The Affordable Care Act (ACA) is making sweeping changes to health insurance, including how small and medium sized business owners purchase health insurance for themselves, their family, and their employees.
To adapt, health insurance agents and brokers are adding new solutions to their product lines such as Defined Contribution. With "Pure" Defined Contribution Health Benefits the employer sets up a health plan to reimburse employees for individual health insurance.
Here's why the ACA has opened a door for "Pure" Defined Contribution Sales.
Two Big Changes
The two biggest changes to small business health insurance are 1) the increasing cost of small group health insurance, and 2) new advantages to the individual health insurance market. These factors are pushing small and medium sized clients out of group health insurance, and attracting them to "Pure" Defined Contribution Health Benefits. Let's look closer at these two factors.
#1 Cost of Group Health Insurance
After payroll, group health insurance premiums are the most significant cost to an employer. From 1999 to 2013 the cost of single group coverage increased 168%, and family coverage increased 182% (source). The cost of group health insurance is becoming unsustainable for businesses and their employees.
Because of this, small and medium groups are canceling group plans at an alarming rate and looking for more affordable health insurance solutions. Agents and brokers with solutions that meet the cost challenges will retain these clients' business.
#2 New Advantages to Individual Health Insurance
While group health insurance is becoming less attractive, the ACA has made individual health insurance much more attractive to small business owners and their employees because:
Individual health plans are now guaranteed-issue
On average, individual health plans cost less. And, there are premium tax credits which lower the cost even more for eligible individuals
- Individual health plans provide employees more choice
Individual health plans are portable; not tied to employment
Additionally, the employer mandate is only for employers with 50+ employees (and delayed until 2016 for employers with 50-99 employees).
So, what does this mean for agents and brokers?
First, Defined Contribution is a practical client retention tool for businesses canceling group health plans. Defined Contribution is more affordable than group health insurance because the employer sets healthcare allowances that employees can spend on individual health insurance. For small and medium groups facing cost challenges, Defined Contribution is a solution to retain their business.
Second, Defined Contribution opens the door to gain the business of small and medium-sized prospects not currently offering health benefits. In fact, the ideal group for defined contribution is this demographic. In 2012 there were 2.3 million small and medium groups in the U.S. who did not offer health insurance, with 61% saying cost was the number one reason for not offering health benefits. Defined Contribution is a tool for agents and brokers to gain the business of this huge, relatively untapped market.
Are you using Defined Contribution sales to adapt to the changing health insurance market?
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