that time, the market witnessed significant brokerage firm consolidation with acquisitive firms able to capture share at heavily discounted prices. Larger scale firms also diversified their service portfolios to hedge against medical commission deterioration. Oliver Wyman sees the same accelerated merger and acquisistion activity and diversification occurring in 2009 and 2010.


Looking toward the future, it likely appears that meaningful legislative change/ reform will happen, and that only the timing and approach remain uncertain. In fact, 60% of brokers responding to this year's study agreed with the statement that "the federal government will enact legislation within the next four years that will meaningfully change the distribution of health benefits." Therefore, brokers must carefully consider not "if," but "how" their strategies will shift.

Based on this research, it is plausible that brokers who maintain traditional offerings could experience 15 percent to 25 percent losses of revenue progressively over the next five years due to the combination of recession and regulatory change. Under this scenario, the complacent broker would be forced from the market due to the lack of product diversification and relying solely on medical commissions.

Alternatively, some firms will evaluate the marketplace and choose to divest assets by merging or being acquired at a discount of current book value. For many smaller firms who are targets and don't possess the scale to be acquirers, this process could amount to a game of "chicken" in which owners attempt to time their "stay vs. sell" decisions with more precise knowledge of reform elements, and their implications for future profitability. Unfortunately, it is very difficult to project how regulatory reform might disintermediate the market, and still buy or sell for at a reasonable price. As a result, those firms playing in the merger and acquisition space are truly playing the odds--and only time will tell who are the clear winners and losers.

There is a third option however, in which brokers are choosing to focus on growth and diversification, thereby creating a more durable business with diversified products and a new service model. While not quantified in this year's study, market interviews indicate that some desperate employers are parting with legacy brokerages, instead opting to work with more progressive firms that have established track records for applying innovative approaches to control healthcare costs. In some cases, these brokers are not only maintaining their revenue base, but also expanding it. The chart titled "Emerging Broker Segments" contrasts the implications of brokers that "Stay the Course" relative to those who innovated and "Make the Market."

The "Make the Market" option creates diversification that enables multiple paths to prosperity. Many of these brokers have already developed advanced capabilities around HDHPs, and are identifying creative ways of deploying limited benefits and other new products to address specific client objectives. However, expanding the product portfolio to include a wide range of ancillary products may also require significant shifts to a broker's existing business model. Clearly, for some products, the sales and service models will become significantly more labor intensive.

In many ways, it will be incumbent on the new model manager to redefine the relationship with the employee and the member. This scenario assumes that employers will continue to act as the aggregator of lives (and continue as a sponsor for some products), and that brokers will leverage the employer opportunity by bringing a full compliment of products. The challenge to brokers is to apply the right mix of personal service and efficient technology in a manner that wins business efficiently. It is important to note that this model is highly complementary in its alignment with a "retail" market, and would be pliable in a scenario wherein health and wealth converge.


Needless to say, the future will not look like the past. In many ways, the confluence of market events and political favor has built up significant momentum for major healthcare reform. Amidst the wave of coming change, there also exists an opportunity to reposition distribution to better serve consumers by meeting a broader set of needs. Oliver Wyman predicts that proven, savvy innovators and nimble or better capitalized firms will capture opportunities for considerable growth. This is not without considerable risk, however, given the uncertainty of core economic and legislative drivers. The smart money will be on the thoughtful firms that are actively exploring their options today. To be sure, it will be a fascinating race to see who can stay out in front of the wave of change and survive the current market's, end.

Brokers who maintain traditional offerings could', experience's 1 5 percent', to 25 percent', losses of revenue', progressively over the next five years.





"Connector" refers to the means by which the state of Massachusetts offers mandated coverage access directly to individuals--without broker involvement. Connector and federal employee health benefit plan-like programs have the potential of removing the broker from the purchasing process.


Amidst the wave of coming change, there also exists an opportunity. Proven, savvy innovators and nimble or better capitalized firms will capture opportunities for considerable growth.


For more on this study or related research, please visit

Michael Main is a partner and Dan Shellenbarger is an Associate Partner with Oliver Wyman's Health and Life Sciences practice.


Call to Action: Individual and LG mandate, Prevention and
Health Reform 2009 connector, and targeted primary care
 incentives focus, value-
 based incentives
 and payment
 increased use of

Campaign for an Individual and LG mandate, Prevention and
American Solution connector, and targeted primary care
 incentives focus, value-
 based incentives
 and payment
 increased use of

Healthy Americans State-based connectors with Pay-for-perfor-
Act individual mandate and mance and
 minimum benefit standards, technology
 funded by employer

Path to a High- Connector, establishment of a Bundled payment
Performance new public plan (with Medicare methods based on
Health System physician reimbursement and outcomes and
 administration), individual evidence-based
 mandates, and income-related care, increased
 premiums use of tech-
 nology, and
 expected benefits
 of public/private
 insurance plan

Plan for a Healthy Subsidies and tax credits to Enhanced use of
America low-income individuals and technology, pay-
 small businesses, establish- for-performance,
 ment of a connector, and and promotion of
 a new public wellness and


 COURSE" 2012

Revenue No. Cases 60 37
 Average case size 35 35
 Members 5,000 2,900
 Avg Premium (@ 3% Net trend) $8,000 $8, 700
 Total Revenue (@4% $1,600,000 $1,009,200

Costs Total Staff 6 4

 Total SG&A $480,000 $400,000

Net Profit $1,045,000 $509,200

A broker, who earned just ~$1.6M in commissions in 2009, experiences a
15 percent book reduction progressively over the next three years. By
taking no action, the firm would be forced to downsize and would see
its financial performance decline by 50 percent.



Market beliefs "Even though we are at a "Federal government
 downturn, the economy and will enact legislation
 employer health benefit within the next four
 purchasing will return to years that will
 normal levels in 2010" meaningfully change
 the distribution of
 health benefits"

Purchasing * Paternalistic (offering * Innovators (willing
Attitudes rich benefits) to try new things)
 * Basic buyers (cost * Benefit abdicators
 sensitive) [right arrow]. Get out
 or move to DC

Service * Vendor procurement * Vendor management
Capabilities * Benefit strategy * Integrated customer
 development engagement
 * Account/member services * Data analytics/
 * Claims analysis/reporting reporting/predictive
 Employee communications modeling
 * Health and
 * Retail navigator/

Products Used * Core Medical * CDH
 * Ancillary (e.g., dental, * Limited Benefit
 disability, life, etc.) Plans
 * Voluntary Products
 * Non-health EE
 focused (e.g., auto,
 home, 401k, etc.)

Strategic * Focus Increase commissions/ to retain/grow
 revenues * Invest revenues
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Title Annotation:Health + Care SURVEY 2009
Author:Main, Michael; Shellenbarger, Dan
Publication:Benefits Selling
Date:May 1, 2009
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