“Some brokers will do everything that they can to deflect client requests to evaluate an ICHRA program to replace their group model. That approach is fraught with danger, particularly when unlicensed sellers can deliver a solution.” – Bill Stuart
I assist benefits professionals in helping their clients and employees seize control of their healthcare dollars.
January 23, 2024
To the unprepared benefits advisor, ICHRAs are something to fear. To the prepared broker, they’re an opportunity to retain and attract clients.
Last week, we discussed the threat to brokers posed by Individual-Coverage Health Reimbursement Arrangements. ICHRA platforms allow any payroll company, seller of any other employee benefits, or independent prospector to compete with licensed brokers to provide a coverage solution to employers. Benefits advisors who aren’t delivering value face the threat of disintermediation and an erosion of their client base (and thus their revenue stream).
As a refresher, an ICHRA is an employer-funded account from which employees can withdraw funds to pay for medical coverage that they purchase in their local nongroup market. It’s an alternative to the more traditional employer-sponsored model in which the company selects several options, usually pays a percentage of each plan’s premium, and actively manages the enrollment process.
The Disintermediation Threat
In simple terms, disintermediation refers to the removal of a middleman from a transaction between a buyer and a seller. For example, most Americans purchase airplane tickets and reserve hotel rooms and rental cars through online portals, rather than through travel agents. More and more home and car buyers surf the internet to connect directly to sellers, removing real-estate agents and car salesmen from the transaction. And a growing number of smaller companies assign an employee to inventory and purchase office supplies online through Amazon, Walmart, or Staples rather than relying on a salesman to stop by every two weeks to check supplies and recommend purchases.
What has protected benefits professional from disintermediation is the requirement that brokers must have an active state license to link buyers and sellers. This requirement limits competition to others who have studied for, passed, and maintain a license.
Today’s leading ICHRA platforms break down this barrier by employing agents licensed in every state. Thus, literally anyone acceptable to a platform provider can affiliate with that company, sell the concept of ICHRAs, and pass the company on to the platform. Platform employees can then implement the ICHRA and licensed associates can assist employees with plan selection.
Are ICHRAs a True Threat to Established Brokers?
ICHRA adoption thus far has been meager and concentrated in the low end of the market (88% of employees covered by ICHRAs work at companies with 20 or fewer employees). Most advisors don’t work in this space, so they haven’t seen the threat to their revenue stream. But it may be coming.
There are several reasons for this slow uptake:
- The concept is new – available for coverage only since Jan. 1, 2020. But word is spreading, and a growing number of companies have discussed ICHRAs internally or externally. New coverage concepts are typically a multi-year sell. In many cases, companies have already experienced that first year of consideration.
- The nongroup market hasn’t been attractive. But the market has roughly doubled to 20 million enrollees since advance-premium tax credits (premium subsidies paid by the federal government) were increased early in the Covid-19 pandemic, thereby reducing the net cost to buyers. As more insurers enter or re-enter a more stable market, pricing and product features are bound to become more attractive.
- The traditional group-model included services that aren’t available when companies opt for the ICHRA approach. But more robust ICHRA platforms are making it easier for employees to shop, for companies and their workers to pay premiums, and for employers to track enrollment and spending.
In short, expect ICHRA adoption to increase during the next few years – and to move upmarket.
Why Should Brokers Offer an ICHRA Solution?
Brokers-of-record can avoid the topic of ICHRAs altogether and continue to renew coverage through the traditional group model. This strategy, if successful, allows them to retain their revenue stream and not have to develop expertise in a new form of coverage and its distribution model. But this strategy is fraught with danger:
- Their clients will learn about ICHRAs – perhaps by another trusted partner. They may be approached by their current payroll or benefits-administration partner, both of whom can bolt on an employee-benefits module by working with an ICHRA platform. Chances are that the ICHRA vendor also offers a suite of other benefits, ranging from dental and vision to life and short- and long-term disability to pet insurance, identity protection, pre-paid legal, and financial services.
- Brokers have a fiduciary responsibility to their clients. They should interpret that mandate to work in their clients’ best interests to include introducing them to all their coverage options.
- They can secure new business from companies whose brokers don’t adopt an ICHRA strategy to serve clients for whom this coverage model is appropriate.
How Can Brokers Seize This Opportunity?
What steps must benefits advisors take to turn the ICHRA threat into an opportunity?
First, develop expertise in ICHRAs. They need to understand ICHRAs to determine when this model is an appropriate solution for a client. This means educating all producers and perhaps appointing an ICHRA expert who can team-sell with the existing broker.
Second, partner with a comprehensive ICHRA platform. Look for one that offers at least the following services:
- Robust virtual decision-support tools and phone support staffed by licensed agents to help employees shop for coverage. Remember, most workers have never shopped for medical coverage outside a model that offers two or three plans selected by their company.
- A payment model that allows the company to send one payment to the ICHRA platform and have that vendor manage payments to each insurer for each employee. That payment model may include a debit card, an electronic-funds transfer (EFT) draft from the platform’s general account, or an EFT from an individual employee account established by the ICHRA partner.
- A comprehensive menu of other coverage like dental vision, disability, life, voluntary coverage and the other plans mention above – and the ability to turn off specific coverage. Brokers should value the option to provide this coverage through the platform. They’ll share commissions with the ICHRA provider, but the greater range of coverage available (new commissions) and the ease of administration (less cost managing this coverage) may prove financially attractive and simultaneously benefit the client and its covered employees. The platform should be flexible enough that it can withdraw specific coverage that the broker wants to offer directly.
- An affordability tool to ensure that a company that’s defined as an Applicable Large employer under federal benefits law is providing affordable coverage to employees to avoid penalties. Nongroup premiums are set based on age, so each employee’s affordability number will be different.
- Design, implementation, reporting, compliance, and renewal services. The platform should be expert in the finer details of the ICHRA plan so that the broker agency doesn’t have to hire a lawyer to administer these plans.
Third, add value. Brokers won’t be spreadsheeting (securing quotes from competing insurers and placing the benefit designs and premiums on a spreadsheet for easy comparison) anymore. Instead, they’ll add value by evaluating the cost difference with an ICHRA versus employer-sponsored coverage, reviewing the nongroup market to determine whether products are sufficiently attractive, recommending subdividing the employee population (if appropriate) into permitted classes, determining affordability for each worker, introducing the right ICHRA platform, and coordinating initial and ongoing delivery of notices to employees.
Addressing a Revenue Shortfall
Nongroup commissions aren’t as high as compensation for employer-sponsored coverage. That’s a major concern for agencies that have built their support structure around the group revenue model. So, how does a broker deal with this difference?
- The ICHRA platform may provide new opportunities to sell other lives of coverage that offer high commissions.
- A robust ICHRA platform may reduce administrative costs, therefore requiring less commission revenue to support the client.
- Switching an existing client from a group model to an ICHRA usually produces a visual reduction in premiums. But proactively presenting the ICHRA opportunity to prospects will result in incremental revenue (commissions where none existed before). This move will increase overall commissions and help bring an ICHRA-supporting business model to scale.
- Additional compensation from the client, either in the form of an annual consulting contract or a monthly surcharge on the monthly administration fee that the ICHRA platform assesses. If the company can save, say $50,000 on the cost of coverage, it’s reasonable to charge (and for the company to pay) a percentage of that amount as a consulting fee.
The Bottom Line
Some brokers will do everything that they can to deflect client requests to evaluate an ICHRA program to replace their group model. That approach is fraught with danger, particularly when unlicensed sellers can deliver a solution. An astute benefits advisor’s best approach is to either proactively identify potential ICHRA candidates among her clients (the proactive and best option) or be prepared to offer a solution once someone else has introduced the concept to a client (the reactive and next best option). ICHRAs aren’t the first potential revenue-model buster (Remember managed care? Plans with higher deductibles and lower premiums? Tiered- and limited-network products? Private exchanges?) that experienced advisors have faced. As with these previous challenges, the brokers who survive and thrive in the future will adapt by offering an ICHRA solution when appropriate.
The content of this column is informational only. It is not intended, nor should the reader construe the content, as legal advice. Please consult your personal legal, tax, or financial counsel for information about how this information applies to you or your entity.
ICHRA Insights is published weekly. The day of the week is floating – usually Tuesday or Thursday.
