Today’s competitive landscape and rapidly changing technologies are disrupting previous practices and forcing businesses to re-evaluate how and what they pay for the services they buy and the relationships they enter. Insurance and human resource services are no different.
What is an Employee Benefits Advisor
Before we go into more discussion, let’s first define an Employee Benefits Advisor.
A company purchasing employee benefits, such as insurance from a carrier, typically works through a benefits adviser to purchase that coverage. The advisor is sometimes referred to as a Benefits Broker or an Employee Benefits Consultant. Broker usually implies that the professional only earns commissions for selling insurance products, while the consultant or advisor name is more encompassing of the many roles a benefits professional plays today and how they are paid, either commission or fees.
Their title is only slightly telling in what the professional does for a group. The advisor may just broker and advise on insurance plans, they may help conduct open enrollment meetings, manage vendors, assist with filings such as 5500s and ACA requirements such as 1095s, and much more. A group needs to determine which benefits and HR functions will be conducted in-house, and which ones their advisor can conduct and whether the cost associated with those services is fair.
If a group is unhappy with their advisor and wants to change to another advisor or agency, they simply sign a one-page Broker of Record change letter for each carrier or vendor. This updates the advisor on file the next first of the month, in most cases. It’s that easy.
The Conventional Wisdom to Choosing an Employee Benefits Advisor
Traditionally, small and mid-sized companies have held the conventional wisdom that a bid process will drive costs down.
In a bid process, multiple brokers or advisors compete for the company’s business by submitting bids for the company’s insurance and outlining what services they offer.
While competition is an essential tool in evaluating services and products for the best value, the bidding process is not always the best way to get best results in today’s benefits landscape. Despite the conventional wisdom, a bid process for benefits actually makes the system work against them. There are few reasons why.
Pricing Obtained Through a Bid May Not Be the Best
Insurance carriers and vendors are like most businesses today and looking to decrease their transaction costs. One way they’re doing this is by asking their employees to do more with fewer resources. This shows up in underwriting departments, which are perenially understaffed and at certain times of the year, the workload is very heavy.
The reality underwriters face then is how badly do we want to write this group’s business? How hard do we want to work for it, at what terms, and at what costs? And many times, underwriters simply don’t have time to give every account their best effort. They’re forced to choose between new business opportunities very carefully. If they see a particular account being shopped by multiple brokers, they may feel their chances are slim and thus have little motivation to make a good effort to win the business.
“Come One, Come All” Can Work Against the Buyer (You)
While it may seem like more brokers competing for your business will create competition that lowers prices, the reality is that once carriers have your census, they’ll generate a comparable quote across all the brokers. This creates a level playing field and unfortunately does not give you any indication as to which broker will provide the substance necessary to service your account.
Diminished Leverage in the Marketplace
Limiting brokers to certain markets or lines of coverage has drawbacks. This practice limits brokers’ ability to communicate with all of the insurers and negotiate the best terms possible. Your broker will be expected to sit across the proverbial table from carriers and vendors, you need to allow them to fight with their gloves off and at their greatest strength.
What is Lost with a Cost Reduction?
We will be the first to tell you about the nearly $1 trillion in waste in the healthcare system. However, hyper-focusing on reducing costs, not specifically reducing waste, can lead to coverage deficiencies. Reducing costs should be about eliminating waste, not reducing benefits. But all too often, a competitive bid process can lead to reduced benefits, not just reduced costs.
What Makes Good Benefits Consultants?
Expanding on our definition of an Employee Benefits Advisor or Benefits Consultant above, a good consultant performs most, if not all, of the following functions:
- Bid Consulting
- 5500 Filings
- Plan Administration
- Employee Wellness
- Employee Advocacy
- Employee Education
- Vendor Management
- Billing Audits
- Benefits Statements
This is just a list of services though. What really makes a benefits consultant good for your group?
Understand Needs and Define Success to Gauge a Benefits Advisor
You need to define what success means for your group when it comes to your benefits advisor relationship.
Are you focused on administration? Perhaps you’ve had issues with enrollments and terminations in the past and this is a primary focus. Set expectations, and assess your team at set periods.
Perhaps the costs of your plans are reaching a breaking point and you need relief. Outline what kind of cost reductions you expect for your plans and assess your advisor’s ability to create a process and achieve results.
List specific functions your Human Resources Department needs assistance with. This may include such functions and results as follows:
- Premiums are going up double digits every year
- Long term strategy to reduce costs
- Our onboarding process is a disaster
- New Hire Orientation
- The last time I had time to review our bill, we found employees still on the plan who had left 3 months earlier
- Eligibility Services and Billing Audits
- Our staff spends 4 hours a week helping employees with benefits questions and claims issues
- Benefits and Claims Resolution
Then, establish what success factors you will assess for your relationship. What are the situations or problems you have? How will you determine if the advisor has achieved your expectations? What quantifiable results need to be accomplished?
What Should You Look for in a Benefits Broker
Transparency around Past and Expected Results
A broker should be transparent with you about how they have accomplished any results they claim.
We saved our clients lots of money!
How did you save them money? How do you think that translates to our business, given what you know?
Provide us with specific situations, referrals ideally to those clients. If a group did in fact save significantly on their benefits costs, they should be willing to hop on a short call to tout the advisor’s merit.
What steps did you take and what obstacles did you have to overcome?
Who is on the Team?
Are you speaking to a salesperson or someone who will be invested in your relationship?
Who will be your day-to-day contact and who will handle your periodic reviews and annual renewal process?
A prospective broker or consultant should be ready to provide references in the form of existing clients. But beyond these hand-picked references, do your own research.
Ask colleagues such as fellow HR professionals.
Google them. Search them on LinkedIn. You probably share contacts, who do they know and can you ask them for an opinion of the agency?
Create a Service Agreement
Okay, it looks like you’ll be moving forward with a new broker. What next? Request a written service agreement that spells out the provided services. Have a clear understanding of your teams responsibilities and the broker firm’s responsibilities.
One of the greatest sources of discontent in any (business) relationship is unmet expectations.
“I thought they would do X, Y, and Z. They only gave us X, what gives?”