Every benefits broker has had the stressful experience of having to tell their clients that premiums are increasing – clients certainly aren’t happy to hear this news, you’re going into the conversation already on the defense, and sometimes the relationship you’ve built can even take a blow.
But it doesn’t have to be like this.
This article is all about how advisors can minimize the impact of pricing changes and help prepare clients so it’s never a shock. We’ll be talking about the following three topics:
- How to Provide Options in the Changing Stop Loss/LAP Marketplace
- How to Combat Small and Large Premium Increases
- How Planning Ahead Can Keep Clients Sustainable
Before we dive in, let’s review the nature of a benefits plan, from the perspective of a business owner. A benefits plan is a promise between an employer and a group of employees. Business owners want to balance profit, risk, and loss – and ultimately, build a benefits promise that provides them with value. Value isn’t just about costs, but costs are an important component of how value will be assessed.
The beauty of the benefits promise is that a business owner can promise whatever they want. When a benefits plan is custom-built, no one dictates what has to be included in the promise; instead, the business owner has full freedom to define the promise. We should keep this in mind moving forward, because it means a benefits plan can be structured to control costs in a way that works for the business owner.
With that said, let’s discuss the first issue on our list…
How to Provide Options in the Changing Stop Loss/LAP Marketplace
Stop loss, also known as large amount pooling (LAP), exists to protect the integrity of the employer’s promise against unexpected catastrophic events. It safeguards the employer from unusually large costs and allows the promise to continue for all of the employees.
Stop loss protection is relatively new in the insurance marketplace, having appeared in the last decade or so. And like all insurance products, as claims increase so does cost. Since its inception, stop loss claims haven’t stopped climbing. That’s why prices have more than doubled in the last five years and we expect this trend to continue – in fact, it’s forecasted to double again in just the next two years.
Why? A big contributor is the increase of drug costs and the discovery of new, expensive treatments. For example, someone could be taking medications today that are $15,000 or $20,000 per year; but in five years from now, a new drug is discovered that is $50,000 per year. Ten years after that, this person may be taking a drug that costs $75,000, for the rest of their life.
Do your clients know about this risk and why stop loss insurance costs are increasing? Your job as a benefits broker is to make sure the client stays informed, and then to present options.
As it stands, stop loss costs are going to continue to go up much faster than inflation.
So what options can you present to your clients?
1. Pay the Increasing Costs for Stop Loss Coverage
This is the simple, straightforward solution that some clients may prefer. However, clients may not know that other options exist. It’s up to you to make sure they are informed so they can make the best decision for their business.
2. Design the Benefits Plan with Rx Caps or Restricted Formularies
Work with your client to change the promise so they will be better protected as these new, expensive drugs flood the market.
One way to do this is by adding a cost cap to prescriptions. After this is implemented, your client’s plan will only cover drugs up to a certain amount and they will be protected from huge drug claims.
Another option is to introduce restricted formularies into the benefits plan. This transfers the risk of larger drug claims from the employer’s benefits plan to the provincial government plans that are available, like the Trillium or Exceptional Access Plan. Formularies can even be set up to go through the government plan first, and if coverage is not available under the provincial plan, then the claim will come back to the employer-sponsored plan. We call this Formulary Protect Plus, and it’s a good option for employers who want to ensure their employees will remain covered.
3. Introduce Pre-existing Condition Clauses (Particularly for Rx Claims)
This is a great option for employers who are regularly bringing on new employees or who are expecting to see significant growth in their company in the future.
Limits on drugs can be set up so drugs for pre-existing conditions are only covered up to a certain amount for the first year of employment (for example, up to $2,500). This protects the employers from large claims coming in with fresh employees and allows the integrity of the benefits plan to remain solid for the rest of the organization.
Pre-ex limits are not common, and often aren’t available from mainline insurance carriers. They can be a huge advantage to brokers who offer them, because it’s not something the client can get just anywhere!
Different Options Can Be Set Up for Groups within the Group
Any of these options can be set up for any class of employees! You don’t have to offer your clients one option that must apply to everyone in their organization – instead, you can provide a more nuanced plan that employs different options for different groups within their group.
For example:
- Executives: Full stop loss insurance.
- Management: Pre-ex and Formulary Protect Plus.
- Employees: $5,000 Rx
This can be done for any size group, even as few as six people!
As a benefits advisor, you should be aware of all of these options as stop loss insurance costs rise, so you can speak intelligently to your clients and offer them true solutions.
How to Combat Small and Large Premium Increases
Combating Small Premium Increases
For this section, what we’re really talking about is when a premium increase is too small. You’re probably wondering, what could we possibly mean by that?
Well, any successful organization will be savvy enough to know that premiums are expected to increase somewhat over time. If you advise the business owner that there is little or no change to their premium, they’ll feel they’ve been paying too much for their plan!
Successful business owners buy value. They want the best benefits at an appropriate price. That means charging the right price when the plan is set up and being transparent about rising costs moving forward.
And speaking of rising costs…
Combating Large Premium Increases
Every advisor worries about having to tell their clients about large premium increases. Understandably, clients are often confused and upset by the news – especially if they can’t afford to pay the increase. They want to know how and why this happened and they expect you to have the answers.
You have a few options to offer at this point – they can pay the price, shop the market (which cuts into your profits as the broker), cut down on benefits, or increase cost sharing – but ultimately each of these “solutions” is just putting a band-aid on the wound.
Instead of painting yourself into a corner when costs go up, you must prepare the client beforehand. This way, they’ll be expecting an increase, you’ll have planned for it, and you can go into these meetings with a positive outlook.
It’s all about effective communication.
Businesses don’t like surprises! Educate your clients, manage expectations, and look at the future.
You can communicate in lots of different ways – blog, email, phone, in-person meetings. It doesn’t matter how you communicate; what matters is that you communicate regularly and effectively. Help your clients plan and understand their employee benefits plan into the future, so there won’t be any surprises.
Too many clients have very little relationship with their broker. Good communication shows your clients that you’re creating value for them as their benefits advisor.
Premium increases are okay – as long as you have effective communication.
How Planning Ahead Can Keep Clients Sustainable
Selling is engaging someone in a future result that is good for them.
Benefits brokers need to take the lead in their relationships with their clients – and stop being afraid of their clients.
Are you an order taker or are you the expert? Your client will look at you differently depending on how you approach them. If the employer knows your business better than you do, they won’t value your opinion. You must position yourself as the expert by having a different type of conversation with them.
Ask great questions; new conversations are led by asking great questions.
Ask them about their future goals, and whether their benefits plan matches up with those goals. One of the best questions is, “If we were meeting three years from today… what has to have happened for you to say this has been the best three years of my life?”
You might get answers like, “my business has to double in size”, “I want to acquire this much new business”, “I want to have sold my business by that time”, and so on. Get an idea of where that specific client is going in the future.
Knowing where your client is going opens up a new conversation for you – how can you match the benefits plan to their business goals? Are they going to be hiring a bunch of new employees? Maybe they need a pre-ex clause. Are they looking to set up their business profitably so they can sell it? Maybe they want to look at caps.
What’s important to them in a benefits plan? Common answers include:
- Flexibility
- Value
- Cost control
- Protection from surprises
- Making sure employees are protected
Have the client prioritize their answers! Now you can have a dynamic conversation to help create the benefits plan that meets their objectives and supports their long-term goals.
As we’ve mentioned previously – don’t forget about effective communication. You should report back frequently on their answers and make suggestions about how the benefits plan can be adjusted to support them.
Planning ahead in this strategic way makes your client relationship sustainable. You’ll add true value, and so they’ll keep you around for the long run and maximize your profits. The conversation is the relationship.
The Benefits Trust helps successful business owners build a better benefits plan than they can get anywhere else. Get in touch with us today!
Don’t miss our conversation-starter resource: 101 Sales Questions Every Benefits Advisor Should Know.
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