Getting Over the New Normal

“It is not the strongest of the species that survives, nor the most intelligent that survives.  It is the one that is the most adaptable to change.”  Charles Darwin

In her 1969 book, On Death and Dying, Dr. Elisabeth Kübler-Ross describes the five stages of grief.  Over a 27-year career marked by mergers, acquisitions and perpetual change, I have come to accept these five stages as necessary rites of passage that humans must endure as they navigate the inevitable shoals of change.  It seems we all must endure denial, anger, bargaining and depression before we finally break through to acceptance.

While we all intellectually agree that our healthcare system is broken and is in profound need of change, most preferred that all the heavy lifting required to reduce healthcare costs as a percentage of the U.S. gross domestic product – or GDP – occurred on someone else’s watch.  As Woody Allen once quipped, “I don’t mind dying.  I just don’t want to be there when it happens.”

We know that chronic illnesses, escalating costs, opaque and uneven reimbursement practices and a $38-trillion unfunded Medicare debt obligation eventually would bring the nation to its knees.  However, it suddenly felt like the confederacy of agents, brokers and consultants were passengers on a bus with no brakes that was careening toward a cliff of profound change.  Prognosis – uncertain.

DENIAL – Most brokers and agents objectively looked at reform as a flawed proposition as it failed to address fundamental cost drivers that were clearly contributing to unsustainable healthcare costs.  Brokers were witnessing 20-percent-plus increases for small business, a limited marketplace of insurers, huge barriers to entry for competing health plans, a supply side of providers that were up in arms over serial under-reimbursement from the government and a Darwinian reimbursement environment where only the strong could survive.  Our employer clients were angry with increases, predisposed to market their insurance each year to a limited field of insurers, consumed with avoiding disruption and content to cost shift to employees through higher deductibles and co-pays.  It seemed no one was willing to touch the “third rail” of healthcare – affordability.

High-performance networks, promotion of primary care, an emphasis on personal accountability for health improvement and value-based plan designs seemed too complex, cumbersome and indecipherable for many small, mid-sized and larger employees who felt they had little capital left with employees to impose additional changes.  This reticence to be early adopters of critical cost-management programs and the nature of fully insured pooling by carriers for smaller employers conditioned employers to consider health insurance a commodity.  Most brokers happily moved at the speed of their reluctant clients and remained in step with their insurance partners.  Instead of focusing on risk identification and mitigation, the industry focused on risk transfer and a generation of brokers and agents built wealth but did not seem willing to risk provoking clients out of their death spiral.  An entire industry was in denial.

ANGER – As the Obama administration shifted its strategy from health reform to health insurance reform, denial turned to anger as the industry found itself in the vortex of a poison populism.  As insurers were pilloried for for-profit practices, and other third-party players were painted as parasites draining the system of its sustainability, brokers felt their blood pressures rise.

The seeming hypocrisy of underfunded Medicare obligations, deficit financing by states facing billions in debt, a generation of consumers on the slippery slope to chronic illness, employers overwhelmed and  averse to change and an opaque, and increasingly inflexible oligopoly of insurers led brokers to feel victimized and marginalized in the debate.

On the other side of the aisle, legitimate questions arose around broker value as critics witnessed commissions that rose with medical premiums and a lack of transparency on base and contingent compensation.  There was difficulty in determining value for services that did not seem to bend the medical trend curve, and seeming relationships of mutual convenience between insurers and brokers that created potential for conflicts of interest.

When reform recently passed, brokers gazed across a horizon line full of regulations and did not like what they saw.  Brokers recognized legislation as the first step in addressing fundamental flaws in the system but understood clearly that the Patient Protection and Affordable Care Act was uniquely focused on access and insurance market reforms.  It would not materially change the trend line impacting private employers – in fact, it could very well make it worse in the near term.  Insurers driven by demands as public companies and possessing fewer levers to pull to impact rising medical loss ratios become less flexible and defensive.

Brokers also recognized incentives in the new legislation that could accelerate the erosion of employer-sponsored healthcare as costs would inevitably rise from increased adverse selection, government cost shifting, a new vouchers system allowing individual opt-outs and less onerous penalties that could create tempting incentives for employers to drop coverage.

Questions are now being asked:  Will the minimum loss ratio calculation pressure carriers’ retentions to where they will begin to unilaterally cut commissions?  Will insurance companies attempt to disintermediate us?  Am I prepared to defend my remuneration in the brave new world of transparency?  If I convert my larger clients to fee-based remuneration, will my margins be severely impacted?

Will my lack of size or premium with insurers make me less relevant and more susceptible to unilateral actions?  Do I possess the resources necessary to compete in a world where impacting claims costs will be more relevant than entertaining, shopping insurance and adjusting plan design options?  Will state connectors attempt to supplant my role as an advisor?

As costs increase in the near term from mandated plan design changes, underwriting restrictions, Medicare cuts and minimum loss ratios, will companion legislation not be far behind that establishes a state or federal rate authority to artificially control prices? 

Judging from the insanity in Massachusetts – a market exclusively managed by non-profit insurers, universal coverage has led to an affordability crisis and the most expensive healthcare in the United States.

Are we headed over this same cliff?  Will a public option reemerge if we cannot reduce the barriers to entry for new players to offer employers more choice?  Am I going to end up in a cardboard box?

BARGAINING AND DEPRESSION – Career professionals already are beginning to rationalize.  “We have until 2014 and many of the impacts will not be felt until 2018 and beyond.”  Others whistle in the dark, “I just need to make it until my kids graduate college.”  This period of bargaining is a mental feint to prolong change as long as one can to avoid the pain of conforming to the new normal.

Some brokers may just sit down in the middle of the road resigned to a belief that if the insurers do not get them in the form of reduced compensation than employer-sponsored healthcare will slowly erode and an increasingly crowded and qualified mid-sized and large employer brokerage and consulting market will leave them little if any role to play.

Some are taking these changes very personally.  These brokers are becoming lightening rods in their local markets and catalysts elevating the discussion and debate about what next needs to happen to achieve access AND affordability.

They have accepted the axiom that any unsustainable trend eventually ends and that it has now happened on their watch.  Attention is focusing on how they can become focal points for local, regional and national change.  They recognize they are not bystanders and third wheels but they are key influencers and the nexus between the supply and delivery sides of the business.  They recognize that they must write the next chapter of health reform and not merely be waiting to read each subsequent installment.  Their grief has been brief, their anger channeled, their bargaining and depression endured, and their entire focus now is on shaping the next stages of change.

ACCEPTANCE – Eleanor Roosevelt once said, “Each person has a choice to either light a candle or curse the dark.”  The best and the brightest in the brokerage community understand that to broker is to consult and to consult effectively one must enjoy a trusted relationship with a client.  Any practice that erodes that trusted role should be avoided – especially if it is the legacy practice of an industry that did not do a good job in changing our opaque and disconnected third-party payer system.

Transparency creates enormous opportunity to delineate value.  If value is defined as “outcomes divided by cost,” the successful post-reform broker will delineate their services, the outcomes they hope to achieve and the costs of the services they will provide.  Historically, many commission-based clients did not always know their broker remuneration, did not employ service contracts and judged a good outcome as the absence of service disruption.  The world has changed.

Consolidation will create odd bedfellows and strange alliances.  However, in the brave new world, advisors must drive value across an entire employer organization.  While insurers will be struggling to dispel the notion that they are not worthy of margins beyond those of utility, brokers will need to convey value and if they cannot achieve the critical mass and resources required to compete, they will lose business.

The pressure to create competition and choice may help lower the barriers to entry in markets and create new competitors to traditional carriers.  More choice for employers requires more advisors to assist them in navigating through the minefields of competing carrier practices.  As companion legislation continues to evolve, the need to serve clients as a legal and compliance interpreter will be essential.  Merely copying new laws and emailing complex regulatory language to customers will weed out lower performers.  Clients want to know:  “How and when does this affect me?  What should I be thinking about?”

Clients will require help in attacking the last frontier of healthcare – employee health and well-being.  The desert of good intentions is littered with the skeletons of ineffective wellness plans that merely nudged individuals toward healthy lifestyles.  True risk mitigation will require leveraging every aspect of the law to intervene to improve public health.  The best and brightest will recognize that a healthy worker is less likely to file a worker’s compensation claim.  A healthy worker will miss fewer days reducing absenteeism and costs associated with replacement workers.  Population Health Management will become as standard as loss control for property and worker’s compensation programs.  It is motivating to think that by structuring a preventive care plan properly, we can detect asymptomatic illness and significantly reduce the rate of lifestyle-based chronic illness.

A BRAND NEW DAY – Health reform is not terminal.  However, it will require everyone to change.  We are entering a strange, new universe forged out of intended and unintended consequences.  However, reform is also a relief because it is the beginning of a process (however unsavory) to arrest an unsustainable trend.  As citizens, free-market capitalists and parents, we do not want to leave our children holding the bag with record deficits and massive public debt.  We always knew the process of taming entitlements and changing a dysfunctional third-party payer system would be messy.  As most in Congress lack the political will to take on affordability, it will fall to us.

Regardless of the twists and turns in these first few chapters of what will most certainly be a Dickensonian saga, there will always be a role for smart, motivated, transparent and intellectually curious brokers and consultants.  The sooner each of us concludes our stages of grieving and gets on with accepting the new normal, the better chance we have to lock arms  and demonstrate that we can be highly influential in creating a better and more efficient healthcare system for tomorrow.

Michael Turpin is an executive vice president of USI Holdings, a risk and insurance broker focusing on the needs of mid-sized and emerging growth businesses. Turpin has been a practice leader for U.S. and European consultancies, as well as regional CEO for a national insurer. He is a frequent
speaker on the healthcare industry, regularly published author and columnist.