Navigating Healthcare Reform: Alternative Distribution Channels
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Driving sweeping change in the health insurance marketplace, the Patient Protection and Affordable Care Act of 2010 (PPACA) has forced carriers to explore new strategies that will ensure both compliance with regulatory mandates and financial survival. Among those that pose the greatest challenges are a number of mandates that require carriers to downsize administrative expenses and corporate overhead.
In particular, compliance pressures have many carriers concerned about the state of current distribution channels. In fact, 58% of respondents to a recent survey conducted by the Gantry Group on behalf of HealthPlan Services identified cost effective distribution as one of their top three priorities in terms of responding to healthcare reform.
Market Impact
Under PPACA, large group carriers must meet a medical loss ratio (MLR) of at least 85%, while small group and individual carriers must meet an 80% MLR. Failure to meet these thresholds will trigger rebates to members.
Though the most obvious solution is to cut administrative expenses, it is a difficult task because of the nature of what is defined as non-claims expenses.
For example, commissions are expected to take the biggest hit in the reduction of administrative expense to meet the MLR mandate. Expectations are that commissions will decline 50-75% as carriers face both pricing and cost pressures from reform, causing significant changes to the role brokers and agents play in the selling process.
Further, the new insurance marketplace will be characterized by a system with a greater number of highly price-sensitive consumers and employees who are navigating plan options without the benefit of agent representation. It is a situation exacerbated by the fact that with the implementation of Exchanges in 2014, reform will create a sizable influx of newly subsidized and first-time insureds requiring higher levels of intervention.
To survive, carriers must look to alternative distribution channels to compensate for the 30-50% of sales that will be put at risk as brokers are driven out of medical product sales or significantly reduce that share of their portfolios.
Gaining control of distribution channels is crucial if carriers are to adjust to this new environment and gain market share. As highly commissioned sales channels are phased out, carriers are undergoing pressure to launch or expand internal and direct-to-consumer distribution channels to reclaim lost territory coverage and sales.
Strategic Objectives
To counter the loss of and reduce reliance on agent-dominated sales and other higher-cost traditional channels, carriers should begin investing in the establishment of alternative models that offer reduced overhead and increased profitability, such as:
• Direct to Consumer (D2C)
• Direct-to-Company (D2Company)
• Remote Sales
• Sales Enablement
• Affinity Groups
By investing now in new models, technology and business processes necessary to deliver new and expanded sales capabilities, carriers can improve the effectiveness of distribution, which will be critical to maintaining or growing market share.
In particular, alternative distribution channels focused on utilization of remote sales teams consisting of licensed agents with a proven ability to execute both D2C and direct-writing sales can provide a strategic “bridge” between 2010 and 2014. Particularly when backed by sales enablement teams powered by proven sales tracking and CRM systems, these remote sales models offer tremendous geographic reach and “white space” support for execution of marketing plans, lead conversion and follow-on sales.
The result is higher activity at lower costs and the ability to reach geographic territories that may be overlooked as the traditional field sales model contracts. As a result, distribution models focused on remote sales and support have the potential to drive an estimated 20% reduction in acquisition costs while expanding sales resources by as much as 20%.
As carriers focus on offsetting profit losses and compensating for the exodus of brokers, reliance on Managing General Agent (MGA) distribution should also be reduced as it is too costly to achieve in the new reform environment.
By adjusting existing sales models and introducing new ones that leverage the push toward higher consumer touch points carriers will be better positioned to thrive in the new reform environment.
HealthPlan Services
Partnering with HealthPlan Services (HPS) enables carriers to efficiently and cost-effectively retool business processes and support them with the scalable technology necessary to survive and thrive in today’s health insurance marketplace. A leading provider of outsourcing solutions to insurers in the individual, small business, association and union trust markets, HPS has a solid track record of providing cost-effective distribution, administration and retention services through proven technology and internal expertise refined over more than 40 years.
HPS, which covers more than 2 million members for more than 25 health plans, has achieved significant efficiencies and scale, as well as proven business processes that meet or exceed industry best practices which can be leveraged in future implementations. Partnering with HPS frees internal resources to focus instead on such mission-critical mandates as the transition to ICD-10 and ANSI 5010, adoption of electronic health record (EHR) systems and the secure exchange of patient and billing data.
HPS provides carriers with advanced technology, domain expertise and agility, which allows them to be aggressively proactive in developing and deploying the strategies and processes that will enable them to achieve compliance and remain financially sound.