There's no shortage of bad news for benefit brokers these days.Medical-loss ratio calculations and health exchanges are expectedto slash the commissions carriers pay agents over the next fewyears. Federal subsidies for employees earning up to 400 percent ofthe poverty level and Medicaid qualifications for employees earningup to 133 percent (instead of the current 100 percent) of thepoverty level mean the numbers of employees that you insure coulddecrease by as many as half, depending on which predictions youbelieve. The states' health exchanges will probably pay commissionsto sign up employees that move to the exchanges, but it's likely tobe low; perhaps as little as .5 percent to 1percent.  

The question is: What will you do over the next two years toprepare yourself for the landscape in your industry after2013? 

There really are only four strategies you can adopt in responseto these changes. You can hope Congress repeals the changes; youcan adjust your lifestyle downward to match a decrease of up to 50percent in your income; you can aggressively try to get customersto switch from your competitor to you for their health care; or youcan add new lines of revenue from existing sources. Or, you can doa combination of them.

First, let's accept the fact that demands on your time aren'tgoing to go down as commissions do. With rising premiums for youremployers, you're still expected to spend vast amounts of timepursuing creative ways of providing similar coverage at or near thesame cost. You'll still be expected to stay current with changes inthe law and proactively work with your groups to keep themcompliant. So you can't be expected to adopt any strategy thattakes you away from your core business—providing health careinsurance for your groups. 

Attract new clients

Attracting new health care clients is a zero-sum game. There area finite number of clients in your territory and they all have abroker now. So the only way to get a new health care client is torecruit one from your competitor, and likewise the only way theygrow is to take one from you. If you accept the population ofpotential clients will shrink (due to exchanges) and thecommissions paid on those fewer employees will shrink (due to MLRcalculations and exchanges), more brokers are forced to compete forfewer customers. While it's possible for you to grow your businessby recruiting health care business from your competitors, it isn'teasy. Every other broker will be calling those companies.

Over the last 10 years, brokers have seen their commissionsincrease steadily due to double digit rises in health carepremiums. That increase has led to a false sense that theirbusiness is growing. However, if you analyze how many clients youadded and how many you lost over the last decade, you'll get abetter sense of whether your business is going to be able towithstand a loss of 20 percent, 30 percent or even 50 percent ofyour clients. 

Remember, every single broker faces the same realities you do,so they're going to be fighting just as hard to keep their clientsand take yours. What is your strategy for keeping your clients inthis competitive atmosphere, and what is your strategy for gainingnew ones?

Add revenue streams

Brokers have been urged to diversify, adding ancillary productsto offset expected losses in revenue. Adding new lines willincrease your revenue somewhat, but the tradeoff is that it willtake time.

You'll need to become as expert in this wide array of productsas you do with your current offering. That's why many brokers haveallowed other companies to provide those products. The other issueis that most of the ancillary products are very inexpensive, whichmeans the commissions are very small. Even if brokers are wildlysuccessful selling dental, vision or legal aid, the totalcommissions remain a very small percent of the amount they stand tolose with health care reform.

The solution

One possible strategy is to use long-term care insurance as afoot in the door to get new clients, while adding revenue streamsfrom existing clients. LTCI is one of the most sought-afterbenefits by decision makers, and few of your competitors likelyoffer it to their groups. That means you should find it easier tomeet with these prospective new clients if you have a solidstrategy for selling and implementing LTCI. A successfulpartnership with a company specializing in LTCI can reap bigrewards with minimal investment of your time and with very littlecompetition. The recent exit of Unum from the LTCI market makesthis the perfect time to implement this strategy. 

Our nation is facing a crisis in long-term care as 80 millionbaby boomers approach retirement. Medicaid budgets are reachingcrisis levels. And less than 1 percent of companies in America havea LTCI plan in place, so the market potential is huge.

Your competitors likely aren't talking about this benefit totheir clients. This creates an unbelievable opportunity for you;the awareness, personal experience and perceived need is there, butthe competition isn't. 

Past problems

Most brokers have ignored LTCI. Even when they have rolled out aplan, they generally haven't gotten much participation. They aren'tbeing asked about it often. So they mistakenly believe there's nointerest. There is interest, but it has to be sold differently thanhealth care and other ancillary products. The typical groupenrollment process doesn't adequately educate the top decisionmakers before making a proposal and they don't got emotional buy-infrom employees and spouses. When LTCI is properly sold you can besuccessful and differentiate yourself in a positiveway.    

The basics

If you reach age 65, you'll have about a 70 percent chance ofneeding long-term care at some point in your life, according to theU.S. Department of Health & Human Services. And that care'scostly. A 40-year-old employee could be looking at a long-term careexpense of $1,800 per day at age 85. That's $54,000 per month, or$657,000 per year.  

Despite the fact that some carriers have exited the market, andothers have seen price increases on new business (and occasionallyeven on in-force business), long-term care insurance continues tobe a bargain. That 40-year-old employee can get a policy that willpay the $657,000 per year at age 85 for about $100 a month. If thatemployee receives as little as one month of care at age 85 he'llrecoup every penny paid into the policy. 

If people don't hear about this through their workplace, they'lloften wait until it's too late to look into LTCI.

A reason to care

Like all benefits, LTCI can be a tool for recruiting andretention and for the general welfare of the employees. But beyondthat, employees who are caregivers tend to be distracted while atwork, and often have to cut their hours or quit working. So overthe long-term, making sure more employees have protected theirfamily will allow them to be sure their loved ones get the carethey need while still keeping their commitment at work. An LTCIbenefit also can be a way to shield profits from taxation. Thepremiums can usually be deducted as a business expense, even if theemployer discriminates on who gets a policy, and the premiums don'thave to be included in the owner's (or employee's) W-2. Nor are thebenefits taxed when received, so there are triple tax benefits.

Multi-life vs. group

Multi-life products are similar to individual policies. They canbe individually customized to the customer's needs, they areportable when you leave your company, and they are owned by theindividual. The difference is that simplified underwriting, or evenmodified guaranteed underwriting, is available if minimumparticipation levels are reached (can be as low as three lives, mayinclude spouses in simplified underwriting and can go up to age71). Simplified Underwriting usually involves six questions, MGIusually asks only three. In both cases, no medical records areordered, no list of prescription meds is asked for (although an MIBinquiry might be ordered), and no height/weight or smokingquestions are asked. Also, multi-life policies offer discountedpremiums to employees, spouses or domestic partners, and extendedfamily members.

Group insurance, on the other hand, isn't customizable. Thedecision makers decide on three or four plans that the employeescan purchase. If plan A doesn't provide enough coverage and plan Bis too expensive for the employee, there's no middle ground. Thecompany owns the policy, the individual is given a certificate.Group insurance usually offers guaranteed issue. The people whoknow they will need LTCI (i.e., the sickest) might be representeddisproportionately (adverse selection). The carriers have to factorin this risk, so while group carriers often offer competitivepricing for a base plan, they can be very expensive for meaningfullevels of coverage with inflation protection.

The right partner

LTCI is a complex product, and the sales process is complex.Carriers are constantly changing their products, pricing, policies,features and provisions. You need to understand and keep up withthese changes in order to best serve your clients.

You'll also need to be capable of one-on-one consultations tothe employees and spouses at your groups. And unless you have anextensive long-term care department with a nationwide footprint, itwill be necessary that you partner with an agency that can providethat level of service. A partnership allows you to provide thepersonalized care that is required to sell LTCI without taking youaway from your core business. Ideally, you'll want a partner thatonly sells LTCI, so as not to have a conflict withyou. 

When selecting that partner, it's important to pick a partnerthat: has a nationwide footprint, specializes exclusively in LTCI,has a successful strategy for selling in the workplace and has thetools and experience to roll out and enroll companies of anysize.

Over the next decade, there will be a huge shift in the LTCImarketplace as more people purchase their LTCI at the workplace.Think back to the opportunity in the mid-1980s when companies wentfrom defined benefit plans to defined contribution. Those brokersthat positioned themselves to take advantage of the increase insales of 401(k)s, 403(b)s, etc. were wildly successful. You nowhave a similar opportunity with multi-life LTCI. Take advantage ofit.

Philip Abdouch is a partner at LTC Financial Partners. Hecan be reached at [email protected].