If you're looking for a solid opportunity to build a reliable new revenue stream, follow the money. Small businesses -- defined as organizations that employ between two and 50 workers -- account for two-thirds of all new private sector jobs, employ more than half of all United States workers, and generate more than half of the nation's total economic output.
Within this segment, there's an area where knowledgeable brokers are especially well-positioned to deliver valuable advice that builds trust and loyalty. Today's business owners are trapped in a vortex of spiraling health care costs, and they're looking for creative and cost-effective solutions. By educating yourself on the many benefits of health savings accounts (HSAs), you can get ahead of a trend that is gaining momentum within the small business community -- and across society at large. And you can leverage your knowledge to build a sustainable new revenue stream.
A Need for Guidance
Many business owners view their employees as members of their extended family. They believe deeply in giving employees and their families the health care coverage they need. From a business perspective, they also understand the powerful appeal of health insurance when it comes to attracting and retaining employees and boosting productivity and overall job performance.
Yet despite these convictions, economic constraints have forced increasing numbers of business owners to reduce benefit levels -- or even eliminate coverage altogether. Since 2001, they've seen the cost of employer-sponsored health care coverage rise 59%. After a 13.9% increase in 2003 and another 11.2% rise in 2004, the average annual cost of health insurance coverage stood at $3,695 for individuals and $9,950 for a family of four.1 These costs have put intense pressure on current cash flow and have created significant budgeting and planning challenges.
This harsh reality has sent employers scrambling for new alternatives that until recently didn't exist. With few real options, many moved to higher co-payments, deductibles, and co-insurance. But with wages increasing at less than 2% to 3% a year, employers no longer can pass along these added costs. Many others have taken the far more drastic route of denying coverage. According to a recent survey, the percentage of small businesses offering health insurance coverage dipped to only 53% in 2004, its lowest level since 1996.2 This trend is bad for small businesses -- but even worse for society at large.
The Rise of Health Savings Accounts
Thanks to innovative thinking by health insurers and enlightened government support, brokers now have a powerful new solution that ideally suits the needs of small businesses. Health savings accounts combine a low-cost, high-deductible health insurance policy with a tax-free savings account employees can use to pay for health care expenses and save for their future medical needs. For employers, it can mean 20% to 30% lower premiums compared to traditional alternatives -- and it can offer a practical, cost-effective way to reinstate health care coverage. According to a recent study by America's Health Insurance Plans (AHIP), 27% of all businesses that purchased small group HSA policies in 2004 previously were uninsured.
Do the Math
Why are so many small businesses embracing HSAs? Consider the example of a retail jewelry store in Minneapolis. In five years, it experienced a 73% increase in health insurance premiums. That meant it was spending more than $5,000 per full-time employee for total annual premium costs of $55,000. Recently, the owner switched to an HSA plan with a deductible that capped annual out-of-pocket costs at $4,000. The employer then contributed $500 to each employee's account to defray the cost of the high deductible. Employees then could arrange to have 1/24 of the difference automatically deducted from their bi-weekly paychecks so they could fund their portion of the deductible on a pre-tax basis.
This strategy yielded the owner three attractive benefits. He immediately lowered his premium by 28%. He also could plan better for future rate increases because those increases would be tied to a smaller premium base. In addition, the owner believed he was receiving greater value for his health care investment. Frustrated by paying high premiums for services his healthy employees rarely used, he now believes the new HSA structure is better aligned with actual use.
Keys to Success
Because HSAs are a relatively new product, brokers first must master their different structures, options, and contingencies so they can advise clients on the best solution. To simplify this process, some health insurers have created marketing materials, online sales tools, and online applications. For Assurant Health, these tools include a feature that allows brokers to key in a ZIP code and automatically receive information on the two most popular HSA-related products in their area.
When you are ready to reach out to new customers, the following tips might help you close more business:
o Use all the available marketing tools to help educate business owners and their employees about this new alternative. Though general awareness of HSAs is growing as more large corporations adopt them, most small business owners are less familiar with the product.
o Keep your explanations as simple as possible to communicate clearly how the product can help employers save money. Focus initially on the two separate components: the high-deductible plan and the health savings account. Use online calculators to demonstrate quickly the potential savings.
o Make sure the savings account portion is especially easy to understand. This will help overcome concerns that these accounts might be difficult to administer. Show them something that illustrates how HSAs work, such as an online demo that shows how money moves from the employer's bank account to the employee's savings account, how employees administer their claims, and what drug benefits apply.
o Choose a carrier that provides comprehensive sales and administrative support. Without seamless administration, the burden shifts to business owners who already are starved for time. The best carriers offer a one-stop administrative solution for employers and employees -- plus online tools to help agents manage the sales cycle.
o Avoid making assumptions about whether or not individual small groups will qualify because employees are too old or don't earn enough. Fifty-seven percent of Assurant Health's HSA policyholders are older than 40, and 29% earn less than $50,000 a year.
In the first half of 2005, more than 50,000 new HSAs opened each month according to Atlantic Information Services. Further, some experts predict that the number of accounts will more than quadruple by 2006 as small business owners seek relief from rising health care costs. By learning the nuances of HSAs and educating your clients on their many benefits, you can become a trusted adviser they recommend to others and rely on for information about other innovative solutions.
Footnotes:
1. The Kaiser Family Foundation and Health Research and Education Trust. Employer Health Benefits, 2004 annual survey.
2. Mellon Human Resources & Investor Solutions survey.
David Keller is a vice president of marketing and sales support for the Group Markets division of Assurant Health. He has been with the company since 1986. Donald Beard, Jr., CLU, ChFC, of Beard Marketing Group, is a top producer for Assurant Health.
