California Broker April 2016 by California Broker Magazine

VOLUME 34, NO. 7

SERVING CA’S LIFE/HEALTH PROFESSIONALS

TECHNOLOGY FOR BROKERS

& FINANCIAL PLANNERS

APRIL 2016

Moving from the Stone Age to the Information Age

Also Inside:

Self Funding • Life Insurance Covered California • Vision Disability • Wellness Long Term Care • COBRA OCAHU/IEAHU Show

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TABLE OF CONTENTS 12

APRIL 2016 PUBLISHER Ric Madden email: publisher@calbrokermag.com

ART DIRECTOR/PRODUCTION MANAGER Steve Zdroik

EDITORIAL AND PRODUCTION: McGee Publishers 217 E. Alameda Ave. #207 Burbank, CA 91502 Phone No.: 818-848-2957 email: calbrokermag@calbrokermag.com. Subscriptions and advertising rates, U.S. one year: $42. Send change of address notification at least 20 days prior to effective date; include old/new address to: McGee Publishers, 217 E. Alameda Ave. #207, Burbank, CA 91502. To subscribe online: calbrokermag.com or call (800) 675-7563.

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4 | CALIFORNIA BROKER

COVERED CALIFORNIA

COBRA

DISABILITY

33 Must-Have Technology

for Today's Agencies The Compliance Culture by Leila Morris – How to Add Value and The kinds of technology that insurance Win More Business experts say are a must for agencies. by Darren Howell The passage of the ACA has ushered VISION PLANS 35 in a new wave of compliance. Use this once-in-a-lifetime change in our healthGrowth in the Vision Benefit: How care system as an incredible opportunity. We Became Number Two by Jonathan Ormsby LIFE INSURANCE Vision benefits are top-of-mind with 23 employees and are now the second-most Practical Prospecting Ideas popular election in terms of enrollment. by Joel Zimmerman The biggest challenge advisors face is WELLNESS 41 prospecting for policy buyers.

Filling a Need and Growing Your Business With Disability Insurance by Jason Garza Life and disability insurance are the two kinds of policies that are most important after health and auto insurance.

California Broker (ISSN #0883-6159) is published monthly. Periodicals Postage Rates Paid at Burbank, CA and additional entry offices (USPS #744-450). POSTMASTER: Send address changes to California Broker, 217 E. Alameda Ave. #207, Burbank, CA 91502. ©2016 by McGee Publishers, Inc. All rights reserved. No part of this publication should be reproduced without consent of the publisher.

Moving from the Stone Age to the Information Age: We Are at a Tipping Point by Joe Navarro We are experiencing a technological and benefits wildfire. Today’s consumer demands that you simplify the process using technology.

Are You Ready for a Digital Uprising 31 in the Insurance Industry? Tips to Keeping up with the Self-Insured Industry by Ash Sobhe by David Zanze If you’re in the insurance There is a lot of information for broindustry, you have an envikers who are selling self-insurance. It is ronment that's virtually free critical for brokers to stay on top of it all. of competition in digital marketing.

CIRCULATION email: calbrokermag@calbrokermag.com

LEGAL EDITOR Paul Glad

Coverage of the OCAHU and IEAHU Shows by Leila Morris

TECHNOLOGY FOR BROKERS

16 SELF-FUNDING

ADVERTISING Scott Halversen, V.P. Mktg. email: scotthalversen@calbrokermag.com

BUSINESS MANAGER Lexena Kool email: lex@calbrokermag.com

Bridging the Gap Between Small Business Owners and the Health Care Tax Credit by Chris Patton Taking the Pain Out of The small business tax credit offers a 30 Health Insurance chance to expand your practice and help by Francis Dion your small business clients. Leveraging technology, such as customer-communication management.

EDITOR-IN-CHIEF Kate Kinkade, CLU, ChFC email: editor@calbrokermag.com SENIOR EDITOR Leila Morris email: editor@calbrokermag.com

SHOW COVERAGE

TECHNOLOGY ADVERTORIAL

The Power of Partnership by Ken Doyle To get the edge on competition, brokers need access to key, segmented insights that enhance their face-to-face engagements.

ALSO IN THIS ISSUE:

- CalBrokerMag.com -

Why Wellness Programs Matter by Dr. Douglas DiSiena, DC, FICA, QME, CNS, CCHC

43 LONG TERM CARE Flexibility Seen as Key to Private LTCI’s Future by Bruce Stahl and Eric Stallard Reforms are needed to make LTC more accessible to consumers.

Guest Editorial..........................6 Annuity Sampler......................8 News........................................ 38

New Products....................... 40 Classified Advertising........ 46 Ad Index.................................. 46

APRIL 2016

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GUEST EDITORIAL

ZENEFITS AND REGULATION: When the New Flouts the Tried and True

n what is surely one of the most intriguing industry stories of 2016, San Francisco-based health insurance technology start up, Zenefits, was recently found to have been in massive violation of state regulations. At barely two years old, the company had wracked up enough destruction to put most toddlers to shame. In Washington State, 83% of the health insurance deals the company made with small businesses were sold by unlicensed agents—with evidence of the same behavior across seven states. Only when it became apparent that Washington state regulators meant business, and had the authority to fine the company $25,000 for each violation and put an unlicensed agent behind bars for 10 years, did Zenefits snap to attention and demand that its agents get licensed, immediately. Invited to write a “lessons learned” piece on Zenefits, I find myself thinking not so much of the lessons the insurance industry can learn from this as of the fundamental issues that Zenefits failed to address. It’s a real head scratcher that this company, with its $4.5 billion Silicon Valley valuation, could have so completely missed the concept that insurance is fundamentally contract law. Regulations and compliance are the building blocks of a well-fortified edifice that is now more than 70 years old. So in a way it’s like a doctor practicing without a license, as did Matt Damon’s character in The Talented Mr. Ripley. It’s fraud, and it’s a real and serious threat to the consumer. The insurance industry has built its strength on regulation since the passing of the McCarren-Ferguson Act in the closing days of World War II. Most of compliance is built around consumer protection. Regulators view the sale of insurance as an unfair business relationship, asymmetrical in that the insurance professional knows everything about 6 | CALIFORNIA BROKER

John Sarich

the product being sold, and the ordinary person buying it knows little or nothing. The rules and controls were developed to protect an unwary and unwitting public from potentially unscrupulous behavior on the part of the insurance professional who may be touting unsuitable, or worse, fraudulent policies. Our industry has had a history of many scams, and clearly, there’s a place for regulation; but it’s evolved to

becoming more complex and harder to understand. These highly educated professionals are able to handle not only insurance and its regulatory complications, but also financial products with their own completely different sets of regulations. In the new agencies spawned by this blending of financial services and insurance, financial advisors will be able to offer a onestop financial services agency that

a point where it’s a given that there are certain things insurers have to do—for example, if you sell a life insurance policy, you have to provide an illustration of the performance of that policy over a period of time. Insurance carriers are regulated as to how much they can pay their agents in commissions. Then there’s the training and continuing education that salespeople are supposed to have—as in any other profession. This is doubtless where Zenefits fell off the cliff.

provides the gamut of insurance and financial products. Insurance is complex. There are a few types of insurance that are straightforward and simple, but for the most part, the layman doesn't understand these complicated policies. Again, it’s contract law. What does an all-risk policy really mean? What does replacement cost really mean? What does ACV mean? The consumer needs someone who understands the complexities inherent in selling the product. With all these changes in the industry, the regulation that’s now in place actually seems quite reasonable. So much of it makes perfect sense. Consumers wouldn’t want an unlicensed dentist treating them or an unlicensed lawyer representing them; it’s the same way with insurance. You don't want somebody who hasn’t got the skills and education to handle your questions and claims. In healthcare, even when you need a referral to a new doctor, your doctor will tell you to (Continued on Page 9)

REGULATION AND THE BLENDING OF INSURANCE AND FINANCIAL SERVICES Elsewhere I’ve written about the morphing of insurance into a part of a onestop-shop financial services, technology, and securities industry. Insurance companies, such as Mutual of Omaha, are opening commercial banks, and financial services companies are offering annuities. As a result, more CPAs, lawyers and chartered life underwriters (CLUs) are getting into the insurance field because the products are - CalBrokerMag.com -

APRIL 2016

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ANNUITY SAMPLER

MARCH 1, 2016 Ratings Product Company Name Bests Fitch S&P (Qual./Non-Qual.)

Type SPDA Initial Guar. Bailout FPDA Interest Period Rate Surrender Charges

Mkt. Val. Min. (y/N) Contrib.

American Equity A- A- ICC13 MYGA (Guarantee 5) (Q/NQ) S 2.85%* 5 yr. None 9%, 8, 7, 6, 5, 0 Yes ICC13 MYGA (Guarantee 6) (Q/NQ) S 3.05%* 6 yr. None 9%, 8, 7, 6, 5, 4, 0 Yes ICC13 MYGA (Guarantee 7) (Q/NQ) S 3.30*% 7 yr. None 9%, 8, 7, 6, 5, 4, 3, 0 Yes

Comm. Street (May Vary)

$10,000 (Q) & 3.00%, age 0-75 & $10,000 (NQ) 2.10%, age 76-80** $10,000 (Q) & 3.00%, age 0-75 & $10,000 (NQ) 2.10% age 76-80** $10,000 (Q) & 3.00%, age 0-75 & $10,000 (NQ) 2.10%, age 76-80**

*Effective 2/1/16. Current interest rates are subject to change on new issues. **Commission may vary by issue age and state. See Commission Schedule for details

American General Life A A+ A+ American Pathway S 2.30%*a 5 yr. None 8%, 8, 8, 7, 6, 5, 4, 3, 2, 1, 0 Yes $10,000 (Q &NQ) 1.5% age 0-75 Insurance Companies Solutions MYG 2.50%*b .75% age 76-85 *CA Rates Effective 3/14/16. First year rate includes 1.50% interest bonus. a (less than $100K ; b (100K or more) (*Guarantee Return of Premium) (Q/NQ) American General Life A A+ A+ American Pathway S 1.30%*a 5 yr. None 9%, 8%, 7%, 6%, 5%, 0% No $5,000 (NQ) 2.00% age 0-85 Insurance Companies Fixed 5 Annuity 1.50%*b $2,000 (Q) 1.00% age 86-90 (*Guarantee Return of Premium) (Q/NQ) *CA Rates Effective 3/14/16. Includes 2.00% 1st year bonus, 1.00% base rate subsequent years. a (less than $100K) b(100K or more) American General Life A A+ A+ American Pathway Insurance Companies Fixed 7 Annuity

2.05%*a 5 yrs. 2.25%*b

None

9%, 8%, 7%, 6%, 5%, 4%, 2%, 0% No

$5,000 (NQ) 3.00% age 0-85

1.50% age 86-90 *CA Rates Effective 3/14/16. First year rate includes 4.0% bonus 1st year. a (less than $100K) b(100K or more)

American General Life A A+ A+ American Pathway F 3.85%* 1 yr. None 8%, 8%, 8%, 7%, 6%, 5%, 3%, 1% 0% No Insurance Companies Flex Fixed 8 Annuity (Q/NQ) *(includes a 2% interest rate bonus for first year)

$5,000 (NQ) 2.20% age 0-75 $2,000 (Q) 1.70% age 76-80 1.20% age 81-85

*CA Rates Effective 3/14/16

Great American Life A A+ A+ SecureGain 5 (Q/NQ) S 2.10% 5 yrs. N/A 9%, 8, 7, 6, 5 Yes $10,000 Effective 2/15/16. Includes .25% first-year bonus and is for purchase payments over $100,000. Escalating five-year yield is 2.10%. For under $100,000 first-year rate is 1.95%. Escalating rate five-year yield 1.95%.

2.50% 18-80 (Q), 0-80 (NQ) 1.50% 81-89 (Q&NQ)

Great American Life A A+ A+ SecureGain 7 (Q/NQ) S 2.40% 7 yrs. N/A 9%, 8, 7, 6, 5, 4, 3 Yes $10,000 Effective 2/15/16. Includes 1.00% first-year bonus and is for purchase payments over $100,000. Escalating seven-year yield is 2.29%. For under $100,000 first-year rate is 2.30%. Escalating rate seven-year yield 2.19%. Great American Life A A+ A+ Secure American (Q/NQ) S 1.50%* 1 yr. N/A 9%, 8, 7, 6, 5, 4, 3 No $10,000

3.50% 18-80 (Q), 0-80 (NQ) 1.50% 81-85 (Q&NQ)

*Effective 2/15/16. Eff. yield is 2.52% based on 1.50% first year rate, 1.00% available portion of 10% annuitization bonus (available starting in contract year two) and 0.02% interest on available portion of bonus at the rate of 1.50%. Surrender value interest rate 1.50%. Accepts additional purchase payments in first three contract years. COM12255

The Lincoln Insurance Company

A+ AA AA MYGuarantee Plus 5

The Lincoln Insurance Company

A+ AA AA MYGuarantee Plus 7

1.30%* 5 yr.

None

7%, 7, 6, 5, 4, 0

Yes

5.75% 0-70 4.65% 71-80 4.40% 81-89

$10,000 (Q/NQ)

**Rates Effective 3/1/16 for premium less than $100,000 and are subject to change

1.75%* 7 yr.

None

7%, 7, 6, 5, 4, 3, 2, 0

Yes

$10,000 (Q/NQ)

**Rates Effective 3/1/16 for premium less than $100,000 and are subject to change.

North American Co. A+ AA- A+ Gaurantee Choice (Q/NQ) S for Life and Health

2.60%*a 5 yr. None 10, 10, 9, 9, 8 Yes $2,000 (Q) 2.50% (0-80) 2.85*b $10,000 (NQ) 1.875% (81-85) *CA rates effective 1/5/16 â&#x20AC;&#x201C; a (less than $200K) b(200K or more) 1.25 (86-90)

Reliance Standard

3.25%* 1 yr.

A+

A Eleos-MVA

None

8%, 7, 6, 5, 4

Yes

$10,000

3.25%**

*Effective 2/13/16. Includes 1.50% 1st yr. bonus. Min. guarantee is 1.00%. **Reduced 20% ages 76-80, and 40% ages 81-85

Reliance Standard

A+

A Apollo MVA (Q/NQ)

4.20%* 1 yr.

None

9%, 8, 7, 6, 5, 4, 2

Yes

$5,000

4.00% to age 75**

Includes 2.00% 1st yr. bonus. Min. guarantee 1.00% **Reduced 20%, ages 76-80, and 40% ages 81-85. Effective 2/13/16

Symetra Life, Inc.

A A

A Custom 7 (Q/NQ)

2.90%* 7 yrs.

N/A

8%, 8, 7, 7, 6, 5, 4, 0

$10,000

Varies

*Effective 2/17/16. 2.40% base rate with no guaranteed return of purchase payments. Plus 0.50% bonus for $250,000 and above.

8 | CALIFORNIA BROKER

- CalBrokerMag.com -

APRIL 2016

GUEST EDITORIAL

ZENEFITS

(Continued from Page 6) make sure you have somebody who’s board certified. Board certification is a factor of credibility for that doctor. It’s the same in insurance and financial products. Regulation is usually introduced to solve a particular problem. It’s not just being put in place to produce headaches or muck up the gears. At the state level, there’s even a symbiotic relationship between the regulator and the regulated. It may come as a surprise to some, but this is not a matter of mutual palm greasing. Rather, it’s a collaboration intended to make regulations reasonable and easy to administer. The industry is actually helping to provide guidelines so that the government can understand the industry. REGULATIONS AND TECHNOLOGY Since Zenefits was first and foremost a technology company whose pur-

ported aim was to simplify the online health insurance purchasing process for small businesses, let’s take a moment to look at the role of technology in regulation. With the amount of data it has had to process, insurance has always been at the forefront of technology. But for the purposes of this discussion, technology exists to make regulation compliance easier. The regulators come up with a rule, and it is the job of technology to figure out how to put that into a work flow. How does technology make it easy? Let’s take the example of unlicensed agents. There are rules on continuing education: an agent has to have a number of hours of continuing education every year to stay apace with industry changes. When automation was relatively new, the industry allowed agents go into the system, find their account, and update their own information. Regulators and the industry— which is remarkably self-regulating— found that agents were cheating. So now they don't take the word of the

agent anymore. The training organization responsible for administering the continuing education has to release the information and the test scores as validation that the agents have completed their education requirements. This is one way technology is used to facilitate compliance. Technology has made a lot of regulation possible, thanks to Moore’s Law, which enables computers to handle exponentially more complex tasks. What could Zenefits have done better? In brief, they should have understood the fundamentals of compliance—of insurance regulation—going in. And the fact that regulation holds not only the power of the industry, but also its reputation as a credible and trustworthy consumer offering. H John Sarich is an insurance industry analyst and VP of Strategy at VUE Software. He is a senior solutions architect, strategic consultant and business advisor with over 25 years of insurance industry experience. He can be reached at John.Sarich@ VUESoftware.com.

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APRIL 2016

- CalBrokerMag.com -

CALIFORNIA BROKER | 9

DENTAL SHOW COVERAGE

Conference Round up

ocal chapters of the Assn. of Health Underwriters have sponsored conferences that take on the big issues facing today's agents. In this report, we focus on recent conferences sponsored by the Inland Empire (IEAHU) and Orange County Assn. of Health Underwriters (OCAHU). John Green, the legislative chair for NAHU, gave a Capitol Hill update at the IEAHU show in Ontario, Calif. He said that Congress is not likely to get much done during this legislative session with an election year and a short calendar; Paul Ryan brings strong communication skills as the new Speaker of the House; and more Republican members of Congress are vulnerable this election year. Green is focusing on reviving legislation to exclude agent commissions from the medical-loss ratio calculation. The Congressional Budget Office (CBO) was asked to do a preliminary score on the MLR proposal. “If we get a decent score, we will introduce the bill. We have almost 20 democrats supporting it, and we are working on getting more Democratic senators signed on.” (When scoring a bill, the CBO determines what the bill would cost tax payers.) Green expects the Cadillac tax to be repealed, possibly by the end of the year, because Democrats and Republicans hate it. NAHU also wants to streamline the employee-reporting process. NAHU wants a revision of requirements to qualify for the small business tax credit. Very few small businesses meet the stringent requirements. “A general Accountability Office (GAO) report suggests ways to make the small business tax credit more workable. We are trying to get people to write a bill based on it.” In its report, the GAO says that the credit is too small to encourage employers to begin offering insurance. Complex rules on full-time equivalent (FTE) employees and average wages also limit its use. 10 | CALIFORNIA BROKER

by Leila Morris

Green says that NAHU has a decent relationship with the Administration. “We give them good advice that is not self serving. They recognize that you [independent agents] are good at signing people up for the exchanges.” Green also said that NAHU is very involved in the National Assn. of Insurance Commissioners. He encouraged brokers to take advantage of NAHU's CE training.

“You will see tough times ahead in California. You may see some small groups dropping coverage. But, with the ACA, the role of the agent has never been stronger." John Nelson, CEO of Warner Pacific, got agreement from practically all attendees that the fourth quarter was completely out of control with thousands and thousands of California employees having a plan change all at once. “We all had six to seven times the business as normal. Carriers also struggled to keep up.” Sometimes underwriting took a long time. “In midJanuary, we were waiting for approvals on December business.” Nelson expects next December to be very busy also. He hopes that the carriers will stagger enrollment dates, but it is not easy because they have to get state approval. Nelson forecasts a perfect storm when the 51 to 99 groups come up for renewal as small groups. He said that the larger groups are more sophisticated when it comes to health insurance, and they are better at negotiating. Nelson said that there are cracks in - CalBrokerMag.com -

the individual market with 25 million to 30 million people still uninsured. “There are huge deductibles. So why buy insurance if you're young and healthy?” Carriers are dropping out of the exchanges in different states while California seems to be doing OK. Nelson added,“You will see tough times ahead in California. You may see some small groups dropping coverage. But, with the ACA, the role of the agent has never been stronger. Carriers know that the best way to get business is through independent agents. You guys are the answer to how they will handle December enrollments.” At the OCAHU show, Michael Lujan, RHU, CHRS, co-founder and chief strategy officer at Limelight Health stressed the importance of moving away from paper applications. He said, “Our market is ready to evolve with technology. Our industry is overloaded with paper. We have to listen to consumers, especially since many of them are Millennials.” At the OCAHU show, Diane Laird, MPH, chief strategy officer at MemorialCare, gave an update on insurer and hospital consolidation. Laird expects some significant carrier mergers in the coming years. Carriers are buying scale. This consolidation does not bode well for hospitals, Laird said. She added that Medicare is on a path to value-based payment, and consumer driven health care is here to stay. Price transparency keeps price trends in check. Patients are now asking about prices. Hospitals now have to prove their value. Also, providers are getting into the health-plan business. Laird said that accountable-care organizations offer the opportunity for tremendous improvements in health care. The wild card is disruptive innovation, such as telehealth. Another innovation is that labs can now do tests on a single drop of blood. “We look forward to better healthcare and improved outcomes,” she added. APRIL 2016

ben e fit bro ker •

•

\ ben- -fit bro-k r\ noun

A person who advises businesses on employee workforce solutions. Including, but not limited to: medical, ancillary, benefits administration, payroll, HR, tax/ACA compliance.

The definition has changed. How will you respond?

SHOW COVERAGE WELLNESS

AGENT ON THE STREET

INTERVIEWS

We asked attendees at the IEAHU show about their experience with technology and how they have been adapting to the posthealth reform world.

Ken Rasmus, Word and Brown Brokerage: I work primarily with the Medicare population, but those brokers do write for the ACA. My understanding is that they are a little disillusioned with the difficulty in the enrollment processes, the delays, and the follow up necessary to get a policy placed. More brokers are getting involved in Medicare as they transition away from the individual market. Medicare is certainly one of those markets that has the potential for a great deal of success. But the regulations are a challenge for a new broker. Many brokers go directly to the carriers because they are not sure of what that value might be in a general agency. Brokers can truly benefit from a general agency's support, guidance, creativity, experience, and help to be as successful as possible in a very regulated market. General agencies are not all the same. You may find some that are successful in one area, but ignore another area. Martha Collins, RHU, Martin and Associates Right now, we are getting prepared for the next year's open enrollment so we will be ready to handle it. I only have two employees. I worked until 10:00 or 11:00 every night during most most of September, October, and November. It has been a hard road emotionally, and physically, and literally. We will use the next six months to get up to speed on technology. It is ever-changing, so we do the best to adapt. 12 | CALIFORNIA BROKER

Ron Richards, Orion Business Insurance. We have become much more of a trusted advisor to our clients. We have gone from offering benefits and rates to helping with compliance. IEAHU always helps with the educational process. I have two certified folks in the office now in addition to myself. I do a lot of reading. As for technology, we do have an online platform that we brought on. But it has not yet helped save time. Our clients are a little resistant to the online process, so it has had slow adoption. It seems like other areas, like San Diego and Los Angeles, are a little more willing to adopt new technology. Gary Burke, Gateway Insurance and Financial: The biggest challenge is getting the information because things have changed so rapidly and will continue to change. It is very important for us to keep up. The information put out by your group and others is very vital to brokers. I have gotten more involved in selling annuities and life insurance. I work with business owners and middle- to high-income earners. Referrals have always been a part of the business. Cherrier handles the group side while I am a certified estate and financial planner. I work with annuities, cash value life insurance, and the tax benefits. With annuities and life, we are really building up our marketing plans to develop quality contacts. I am also looking at doing seminars. We do radio advertising. We get people calling in from several different states that I am licensed in. - CalBrokerMag.com -

Cherrier Burke, Gateway Insurance and Financial: We don't think that the small brokerages will be able to sustain themselves [on health insurance alone] due to all the changes in the market. We needed to diversify so we could keep on making a

"Everybody should diversify, and not be dependent on health care because the health care market will continue to change." decent income. Everybody should diversify, and not be dependent on health care because the health care market will continue to change. Brian Bean, Alliant Employee Benefits: We have shored up our compliance efforts so we can help our customers with compliance. Obviously, it has been a monumental task, but it has been very beneficial that our customers can come to us. I am part of a national organization with a dedicated compliance team. We are in the middle of adopting new technologies, such as benefit-administration systems, full human resource information systems, and other things that customers are looking for. H

Leila Morris is senior editor of California Broker Magazine. She has been writing about insurance for 15 years, previously on the P&C side for Insurance Marketing and Management Solutions. Morris has a B.A. degree in Political Science from St. Mary's College of Maryland. She served as a Congressional intern on Capitol Hill. APRIL 2016

HEALTHCARE

Bridging the Gap

BETWEEN SMALL BUSINESS OWNERS AND THE HEALTH CARE TAX CREDIT by Chris Patton

mall business owners are interested in health care and ways to pay for it. They are making inquiries to insurance agents, tax preparers, and the state exchange program, Covered California for Small Business. The number of small businesses that are capitalizing on the small business health care tax credit is rising with the exchange program now in its third year and expansive outreach efforts underway. For many, the taxcredit topic had been a non-starter with various barriers for agents and their clients. But now, small business owners seem willing to discuss health care benefits â&#x20AC;&#x201C; many for the first time. The tax credit has been the catalyst for this conversation for many agents. With tax filing deadlines looming, there is no better time for agents to use this opportunity to increase their client base. APRIL 2016

THE SMALL BUSINESS HEALTH CARE TAX CREDIT IN ACAâ&#x20AC;&#x2122;S EARLY YEARS The Affordable Care Act provides a tax credit for small businesses enrolled in a public exchange. It offsets the premium paid by the employer dollar-for-dollar. The tax credit offsets health insurance premiums by 50% for-profit companies and 35% for non-profit organizations. According to the IRS, non-profit companies that don't incur a tax liability get the credit as a refund as long as the refund amount does not exceed their income tax and Medicare withholdings. The small business health care tax credit was one of the first benefits of the ACA, becoming effective to small business owners on January 1, 2010. The tax credit was an incentive to encourage small businesses (25 or fewer full-time employees) to provide health insurance to their workers. In return for helping to increase the availability of affordable - CalBrokerMag.com -

health care, the IRS offered small business owners premium relief in the form a tax credit, reducing their tax liability. At the time that it was offered, the Council of Economic Advisors estimated that up to 4 million small businesses in the country were eligible. The Congressional Budget Office estimated that the tax credit would save small businesses nearly $40 billion by 2019. Federal regulators have worked hard to bring attention to the tax credit program. The IRS initiated several programs to educate small business owners and their advisors. Beginning in 2010, IRS representatives hosted small business forums and tax workshops; sent e-mails to more than 175,000 tax professionals; and mailed millions of postcards urging small business owners to consider the health care tax credit. Despite the outreach, only 170,300 small businesses claimed the tax CALIFORNIA BROKER | 13

HEALTHCARE credit for the first year of the program, according to the Government Accountability Office (GAO). The total amount claimed for tax year 2010 was $468 million, with small businesses receiving an average of $2,748 to offset their overall tax liability. The small business tax credit was not adopted as widely as anticipated because the calculation was too complicated or cumbersome. At the start of the tax credit program, the IRS and some of the larger tax software providers did not yet provide tools for employers and consultants to calculate the tax credit (for example, counting full-time equivalent employees, average wages, or qualifying health insurance premiums). Additionally, many businesses that were eligible for the tax credit were not aware of the opportunity. They may have been overwhelmed with the responsibility of filing taxes on their own and left with little resources to incorporate the services or knowledge of a certified tax preparer. For many small businesses, access to the tax credit was also hindered by narrowly defined eligibility requirements. Beginning January 1, 2014, the program mandated that small businesses enroll in a public health care exchange in order to qualify for the tax credit, whether state-run or federally facilitated. Throughout the nation, the ACA’s small business public health care exchanges were launched as the Small Business Health Options Program (SHOP). In California, SHOP was renamed as “Covered California for Small Business” to capitalize on Covered California’s brand recognition and bring greater awareness of the small business program to the public. However, a less-than-ideal launch of the federal and many state exchange programs slowed the tax credit adoption rate. As reported by the GAO, SHOP programs were operational nationwide, but many features were not initially available, and enrollment had been lower than anticipated. Many small businesses did not enroll because they were apprehensive about joining an unestablished program. In addition, there were misconceptions that the tax credit was only available for two particular years: 2014 and 2015. The tax credit is available for any 14 | CALIFORNIA BROKER

two consecutive tax years for eligible small businesses that are enrolled in a public health exchange. However, tax year 2016 is the last year that a group that has not taken advantage of the program can benefit from three years of tax credits. To achieve this, a small business owner would need to have been enrolled in a qualified health insurance program and enrolled in a public exchange program in the two subsequent years beginning in 2014. In this example, the small business owner could file an amended return this year for the 2013, 2014, and 2015 tax years. They would get the health care tax credit all three years if they met the participation requirements. With respect to claiming a past year’s tax credit, an article from CPA Advisor says, “Businesses that have already filed and later find that they qualified in 2013 or an earlier year can still claim the credit by filing an amended return for the affected years.” The IRS says that the small business owner must make a refund claim within three years from when they filed their taxes or within two years of paying associated taxes, whichever period is longer. SO HOW DOES THE SMALL BUSINESS HEALTH CARE TAX CREDIT WORK? The following are conditions for a small business to be eligible for the tax credit: • Employ fewer than 25 full-time equivalent employees. • Contribute at least 50% of the employees’ premium cost. • Pay an average salary of less than $52,000 per year in 2015 (excluding owners and family members). This amount is adjusted annually for inflation. Small business owners should consult with a tax advisor for a definition of those excluded. The tax credit is available on a sliding scale, providing a lesser benefit to groups that increase in employee count or average annual salary. The sweet spot for the tax credit is with companies with 10 employees or fewer with an average of $25,000 in annual salary or less. The table above illustrates how a small business can reduce their premium by 50% through the tax credit when they offer health insurance through a public exchange program: - CalBrokerMag.com -

EXAMPLE OF SMALL BUSINESS RECEIVING MAXIMUM TAX C REDIT FOR HEALTH INSURANCE Employees 10 full-time-equivalent employees Wages $250,000 total, or an average of $25,000 per employee Employee Health $70,000 Insurance Cost Tax Credit (Yr. 1) $35,000 (50%) Tax Credit (Yr. 2) $35,000 (50%) Tax Credit (Yr.3) Not eligible for tax credit The other good news is that it has gotten easier to claim the tax credit. Now calculations for estimating the tax credit are supported by tax software vendors as well as the IRS and many of the exchanges, including Covered California for Small Business. A simple one-page tax form (8941) is all that is required to file. In many markets, including California, the fastest growing public and private exchanges are those with multiple carriers and plan offerings in different metallic tiers. Now that the public exchange is operating on par with private exchanges, in many cases, there is no reason to not look to exchanges for coverage. When considering the advantage of a tax credit, public exchanges offer small employers a way to reduce premium costs while providing competitive health insurance options that attract and retain quality talent. As a quick note, you must be very careful not to offer tax advice, especially if you are not certified as a tax preparer. There is a fine line between tax advice and a health insurance consultation. Just as with HSA plans and MSA plans before them, health insurance and tax law is woven together. As insurance professionals, we have to bridge the gap among many business advisory disciplines. The small business tax credit offers a chance for agents to expand their practice and help small businesses, many of which might be first-time insurance buyers. H Chris Patton has more than 15 years of industry experience in the California market with knowledge of group health insurance products. As the vice president of Sales for Covered California for Small Business, Chris and his team are staffed statewide to support the role of Covered California’s certified insurance agent community. APRIL 2016

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SELF-FUNDING

Tips to Keeping up with the Self-Insured Industry by David Zanze

ore self-insured employers are looking to brokers to help them combat rising health care costs and provide consultative advice on benefits and plan designs. Would you say that you’re current on all state and federal laws in order to advise your client correctly? If you were going to help your client implement a wellness program, for example, would you be familiar with the recent modifications to the American Disabilities Act and HIPAA? If you’re not, you could be putting your client at risk. What about the latest trends? Have you talked with any of your clients about telemedicine? Fifteen million people in the United States used telemedicine just last year, with this number up 50% from the year prior, according to the American Telemedicine Assn. Insurers and self-insured employers are adopting this technology at a rapid rate. Don’t be left out of the conversation. There is a lot of information to follow for brokers who are selling self-insur16 | CALIFORNIA BROKER

ance. In addition to regulations implemented under the Affordable Care Act, there are legislative updates, technological advances, and cost-containment opportunities that involve creative plan designs, health management programs, and everything in between. It may seem overwhelming, but it’s critical for brokers to stay on top of the latest news and industry information. WHY KEEP CURRENT? Spending just a few minutes a day to stay current on industry news can enrich your health benefit expertise and benefit your client relationships. For one, it allows you and your clients to make better decisions about their health plan options. Knowing what’s trending and being able to spot a threat or opportunity early will offer your clients the best plan of action. That may include determining what employee benefits or programs to offer or improve on so your client can lower annual costs or recruit or - CalBrokerMag.com -

retain the best talent. Keeping up with the health care industry will also add value to your client’s experience. Knowing what’s current in the marketplace can help you offer clients timely and relevant information through regular meetings, calls, and emails. It will also provide ongoing content to share through client communications that you can distribute through newsletters, company blogs, or social media. This will bring value to your client relationships. Also, the information you glean from self-insurance resources, business relationships, and industry leaders allows you to stay in front of your existing book of business and showcase your expertise. RELATIONSHIPS ARE IMPORTANT FOR STAYING INFORMED An often overlooked way to stay relevant in the self-insurance industry is through your relationships. While almost every other element of the industry has changed, the importance of APRIL 2016

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SELF-FUNDING quality business relationships has not. Building and maintaining relationships with peers, mentors, and even former clients can help you stay current and competitive in the marketplace. These relationships offer an insider perspective on what’s happening in the industry. This is information you won’t get from reading a health insurance news column or blog. Personal experience and anecdotal intelligence can help in any number of ways, such as finding a new client, avoiding a mistake, or knowing whom to turn to for guidance on a new program or product. But you won’t get the inside scoop on what’s happening with your competitors or the industry unless you take the time to develop your connections on a regular basis. Below are some tips on how to maintain client and business partner relationships not for just months or years, but decades: • Pursue it: Relationships must be built, nurtured, and grown just like any business. Attending industry conferences is a prime way to create relationship-building opportunities. But attending just the workshops and keynote speakers is not enough. The after-hours functions are also important in forming valuable connections that can reap benefits later. Additionally, post-conference interaction is imperative to transition a new relationship from trade show acquaintance to business partner. • Be available: Meeting regularly with other brokers, sales executives, and business owners can be valuable. There is something to be learned from everyone. Surrounding yourself with ambitious and knowledgeable people in the industry is always beneficial. • Stay connected: Use your calendar to remind you of birthdays and special occasions for business partners and clients (past and present). A quick call or card goes a long way in this business. Sending holiday gifts is a thoughtful gesture that most clients truly appreciate. • Have face-to-face interactions: Choose face-to-face opportunities whenever you can. That personal experience often gives you more valuable information than what you get through a phone call or email. 18 | CALIFORNIA BROKER

THERE ARE SEVERAL OTHER ESOURCES AVAILABLE TOO R Here are eight other resources to get you tuned in: 1. Trade organizations such as the Self Insurance Educational Foundation provides many online resources and has a dedicated section for brokers. Also, the Self-Funding Employer Association hosts the annual Employer Healthcare and Benefits Congress and brokers are welcome to attend. The Self-Insurance Institute of America allows brokers to join as a service provider and members receive industry news and trends through their trade publications and online resources specific to self-insurance 2. Blogs and/or websites related to selfinsurance, health care and government health care legislation allow you to follow to stay on top of news you can share with your clients. Some of our favorites include the U.S. government’s health care website at www.healthcare.gov, the Institute of Healthcare Consumerism at www. theihcc.com, and the Employee Benefit Research Institute at www.ebri. org). Blogs are especially helpful by providing information in bite-size bits that you can scan quickly. 3. Broker-specific websites are good to follow to get tips from other brokers. Also joining broker groups on social media platforms, such as LinkedIn, can provide connections with other brokers for support on challenges you may be facing. 4. Free alerting services such as Talkwalker Alerts (www.talkwalker.com/ alerts) help you get the latest relevant mentions on the Internet. Alerts are sent directly to your email box or RSS feed. Google alerts give you email notifications when relevant news stories are posted. It’s not a bad idea to keep tabs on your clients’ news too. 5. Conferences and seminars specific to the self-insurance industry are good for meeting others in the industry, learning what’s new, and finding what’s out there. Especially valuable are conferences offered through trade organizations, such as the ones we mentioned earlier or TPAs. For example, we like the SIIA National Conference and Expo held annually. - CalBrokerMag.com -

Some conferences allow you to earn CE credits for attending. Also, whenever possible, introduce yourself to the conference expert panelists after their presentations to make some important contacts in the industry. 6. Relevant trade magazines help you stay on top of the industry, especially ones that have regular columns devoted to self-funding. 7. Podcasts allow you to use that idle time while you drive to and from work or appointments. Even a 15- to 20-minute commute gives you an opportunity to listen to a podcast. Listening to a leader in the health care industry gives you conversation starters when meeting with business partners and clients. 8. Twitter and LinkedIn social media platforms offer opportunities to follow leaders in the health insurance industry and others specific to selfinsurance or to join a group with like-minded professionals. To get started, search relevant key words to find industry leaders you can follow. Starting a dialog through these social online platforms is even better. Successful brokers know that providing price comparisons and completing transactional duties is no longer enough to stay competitive and be looked upon as a valuable partner to self-insured clients. Medium- and large-group employers who self-insure want brokers who take a more consultative role and provide everything they need to know to make the best health care decisions for their company and employees. You will remain an indispensable part of your client's employee benefit team by maintaining key relationships and staying on top of topical industry information on behalf of your clients. H David Zanze has over 30 years of experience in the health care industry. He is the president of Pinnacle Claims Management Inc., an all-inclusive third-party administrator (TPA), and Pinnacle Rx Solutions, a pharmacy benefit manager. Both companies offer competitive, cost efficient benefits administration and claims processing in tandem with the latest technology in the self-funded marketplace. Pinnacle also provides administrative support to Covered California for Small Business and the Covered California Certified Insurance Agent community. For more information, call 866-930-7264 or visit www. pinnacletpa.com. APRIL 2016

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COBRA

The Compliance Culture HOW TO ADD VALUE AND WIN MORE BUSINESS by Darren Howell

he Affordable Care Act (ACA) has ushered in a new wave of compliance for everyone. The Dept. of Labor (DOL) has stated that roughly 90% to 95% of U.S. companies are out of compliance with ERISA in at least one area. As the first wave of 1095 reporting requirements have passed, some clients and brokers are just now letting out a sigh of relief. But thousands of new inspectors and auditors have been hired by the IRS and the DOL including its Employee Benefits Security Admin., and Wage and Hour Office, and OSHA. They are using technology to communicate and share leads like never before. They follow the adage, “If a company is out of compliance in one area, they are probably out of compliance in many areas.” They can increase fines and penalties to justify and keep their positions. This is only the beginning of our new compliance culture. Many clients and brokers are throwing their hands up. But savvier brokers are us20 | CALIFORNIA BROKER

ing this once-in-a-lifetime change in our healthcare system as an incredible opportunity to be market experts, add more value to client relationships, and open doors to new business. It’s your choice; you can bury your head in the sand or ride it to new levels of business success. Business owners everywhere want to lower their taxes and stay in compliance. Lowering taxes and increasing sales has always been a focus, but compliance has been added to the mix (or more specifically, keeping the auditors away or quickly passing an audit). You can jump on the Internet and learn as much as you can, go to seminars, or find a reliable third-party administrator that offers an outsourced compliance solution and preferably backs their service with audit guarantees. It doesn’t matter if you know all the COBRA information or tell your client, “I have a great partner for this.” Just find a way to be the hero for your clients and prospects because compli- CalBrokerMag.com -

ance is on their mind and they want solutions. Most brokers follow the path of least resistance and say, “I don’t know much about COBRA; I just know that it is really complex.” This isn’t about being like most other brokers. You can benefit from the compliance culture whether you have an established book-of-business or are just starting out. But don’t stray too far from your core business or spend all your time learning complex new products. An effective strategy is to locate experts in your area to partner with and reach the low-hanging fruit for maximum results. Make sure that your partners offer audit guarantees on their services so you can team up with confidence. Here are some key products to focus on for today’s marketplace: ERISA COMPLIANCE Most business owners think that ERISA, which was passed in 1974, only applies to retirement plans, such APRIL 2016

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COBRA as pensions and 401(k)s. ERISA was passed primarily to protect retirement money, but it also covers welfare benefit plans, such as medical, dental, vision, STD, LTD, life insurance, flex accounts, some voluntary benefits, and wellness programs, etc. If you have a benefit plan and at least one employee, you must follow the ERISA disclosure requirements and distribute federal ERISA compliant wrap documents. Any company changes or federal changes must be communicated with a summary of material modification (SMM). Certificates-of-coverage or carrier (SPDs) satisfy state laws, but are not federal ERISA compliant. If you have over 100 participants on day one of the plan year, you must also file a 5500 with the IRS and do a summary annual report. ERISA is solely the responsibility of the business owner. This is just a quick, 50,000-ft. snapshot, but there are lots of moving parts, which is why the DOL estimates that 90% to 95% of U.S. companies are out of compliance with ERISA in at least one area. Partner with a company in your area that specializes in ERISA compliance to deliver value to your clients and prospects. When your client asks, “Are we in full federal ERISA compliance?” you can say, “I have a partner I want you to meet.” This is low-hanging fruit because most businesses are out of compliance, more companies are being audited, and most brokers avoid ERISA. Also, the ACA's variable hour tracking method for determining fulltime equivalents (monthly or lookback) must be reported and distributed to employees on the ERISA wrap document. Guess what? Most businesses don't have that document. The ACA and ERISA laws are now linked, and the new sheriff in town is the IRS ACA COMPLIANCE This first year, a wave of reporting will shake out the marketplace. Many payroll companies, small vendors, etc. got into the ACA reporting business because there was just so much demand. This is not going away anytime soon. But many providers were in over their heads. They were flying the plane as they were building it. Some companies 22 | CALIFORNIA BROKER

tried to do the reporting themselves, but say never again since it takes 15 minutes to do each 1095 when you actually know what you are doing. Many business owners are looking for a better solution to the 2016 reporting since some providers don’t want the hassle of providing this service or did not deliver on the service. Find a good ACA reporting partner; ride in on your white horse; and provide a better solution. There will be lots of dissatisfaction in the marketplace, which is your lowhanging fruit. FLEXIBLE SPENDING ACCOUNTS I mention flexible-spending accounts because business owners are always interested in tax savings. You can get creative and use the tax savings from the Flex plan to help pay for the compliance services I mentioned earlier. Roughly two-thirds of U.S. companies

ERISA, the ACA, and Flex Accounts are great door openers for people who might not speak to you about insurance, but are interested in tax savings and compliance. have a Flex plan. So one-third of the market needs a Flex plan in order to stay competitive and attract and keep the best employees. The other two thirds have probably had some issues with their administrator. The most common issues are Flex cards getting shut off for a missing $6.75 receipt, or reimbursement shortfalls in which the employer had to cover large claims, or slow reimbursement times, etc.. You can find a better Flex partner and ride in together on your white horse. Flex accounts are one of the most popular benefit programs for a these reasons: 1. The insurance industry is shifting to plans with higher deductibles, co-payments, etc., which means a bigger out-of-pocket burden for employees. Flex allows employees to use 100% tax-free money on those increased expenses. It's a creative - CalBrokerMag.com -

way for business owners to give their employees a raise. 2. Administrative costs have drop ped significantly. Often, the employer's tax savings more than cover the Flex costs and can help pay for other compliance costs. They don't pay payroll taxes on total dollars in the Flex plan. In some states, they don't pay Worker’s Comp on the total dollars in the Flex plan. 3. There is now a $500 carry-over option on the medical, dental, and vision portion of the Flex plan. This drastically reduces the use-it-or-lose-it objection. Plus, most Flex cards pay for Flex eligible products automatically by reading the UPC code. These products include sunscreen, contact lens solution, lip balm, birth control, etc. There is no more dividing transactions or trying to remember what is eligible. There is also a mobile app for ease-of-use. 4. The Flex plan also covers dependent care expenses, the subway, and parking. Anyone with a premium-only plan should upgrade now to a full Flex plan that includes the premium-only plan and takes the tax savings for all to a much higher level. ERISA, the ACA, and Flex Accounts are great door openers for people who might not speak to you about insurance, but are interested in tax savings and compliance. Again success in the new compliance culture is not about being like most other brokers. It is said that the only thing constant is change. I have found that how you deal with an issue is sometimes more important than the issue itself. Oh, one other thing is constant; the GOP will continue to try to overturn Obamacare. Let’s leave the politics aside and focus on providing value to clients, getting creative, and winning more business with the tools we have today. H Darren Howell is the regional sales director for Total Administrative Services Corp. (TASC), the nation's largest private third-party administrator. TASC has been helping brokers and clients with tax savings programs (Flex/FSA, HRA, HSA), compliance (COBRA, FMLA, ERISA, HIPAA, ACA) and business solutions (payroll, giveback charitable giving) for over 40 years. To contact Darren, email him at darren.howell@tasconline.com. APRIL 2016

LIFE INSURANCE

13 PRACTICAL PROSPECTING IDEAS FOR LIFE INSURANCE ADVISORS by Joel Zimmerman

lanning for a nest egg becomes imperative once people hit middle age and near retirement. This planning is incomplete without due consideration for life insurance. Still, the biggest challenge advisors face is prospecting for policy buyers. Here’s a series of ideas to help you clinch customers: • Varied Lead Generation: It’s important to use all possible methods of lead generation. This enables umbrella coverage of all types of customers since what may work for one customer may not work for the other. • Go Digital: Today, the Internet is an important platform for conducting business. It’s critical to have a strong online presence through websites and social profiles that are search engine optimized. When people invest in a life insurance policy via an agent or financial advisor, they will definitely look up profiles online. • The Crucial Clarity: The clarity of what you want to do and the profile of clients you intend to target are very important. Do you deal in whole life insurance or term life insurance? While portfolio diversity is great, it’s important to project specialization and demonstrate consultative insurance skills. • Referrals and Rewards: It’s important to follow up and cash in on referrals. They will most likely convert to sales since they come from wordof-mouth publicity, which is very effective. It minimizes the groundwork that's usually required for prospecting, especially if you reward the referral source. • Innovative Sales Letters: Innovation is important in your sales letters. If they are eye-catching, then they will be read and that’s important since they are one of the most efficient APRIL 2016

ways of lead generation in the life insurance segment. For instance, highlighting the tax benefits of whole life insurance may be one such method. • Surmounting Objections: When you have done prospecting a few times, you know the general concerns and objections that people are likely to raise. When you meet your next set of clients, build their confidence by addressing these objections and ways to overcome them. • Momentum-Filled Opening Lines: Well begun is half done. Starting on the right note is important. Your opening lines must explore life insurance definition, stir clients' curiosity, and build momentum for them. • The Two Pillars: Two crucial aspects of prospecting are: showcasing the unique selling point and offering a fast communication/response time. These go a long way in building a client base. • B uilding the Competitive Edge: Building a funnel is not enough; streamlining it is important too. Do this - CalBrokerMag.com -

by identifying the right targets, prioritizing your clients, and having a customer-centric approach to prospecting. • Ease of Technology: Data management using CRM tools can help complete tasks in a jiffy. Applications for mail marketing follow-ups, etc., can be done automatically to save precious hours. • Explore Groups and Activities: Participating in community activities is a way of building your brand. In addition to meeting people, build unique propositions that help you stand out from the crowd. • Go Local: Conducting local events, like road shows and seminars, goes a long way in building a client base. The conversion rate of prospects is also higher since people get a feel of how things may shape up if they invest in any of life insurance types you offer. • Cold Calling: Some things never change, and cold calling is one of them. It is a tough method, but helps cut ice before face-to-face contact. However, you need to remain patient when things do not shape up as desired, or seem to be taking longer than usual. You could also offer non-traditional products, such as variable life insurance or even indexed life insurance policies, which allocate a portion of their funds to equity index accounts. It’s important to carefully evaluate National Association of Insurance Commissioners guidelines before suggesting indexed policies since equity markets come with their own perils. H Joel Zimmerman is an experienced financial advisor. His areas of specialization include retirement planning and risk management. Follow him on Twitter @life_centra or check out his fiscal blogs and videos on LifeCentra. CALIFORNIA BROKER | 23

DISABILITY

FILLING A NEED AND GROWING YOUR BUSINESS:

Disability Insurance by Jason Garza

ife insurance and disability insurance are the two kinds of policies that I believe are most important after having basic health insurance and auto insurance, which are required by law. Disability insurance should really be called “income protection.” Your clients' single biggest asset is their

"Most calls for help are left unanswered, and the assistance money is seriously lacking…you can differentiate yourself to offer a product that fills a great need." ability to earn a paycheck. This enables them to pay for all the other kinds of insurance and maintain their lifestyle. This insurance protection would kick in if your clients become ill or injured and are unable to perform day-to-day responsibilities at work. Oftentimes your client can offer monthly disability insurance premiums through payroll deduction or automatic withdrawals via a bank account. And because employees are purchasing this insurance with their net income, the benefits are tax free. Because of this, your client's employees can get close to their full and regular income to ensure that they can continue to pay their bills, whether that be mortgage or rent, car payments, groceries, or other insurance like health and auto. And trust me, the last thing they want is for their health insurance to lapse when they already need regular medical attention. Look at it this way, would your clients rather make $100,000 a year, and 24 | CALIFORNIA BROKER

never receive another dime if anything happened to them? Or would they rather take the job that pays $98,000 a year guaranteed no matter what happens to them? There is no need to answer that one. The question is, “Why don’t more people have this kind of income protection, and why haven’t more people heard of it?” There are two main reasons. As recently as the early 1990s, hundreds of insurance companies offered these programs. It was commonplace to have them. Before long, though, doctors, chiropractors, and lawyers were figuring out ways to stop working and file claims that would last a lifetime. It was an easy and early retirement. Because of the massive number of claims, all but 15 or so declined to ever offer these kinds of policies again. The second part of this is that very few - CalBrokerMag.com -

insurance companies are knowledgeable on these complex policies or are able to offer them directly. To say the least, the government’s answer to our aging population and the impaired is implausible. Most calls for help are left unanswered, and the assistance money is seriously lacking. In the youth of the great Baby Boomer generation, disability insurance was proposed as the country’s answer to all of these issues. These days, very few agents get trained on this disability insurance, so they never mention it to clients. This is where you can differentiate yourself to offer a product that fills a great need. H Jason Garza is California Brokerage manager for the Guardian Life Insurance Company of America for both life insurance and disability insurance. For more information, call 619-684-6261. APRIL 2016

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TECHNOLOGY ADVERTORIAL

THE POWER OF PARTNERSHIP by Ken Doyle

mies of scale to collect such niche, targeted data, and to support brokers with accurate analysis on a variety of market segments, than a General Agency. Engaging with LISI, a GA that is actively invested in data analytics, can empower brokers to connect the dots and more effectively guide their clients through what can be a daunting and complex decision-making process. Q: HOW DO WE IMPLEMENT TECHNOLOGY WITHOUT INTERRUPTING BUSINESS AS USUAL? A: There is no business as usual anymore. Change is the new norm, and customer experience is everything today. We have to remain fluid enough to adopt new technologies and unwaveringly focused on utilizing them to improve that experience. Our industry ecosystem continues to experience immense transformation, driven by the increased pace of technological change and legislative shifts that were unimaginable a decade ago. The key to coping with change is to realize that the rewards from innovation far outweigh any temporary discomfort from implementing it. So rather than toe the line, we need to see the huge opportunity we’ve been given to position ourselves as better business leaders. Q. WHAT ARE THE MOST SIGNIFICANT WAYS YOU SEE TECHNOLOGY IMPROVING CUSTOMER EXPERIENCE? A: Data analytics, mobile-first development and social selling are three vital specialties. Social technologies empower our interactions with the speed, scale and commerce of the internet. It hasn’t hit its stride yet in our industry, but as the Millennial broker segment hits its stride in 2020, efforts in social selling should ramp up. As for mobilefirst development, it’s a shift in philosophy. Mass adoption of smart devices by brokers now requires us to support 26 | CALIFORNIA BROKER

our clients with intuitive tools that unlock value and productivity for them on the move. Data analytics, however, is king today. Relationships are everything in our business. When it comes to understanding and improving our offering and customer experience, investing in our ability to uncover new insights and remain responsive to client needs is a must.

Engaging with LISI, a GA that is actively invested in data analytics, can empower brokers to connect the dots and more effectively guide their clients through what can be a daunting and complex decisionmaking process. Q. HOW DO YOU SUGGEST BROKERS LEVERAGE DATA ANALYTICS TO SERVE THEIR CUSTOMERS MORE EFFECTIVELY? A: Most brokers are not collecting data at this depth and may only have limited access to insights they have purchased from third-party providers. It’s crucial they begin to now work with a data source that is invested in their future and engaged in understanding their business. No one has better econo- CalBrokerMag.com -

Q. HOW VITAL IS MARKET SEGMENTATION AND HOW DO YOU SEE TECHNOLOGY IMPROVING BROKER SALES CAPABILITIES? A: Segmentation couldn’t be more crucial as we gain access to a larger potential market through the Internet. Digital technology has given us all the power to connect, but has also fractionalized consumer attention and created more distance when used as a replacement for face-to-face communication. A broker’s ability to quickly assess how customers want to be connected with them, how to message to them and what products and services matter the most are more crucial to their longevity than ever right now. For that reason, mass marketing is a relatively obsolete tool for remaining competitive in today’s fast-paced market. To get the edge on competition, brokers need access to key, segmented insights that enhance their face-to-face engagements, and provide guidance on how to accurately and quickly generate high-producing leads. Data analytics, again, plays a vital role in helping brokers do just that. Brokers may argue they have enough insights from their own ground-level experience to draw from. However, we can simply look at other related industries that have already gone through this shift and verify that data analytics is a proven tool for growth. The key, again, is in working with a GA that understands your business and where you want to be in an ever-changing world. H APRIL 2016

LEVERAGE SOLUTIONS TH!NK LISI.

The industry will continue to change, but our promise to our brokers remains the same: Superior sales and operational support, innovative solutions, and strategic alliance. Brokers + LISI The Power of Partnership 866.570.LISI (5474) | lisibroker.com

TECHNOLOGY

TECHNOLOGY FOR BROKERS

Moving from the Stone Age to the Information Age

We are at a Tipping Point by Joe Navarro

he tipping point is that magic moment when an idea, trend, or social behavior crosses a threshold. We are now experiencing a wildfire of technology and benefits. Look around you; your head must be spinning from all of the tech expos, tech summits, and tech platforms being showcased in your part of the world. Everywhere you turn, someone is marketing their product as the tech tool you need in today’s health insurance marketplace. Don’t get me wrong I am a big advocate of you incorporating technology and becoming a marketing technologist as you promote your brand. There is no shortage of opportunities in doing so. Having a suite of tech tools in response to the seismic shift taking place is no longer a nice to have. It is a requirement to continue the conversation. The main reason for the technology disruption, as many perceive it, is not that complex. Today’s consumer demands that you simplify the process using technology. There is a mystical appeal in what technology can do. Who knows where it is going to take our industry. The whole thing can be a little disconcerting, at times, because it is a major 28 | CALIFORNIA BROKER

change. You can count on the disruption to continue.

THE DIGITAL DISRUPTION HAS ALREADY HAPPENED • The largest taxi company owns no taxis. (Uber) • The largest accommodation providers owns no real estate. (Airbnb) • The largest phone companies own no telco. (Skype, WeChat) • The most valuable retailer has no inventory. (Alibaba) • The most popular media owner creates no content. (Facebook) • The fastest growing banks have no actual money. (SocietyOne) • The largest movie house owns no cinemas. (NetFlix) • The largest software vendors don't write the apps. (Apple & Google) Despite all of the disruption, agents like yourself will benefit most from the tech shift because you have the personal relationships and the experi- CalBrokerMag.com -

ence to make it a win for all involved. DO THIS FOR NOW: 1. Step back and look at what you want to achieve when it comes to tech. 2. Analyze what your sales process consisted of in the past and what areas you feel you could best improve with tech. 3. Evaluate the services you provide and identify which tech tools you could add to streamline and simplify your services. 4. Implement what you can support or have supported. 5. Don’t be shy. Tech can make your dreams become reality. So are you ready to begin? If you haven’t started the process, do it now. Moving to a tech platform takes time. It can also be challenging at times. But remember that, when you are up and running, many doors that will be opened and these tech tools will allow you to pursue the many opportunities in front of you. Hope to see you out on the marketing trail. H Joe Navarro, Gerontologist, is marketing director for Warner Pacific. APRIL 2016

TECHNOLOGY

Technology That Takes the Pain Out of Choosing a Health Plan by Francis Dion

any brokers are putting a major focus on improving document workflow efficiency, consumer interactions, and member retention by adopting technology, such as customercommunication management. Choosing a health plan is fraught with complexities, bureaucracy, and regulations whether it is through an employer or a health-insurance marketplace. Health plan options have become so complicated that many consumers don’t know what they’re signing up for. Only 14% of consumers understand basic insurance concepts like “deductible,” “copay,” “co-insurance,” and “out-of-pocket maximum,” according to a study from the Journal of Health Economics. That can be disastrous, not just for consumers who don't know what they’re buying, but also for employers or brokers who are unable to assist consumers without a streamlined process. This is a main contributor to low customer loyalty and low satisfaction. Since consumers are not knowledgeable about their health plans, it is the responsibility of the broker or insurance company to guide them through the long and arduous process. The pain for many insurance companies and brokers comes dealing with from manual processes and inefficient leg30 | CALIFORNIA BROKER

acy systems when trying to mitigate workflow bottlenecks and improve member engagement.

WHAT DOES A MODERN PLATFORM CONSIST OF? The goal of customer-communication management integration is to reduce the need for a call center as much as possible. A basic customer-communication management platform allows agents to convert many different document formats into electronic files automatically with few to no manual interventions. Converting documents and re-entering information are two of the biggest unnecessary bottlenecks between the carrier and broker. There is a dire need for technology to - CalBrokerMag.com -

help fix that problem. Consider all the manual communication tasks involving documents and delivery that a broker performs with the insurer and insured, and then automate those processes. Customer-communication management applications sometimes include technologically advanced documents, known as “smart forms.” Smart forms allow agents and carriers to present plan options and optional benefit offerings to clients in visually appealing ways. For example, the ability to embed educational videos in complex areas of the forms is one way smart form documents help ease the information burden. This type of content can be customized based on the information the carrier has about the member or based on the answers that the member provided on the form. Smart forms can also capture known data by agent and insurer and provide it to the consumer, which is a drastic improvement over requesting information already shared at another customer touch point. It can eliminate a process of sending out manual input forms to thousands of members every month. It also mitigates confusion on the member side. Some companies use this function to up-sell their most compelling benefits and products as well. With a shroud of confusion, lack of clarity, and little information, consumers often use the “let’s just get APRIL 2016

TECHNOLOGY through this” to purchase a healthcare plan. This may not seem significant at the time, but down the road it can lead to extra work, frustration and even loss of business. The consumer may be confused when filling out a form to choose or renew their benefit plan because of unclear terminology, vague questions, lack of information, and complex calculations. When this kind of situation occurs too often, it’s been shown to be a leading indicator of drop-off during the on-boarding process. WHAT MODERN DOCUMENT WORKFLOW SHOULD LOOK LIKE Modern document management systems can trigger work flows based on particular events, such as a change of status on an account or transaction. Simple to complex work flows can be configured for document development, generation, and approval. Generated documents can be signed (manually or electronically) and dispatched for local or outside printing (print service bureaus), faxed, or emailed. These automated workflow capabilities improve efficiency and accuracy, and reduce the risk of errors. They prevent lengthy manual interventions and ensure that the required approvals have been provided. Customers are becoming far less tolerant of inefficient forms of communication as the insurance distribution market is disrupted by competitors who can do it quicker, faster, and easier. If agents and brokers want to remain competitive in a landscape that is still trying to figure out optimal distribution methods, this is when their value must be on full display. By removing unnecessary bottlenecks with antiquated communication methods, agents can use technology to focus on delivering the best experience they can to their customers. H Francis Dion is the chief executive officer of Xpertdoc Technologies Inc. With his entrepreneurial drive and passion for client services, Dion has over 20 years of experience in software development, IT management, as well as consulting and training services. It's with Francis' guidance that Xpertdoc is now involved in multiple implementations of document management and customer communication projects for over 200 organizations worldwide. For more information, visit www.xpertdoc.com APRIL 2016

ARE YOU READY FOR A DIGITAL UPRISING IN THE INSURANCE INDUSTRY? by Ash Sobhe

f you’re in the insurance industry, you have an environment that's virtually free of competition on the digital marketing front. This offers savvy insurance agents and companies the opportunity to dominate. Like with any industry, being a leader in your space is the most effective way to position yourself as an authority, and we all know the authorities of any industry attract the most business. Let’s look at the unique ways that insurance agents and companies can use digital marketing to their advantage. We’ll explore the psychology of how people use the Internet, the unique components of the insurance industries’ marketing mix, and how to implement your new digital strategy. HOW CAN YOU TAKE ADVANTAGE OF THE DIGITAL SPACE? You’ve already heard of the marketing mix and how advertisers need to have an arsenal to deliver their marketing messages. These are the four Ps of marketing. I’m here to tell you that, as far as the insurance industry is concerned, there’s another P. I’ll reveal what that other P is later, first let’s talk about the difference between traditional marketing and digital marketing so you can see the opportunities before us. PUSH VERSUS PULL We search for the things we want online. We pull content toward us. We feel violated if ads pop up on our screen that aren’t relevant to us. If you’re in the middle of searching for a dinner recipe, the last thing you appreciate is an ad for insurance getting in your way. Pulling - CalBrokerMag.com -

content toward us gives us control. This singular concept is a huge advantage to brands that understand online human behavior. This means that they can deliver their message to users when, where, and how they want it. When the user feels like they are in control, it makes the entire brand experience positive and appreciated.

"There is a lot of opportunity for leaders in the insurance industry because much of the competition still use the old fashioned push strategies. Be smart. Do it differently. And use the more-effective pull strategies." HOW DOES AN INSURANCE AGENCY GET THEIR CONTENT PULLED BY CONSUMERS? All good online marketing is an integrated strategy, which means that you use SEO, content, social media, public relations, website design, and advertising in unison to offer an immersive branding experience. When someone is ready to shop for insurance, you need to be ready for them and pull them to you. That’s what intelligent online marketers do. This means using SEO to bring your website to the top of search results. It means augmenting your search strategy with CALIFORNIA BROKER | 31

TECHNOLOGY compelling pay-per-click (PPC) ads. It also means offering written content that gives the insurance-seeker the facts they need to make a decision. In the insurance business, you have several demographic segments based on the diverse types of insurance. Knowing the motivation behind what people are looking for gives you an advantage. Smart digital advertising for the insurance industry includes targeting your messages succinctly to those who are afraid of what might happen to their family if they suddenly pass away compared to someone who feels like they need a standard policy just in case something bad happens. Think of it this way, when they search for you, it means they want you. When they want you, they are 80% easier to convert into a customer. Half the battle is already done when you use a pull strategy for lead generation. THE FIVE PS OF DIGITAL INSURANCE MARKETING Product, price, promotion, and place are the traditional four Ps of marketing. You’ve likely heard different variations with Ps, such as positioning or packaging added. The P that I like to add for the insurance industry is people. Why? My company did research into the matter and discovered there are three main concepts that insurance companies need to focus on to be successful. They are: building trust, being likable, and simplifying information. These all equal one simple idea—that of people. People trust other people. They want to know and be able to rely upon their agent. This is where the influencer status of individual insurance agents comes into play. Be a friend, an ally. When people like you, they want to do business with you. The research also showed that those shopping for insurance like the information simple and easy to understand. Remember the Geico slogan, “So easy, even a caveman can do it?” Not only does the quirky tag line resonate because it’s funny, but it also delivers the message that getting insurance can be easy. Comparing different plans, pricing, and various providers is hard work. No one likes 32 | CALIFORNIA BROKER

to do it. By understanding the psychology of the consumer you’re able to educate them while giving them what they want. Make someone’s life easier, and you do them a big favor in today’s busy world. LET ME MAKE YOUR LIFE EASIER RIGHT NOW You need a take-away. An actionable plan that you can use to make your online presence break away from ordinary. Here are the top four things you

can do right now to enhance the five Ps of your digital marketing mix in the insurance industry: 1. Define and strategize your online presence: As an influencer in the insurance industry and someone your clients can turn to and trust, being on social media sites like LinkedIn is step one. Create a strategy to make connections. Use the platform to publish content, like articles to promote your product and your personal brand. 2. Evaluate your website to make sure that it is user-friendly and optimized for search. Is the information presented in an easy to understand format? Are you leading the user to a clearly defined call to action? Make sure your content and copy is optimized for SEO so that - CalBrokerMag.com -

you are found when potential customers search for you. 3. Develop an integrated content strategy: Blogs, videos, infographs—all these types of content are ideal to deliver your message. Make an actionable plan to create and distribute your content. Think about using social media and digital public relations to spread the word. 4. Be creative: A special thing happens when creativity and technology come together. Think of innova-

tions you can utilize. Is there an app you can develop for users? What kind of interactive experience will really grab their attention? The most important point I can leave you with when exploring digital marketing solutions, is do it intelligently. There is a lot of opportunity for leaders in the insurance industry because much of the competition still use the old fashioned push strategies. Be smart. Do it differently. And use the more-effective pull strategies. Remember, if you’re not going to lead, someone else will gladly push you out of the way so they can. H Ash Sobhe is the CEO and Founder of R6S, a digital marketing agency. For more information, visit www.R6S.com. APRIL 2016

TECHNOLOGY

Must-Have Technology FOR TODAY'S AGENCIES

by Leila Morris

recent report by the National Assn. of Insurance and Financial Advisors reveals the kinds of technology that insurance experts say are a must for agencies. The following are highlights of the report. CRM SYSTEMS Customer relationship management (CRM) systems can help you organize client data and automate your office. Ryan Pinney, vice president of Sales and Marketing, Pinney Insurance, Roseville, Calif. said, “CRM is, by far, the most important, single element that advisors need to be looking at today. You have to have a modern database management system, and it can’t be Excel spreadsheets or a filing cabinet full of files. It has to be electronic and accessible anywhere, which means that it’s on the cloud. It has to be accessible by multiple people who can make changes and see the most current data that’s been entered.” With CRM, you can analyze sales and marketing efforts and client activity, forecast sales, generate reports, and benchmark your progress. CRM can help you pull together information from all of your channels, including email and social media, then provide insights—often in real time. Here is what to look for: • Customizable for insurance advisors. • Marketing and social media capabilities. • Compliance-friendly. • Mobile connectivity. • Integration with third-party applications. • Secure. ELECTRONIC DOCUMENTATION Moving from paper to e-documentation could be be your single greatest productivity improvement. Electronic document storage, management, and APRIL 2016

tracking gives you access to files from any desktop or mobile device. Imagine being able to search keywords to find the latest version of any document instead of rifling through a filing cabinet. With electronic documentation, you can compare previous versions of documents and collaborate easily. You would have increased document security, backup, full search capability, and built-in regulatory compliance. Modern electronic documentation systems can integrate with your CRM system, and they can store your emails and voice messages. What to look for: • Customizable search fields. • Easy to administer. • Accessible anywhere. • Secure file-sharing. • Email and voice storage. • Integrates with your CRM software. • Compliance-friendly. MOBILE CONNECTIVITY The use of mobile devices (smart - CalBrokerMag.com -

phones, e-readers, tablets) exceeds that of PCs. Mobile technology is a key channel for marketing and lead generation. Mobile allows users to access information remotely, share and collaborate with others in real time, search for products and services, and engage in social media. Mike Michalowicz, CEO, Provendus Group said, “Although face-to-face is the preferred mode for most insurance customers, agencies are finding that mobile is their customer’s channel of choice in terms of access, loyalty, research, and servicing of needs.” What to look for: • Remote access to your records and client information (generally offered as part of CRM or electronic documentation.) • Agent-centric mobile apps that allow consumers to contact you and view quotes or access their policies. • Responsive website designs that display well on mobile devices, giving consumers and clients the same CALIFORNIA BROKER | 33

TECHNOLOGY online experience across devices. • Mobile advertising and search capability such as Google AdWords that allow your business to be listed in searches. • CRM systems that include mobile functionality and mobile marketing such as text messaging. SOCIAL MEDIA Online social networks, such as Facebook, LinkedIn, and Twitter, are transforming the way insurance is bought and sold. Social media is driving insurers and agents to become more responsive and accessible. For many, social media has become the preferred platform for sharing information, building trust, and reaching new customers. Pinney said, “Think of these activities [social media] as a way to help capture your clients’ stories. Those stories are unfolding every day, online and in social media. If you’re not out there trying to better understand your clients and prospects, you can be sure your competitors are.” Using social media is a very effective way to build relationships, market your services, network with other professionals, and serve your clients. At the same time, there are compliance and liability concerns. State insurance departments have been grappling with how to regulate social media. The National Assn. of Insurance Commissioners has concluded that a licensee’s activities on social media must comply with existing statutes relating to advertising, marketing, record retention, privacy, and consumer complaints. Trade practice laws also come into play if a statement or advertisement is deemed untrue, deceptive or misleading. Other considerations include record retention requirements and testimonials. There may also be SEC and FINRA issues. What to look for: • Tools such as Hootsuite that allow you to manage your social media presence across multiple platforms. • Analytics, such as Google Analytics, Buffer, SproutSocial, Hootsuite, or your own CRM, that can measure the impact of your social media activities. • Social listening tools that can monitor what your clients or competitors are 34 | CALIFORNIA BROKER

saying about you in real time (again, your CRM may have this) • Bulk message scheduling that allows you to share and publish more effectively and strategically. PREDICTIVE ANALYTICS AND MODELING SOFTWARE Predictive analytics software allows advisors to tap into large data sets to improve prospecting, generate leads, and tailor advice to their clients. Predictive technology finds patterns in big data to provide insights on customer

“Older agents approaching retirement need to make sure their business records are digitized and that they have a CRM system in place. They are being shortsighted if they think technology doesn’t matter when it comes time to sell their business." behavior and determine optimum channels for reaching them. Modeling and simulation software helps advisors develop and track financial plans, consider various scenarios, and better advise their clients. What to look for: • Integrates with your CRM, email and other business software. • Mobile/cloud-based. • Customizable to your practice. • Data security features. • Reports, including ad hoc, ranking, interactive and pivot tables. • What-if analysis. • Dashboards. • Geo-spatial mapping. • Alerts (such as when investments reach a pre-defined threshold). • Collaboration tools. VIDEO AND VIRTUAL ADVISING Virtual advising can allow more flexibility in your schedule, lower your costs, and increase productivity. Advisors are - CalBrokerMag.com -

turning to virtual advising tools, such as GoToMeeting and Skype, to reach customers, especially younger consumers who are more comfortable with online technology. What to look for: • Scheduling functionality/integrates with your calendar program. • Integrates with your website. • Generates email reminders. • Allows for screen shares. WHAT EVERYONE ELSE IS DOING NAIFA surveyed its members and found the following: • 80% have a website. • 37% use a CRM system and 30% are looking into purchasing one. • 28% store documents and data on the cloud (Dropbox, Microsoft, Sky Drive, Google Drive). Also, 33% are using the cloud in a limited capacity; 38% don't think their business would benefit from the cloud or they don’t know anything about it. • 30% have modeling and simulation software. • 17% have analytics software. • 23% have video and virtual-conferencing tools. Older agents may be less interested in new technologies, especially as they approach retirement. As it turns out, these older agents also tend to be the decision-makers for technology purchases in their firms. Pinney said, “Older agents approaching retirement need to make sure their business records are digitized and that they have a CRM system in place. They are being shortsighted if they think technology doesn’t matter when it comes time to sell their business. Let’s say a guy wants to sell me his book of business. I say, ‘great, where are all of the records?’ If he points to a filing cabinet, the conversation is pretty much over. I have all of my records in a CRM system. I have everything tagged, tracked, and logged. I can tell you everything about any client. I see their social media feeds; I see everything they are doing and everywhere they are doing it.” To download NAIFA's full report, visit naifa.org and click the button, “News and Publications.” H Leila Morris is senior editor of California Broker Magazine. APRIL 2016

VISION

Growth in the Vision Benefit: HOW WE BECAME NUMBER TWO by Jonathan Ormsby

ore people than ever before have major medical insurance, with the uninsured rate dropping to below 12% at the end of 2015, according to the Gallup-Healthways Well-Being Index. Much of the increase among 18- to 64-year-olds is being driven by enrollment in health insurance marketplaces where participating plans are not required by the Affordable Care Act to cover vision, except for children 18 or younger. Because of this, the vision benefit has too often been at the periphery of coverage discussions. But, according to new findings, the benefit is strikingly top-of-mind with employees and now is the second-most popular election in terms of enrollment. Transitions Optical Inc.’s 2016 Employee Perceptions of Vision Benefits survey reveals steady growth of vision enrollment and demand for more premium offerings on the material side of the benefits (frames and lenses), and a significant opportunity for improved education on coverage options. For 2016, vision benefits remain a popular election among employees, with eight in 10 who are offered a vision plan through their employer choosing to enroll. In fact, according to a year-over-year comparison of the data, vision is the only benefit to experience increased enrollment; all other standard offerings – medical, dental, life, and 401K programs – saw slight decreases compared to 2015. It is also the first time throughout Transitions Optical's history of surveying employees (beginning in 2010) that vision benefits ranked as the number two most popular election, tying dental. Eighty-five percent of those who enrolled purchased their plan from APRIL 2016

their employer; 9% purchased directly from a vision provider; and 4% through a health exchange. Interestingly, 16% of Millennials purchased their most recent vision plan directly from a vision provider, compared to only 7% of Gen Xers and 4% of Baby Boomers. JOB HOPPING DRIVEN BY VISION BENEFITS? It’s not a surprise that the benefit package can drive recruitment and retention, particularly among younger employees. In fact, our survey found that 52% of Millennials say they have, - CalBrokerMag.com -

or know someone who has, accepted a new job in the last year because it offered a competitive benefit package, versus just 26% of Gen Xers and 17% of Boomers. What might strike you as particularly interesting is the importance that Millennials place on vision within that benefit package. More than one in four Millennials say vision is the most appealing element of the package. And it’s not just a matter of perception. Millennials are actually using their vision benefit more than do other demographic groups. Nearly 30% of emCALIFORNIA BROKER | 35

VISION ployees aged 18 to 34 said they used the vision benefits more than once to pay for an eye health appointment in the past year, compared to 18% of Gen Xers and 17% of Boomers. Considering that Millennials will make up half the workforce by 2020, employers can anticipate the value of vision continuing to grow. They should take a close look at their benefit offerings. Having a competitive benefit package will be even more appealing for workers in the next five to 10 years. PREMIUM BRAND COVERAGE MAKES VISION BENEFITS PACKAGES ATTRACTIVE So what makes a vision offering attractive? Employees are demanding more flexible options and higher-end coverage in their vision plans. Over the past few years, the vision market has noticed an increasing desire among consumers for more choices and information about the materials (frames and lenses) side of vision benefits. The survey found that 87% of employees say having premium material coverage is important when selecting a vision plan; and 90% say that a vision plan is more competitive if it covers premium lens brands. Unfortunately, the survey also found that more than one in four workers is uninformed about the lens materials covered by their employersponsored vision plan. One in four is also unaware of discounts and coverage offered on eyeglass lens options, such as progressives, anti-reflective coatings, and photochromic lenses. Employees appreciate the aesthetic look of these options with thinner, barely there lenses and quality color options. Also, the benefits to their health and productivity are significant. Features, such as Transitions adaptive lenses provide more comfortable vision by adapting to changing light and offer light protection that can reduce the eyestrain and fatigue that plague the digital workforce. Transitions lenses also help protect eyes from harmful blue light indoors and out. Most employees don't realize that the sun is the largest source of blue light, and only 22% know whether their current eyeglasses have blue light protection. 36 | CALIFORNIA BROKER

EDUCATION IS A YEAR-ROUND INITIATIVE While benefit enrollment is a finite period, education on eye health and the vision benefit should be a top priority year-round. Employers can improve the appeal of vision benefits – and

likely their companies – by ensuring that plans offered to employees deliver excellent coverage of premium lens brands and frames. Perhaps more importantly, they should make an extra effort to ensure that employees are aware of this coverage. The role of the broker has evolved over the years, with education being one of the top priorities. And the guidance they can offer extends beyond just employers. The survey found that 29% of employees believe a vision plan’s website is the most valuable resource in helping them understand their benefits, and 26% rank the vision benefit provider as the second most important resource. Benefit brokers can familiarize themselves with educational content available from vision plans to make sure employers are taking advantage this information and getting it in front of employees. This includes information about the materials side of the benefit. Consider that one in four workers in the study doesn't know about about the lens materials covered by their employer-sponsored vision plan. Educating employers so they can inform their employees on how their plans work and what’s covered has a tremendous effect on the success - CalBrokerMag.com -

of the vision offering. Additionally, employers that are hungry for healthrelated information will not be disappointed looking at the vision benefit. There is compelling research about the role of eye exams in disease detection and prevention, as well as the role of eyewear in providing vision protection and comfort for enhanced health and productivity. Incorporating eye health content into existing health education efforts can go a long way in reinforcing the value of the benefit and encouraging more employees to take advantage, so they can see their best and realize the value of what is being offered through their employer.

"Incorporating eye health content into existing health education efforts can go a long way in reinforcing the value of the benefit and encouraging more employees to take advantage, so they can see their best and realize the value of what is being offered.." More insights from the annual Employee Perceptions of Vision Benefits survey, along with complimentary resources and tools to help employers educate their employees about vision, can be found at HealthSightWorkingforYou.org. H Jonathan Ormsby is a strategic account manager for Transitions Optical, and 10 year veteran of the optical industry. In his current role, he focuses nationally on managed vision care and doctor alliance groups. Ormsby joined Transitions Optical in 2006 as Lens Consultant in the Chicago market, working with eye care professionals and optical labs in the Midwest to grow their sales of Transitions lenses. In January 2008, he moved to Portland to manage Transitions Optical’s business in the Pacific Northwest. He has been an ABO-approved speaker since 2007 and has given presentations throughout the country on everything from product specific education to industry data and business management. APRIL 2016

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NEWS

Study Reveals Leading Healthcare Benefit Trends The Healthcare Trends Institute issued a massive survey of employee benefit trends. The good news is that employers are looking to insurance brokers and benefit consultants to help them evaluate health benefit designs and distribution models. Forty percent of employers say they will depend on insurance brokers to learn about new health benefit models, such as defined contribution plans and private exchanges, and 31% will depend on benefit consultants. Nearly 40% rely on insurance brokers to learn about health benefit designs and platforms. “The ACA has created a dynamic marketplace in which brokers have a front row seat navigating in this new era,” according to the study. Human resource professionals have new responsibilities due to the ACA. Thirty percent are looking for help from benefit consultants. However, 30% are researching independently compared to 26% in the previous year. Employers gave the following answers to this question, “What partners would you depend on to help you learn about new health benefit designs and distribution models?” • Insurance broker 39.7% • Will research independently 30.8% • Benefit consultant 30.8% • Insurance carrier 24.4% • TPA 19.2% • None 15.4% • Trade Association 11.5% • Payroll company 10.3% • Other 5.1% WHAT BENEFITS EMPLOYERS ARE OFFERING About 40% of employers offer three or more health plan options, which are usually a PPO, an HDHP, and an HMO. Employees are choosing HDHPs (39%) over HMOs (35%). The following is a breakdown of benefits that employers offer: • PPO 59.5% • Flexible spending account (FSA) 59.5% 38 | CALIFORNIA BROKER

• Health savings account (HSA) 52.1% • High deductible health plan (HDHP) 38.8% • HMO 34.7% • Self-insured plan 22.3% • Health-reimbursement arrangement (HRA) 15.7% • Catastrophic insurance 8.3% • Dental plan 73.6% • Vision plan 67.8% • Prescription drug coverage 67.8% • Mental health coverage 52.1% • How Healthcare Reform Has Affected EMPLOYEE BENEFIT PACKAGES Forty-nine percent say that healthcare reform will increase employee costsharing; 39.6% say it will increase premium contributions, and 3.6% say it will shift their company towards a defined contribution plan. Employee cost-sharing has risen every year for 10 years. Employers and the medical industry have had to deal with other ACA implications, such as the employer mandate and new compliance, which has caused an increase in capital and human resources. Employers have done the following in response to health reform: • Increased employee cost sharing 49% • Has had no effect 30% • Enhanced wellness/preventive health programs 23% • Increased employee engagement in their health 19% • Increased employee engagement in reducing healthcare costs 18% • Adopted new wellness/preventive health programs 17% • Reduced covered benefits 15% • Added HDHPs/CDHPs 14% • Stopped offering healthcare benefits 9% THE CADILLAC TAX The impending 2018 Cadillac Tax is a prevalent challenge for employers. The ACA 40% excise tax will be imposed on the portion of group health plan premiums that exceed specified thresholds. The concern may be more regional since it could be triggered in parts of the country where healthcare costs are high and less likely to be triggered in parts of the U.S. with below average healthcare costs. Thirty-five percent of employers are very con- CalBrokerMag.com -

cerned about the 2018 Cadillac Tax; 25% are somewhat concerned; and 30% are not concerned. Sixty-one percent are making no changes to their benefits in light of the impending Cadillac tax while 18% have changed plans to avoid the Cadillac Tax. Recent news reports along with lobbying efforts may be influencing the 61% of companies who have a wait and see approach about the Cadillac Tax. DEFINED CONTRIBUTION PLANS Employers continue to learn more about defined contribution plans and private exchanges with about 35% saying they are familiar with them. This is an increase of about 5% over last year. Twenty-eight percent say that exchanges help employees understand the value of their benefits. Twenty-five percent say that a defined-contribution plan would help employees understand the value of their benefits and make more cost-conscious benefit decisions. Five percent of employers offer defined-contribution plans (not on a private exchange) while same offer defined-contribution plans on a private exchange. Also, 7% are considering offering a defined contribution plans on a private exchange while 53% have not explored defined contribution plans. Fifty-five percent of employers who are considering a defined-contribution plan, say they would explore the option for 2017 or 2018. This suggests that near-term adoption will be gradual. But the adoption curve may steepen as the benefits of defined-contribution plans become better known. PRIVATE EXCHANGES Employers want private exchanges to provide many solutions including health spending accounts (62%), carrier integration (58%), COBRA compliance (56%), automation of premium payments (51%), and payroll integration (50%). Employers choose private exchanges to control costs and increase employee choices, which is why employers say, most often, that they are looking for health spending accounts. Incorporating consumer directed healthcare coverage, such as HDHPs, HSAs and HRAs, helps private exchanges create a competitive APRIL 2016

NEWS marketplace that promotes cost-savings for employees and employers. To succeed a private exchange needs to provide broad choices and help participants in the selection process. Sixty-two percent of employers say that it is somewhat important to very important to have health-spending accounts in an insurance exchange. Also considered somewhat important to very important are carrier integration (59%), COBRA compliance (56.4%), and premium payment automation (53%). Employers say they would choose the following offerings in an exchange: • Plan and cost comparison tools 80% • Online capabilities 69% • Combined benefit enrollment 47% • A help line 47% • Transparency solutions for treatment cost comparisons 45% • Mobile applications 45% • Progressive cost tracking tools 35% • Consolidated employer billing 35% • Integrated consumer healthcare accounts 30% • Financial account options 28% • Employers rank several exchange features as important, such as being a private exchange instead of a public exchange (83%), having a large selection of plan choices at targeted benefit levels (58%), and being provided by their broker or benefit consultant (55%). These findings indicate that broad choice is more important than who runs the exchange (broker versus carrier). WELLNESS Wellness programs continue to gain interest as 35% of employers have initiatives in place compared to 30% last year. Another 22% are considering implementing a program. Sixtyfive percent are considering adopting a wellness program in 2017, and 16% are considering adopting one by the end of 2016. Fifty-five percent of those offering wellness programs, offer an employee-assistance program (EAP); 53% offer flu shots or vaccinations; and 37% offer a smoking cessation program. The disease management tools that most employers offer are for diabetes (30%) and depression or other mental health (30%). Fifty-four percent of emAPRIL 2016

ployees are not offering disease management tools. But 30% are providing services for diabetes and mental health conditions. To promote positive health outcomes, 44% of employers offer at least one wellness program; 31% offer biometric screening; and 20% offer a disease management program. Forty-four percent have at least one wellness initiative in their workplace. Employers that are interested in offering wellness plans should consider how it would affect productivity, absenteeism, turnover, retention, and recruitment, according to the survey authors. Including these factors in the ROI discussion can help demonstrate additional savings a company could achieve. When it comes to wellness incentives, HSA and HRA contributions (18%) and premium reductions (16%) are most popular. Companies are split on whether to offer wellness incentives with 58% not providing rewards to employees and 42% offering some type of incentive in varying monetary amounts to participate. The value of the incentives remains relatively modest. Companies interested in wellness incentives can use the ACA as a guide. Eighteen percent offer $250 or more of incentives to employees for healthrelated tasks. Common values of incentives are $101 to $250 and $1 to $50. For more information, visit www. HealthcareTrendsInstitute. HOW THE AFFORDABLE CARE ACT CHALLENGES INSURERS In the past year, the Affordable Care Act (ACA) has had a more pronounced effect on large and small health insurance carriers, according to an A.M. Best report. The fact that the enrollment population continues to be older and riskier, is having a bigger negative financial effect than anticipated. Publicly traded companies fared well, reporting an increase in earnings through Sept. 30, 2015. The ACA health insurer fee has affected insurers’ earnings. It was $11.3 billion in 2015 and is a similar amount for 2016. Since the fee is not tax-deductible, it has a greater effect on net income. Many insurers have compensated for the fee through premiums. Since some governmentfunded programs are more sensitive to - CalBrokerMag.com -

premium increases, carriers have not been able to consistently pass the fee along in rates. To alleviate the growing financial pressure, health insurers are looking at initiatives to control the cost of care, such as disease management programs and better care coordination. As a result, there has been increased collaboration with providers that can benefit all parties involved, including the patient. Merger and acquisition activity accelerated in 2015 with several large transactions announced during the year. The desire for further diversification is driving the mergers and acquisitions among insurance companies and other health-related businesses. A.M. Best’s outlook for the U.S. health insurance sector was recently revised to negative from stable, largely due to earnings and capitalization pressures as a result of the ACA. The industry pressures are expected to continue to hurt earnings. The lower earnings and growth in premiums from increased membership will result in lower levels of risk-adjusted capitalization. The merger and acquisition activity will bring additional earnings pressure to the bigger carriers since they will need to service higher debt loads. Since many of these pressures will not subside in the near term, A.M. Best says that there could be more negative rating actions on health insurers. The report also explores other trends, such as how health insurers are viewing cyber risk, changing consumer demands, emerging memberfocused insurers, rising pharmaceutical costs, and 2015 rating trends. To get a copy of the report, visit http:// www3.ambest.com/bestweek/purchase.asp?record_code=246597.

What Consumers Are Saying About Obamacare and Cancer Coverage

When consumers talk about Obamacare online, cancer is the most fre quently discussed health condition, according to a report by Treato. Online, consumers discuss cancer 2.5 times more often than any other health condition. When discussing cancer, the leading topics are breast, lung, and colon cancers. Online discussions about Obamacare generally CALIFORNIA BROKER | 39

NEWS skew negative among cancer patients, but those who are positive express extreme gratitude. Twenty percent of patients and caregivers on cancer forums express gratitude and 48% have various criticisms about Obamacare. Conversations about the downside of Obamacare’s cancer coverage generally fall into two categories: dissatisfaction with coverage and frustration with the lack of plan options. Consumers discuss the challenges of deciphering insurance rules to get the coverage they want, and confusion about subsidies, exclusions, inclusions, and co-pays. Consumers are also complaining that certain groups are gaining more from Obamacare. The strongest criti cisms are about women having access to more preventative screenings and more coverage for conditions, such as for breast cancer, and the poor get ting free coverage. Consumers are also critical of other health conditions getting less coverage than cancer. Consumers complain about losing good private insurance plans because of Obamacare and paying more out-ofpocket for cancer treatment. Many say that Medicare and Medicaid are simpler to access and easier to understand. Those who like Obamacare cite pre vent ative screenings, coverage of pre-existing conditions, removal of lifetime limits on coverage, and the affordability of coverage. For more information, visit treato.com.

California Medical Group Report Card Now Includes Cost and Quality Information

Consumers and purchasers can compare cost and quality ratings for more than 150 medical groups. The Integrated Healthcare Association and the and the California Office of the Patient Advocate produced the report card, which is available at www.opa.ca.gov. It is believed to be the first statewide multi-payer public report card to provide side-byside comparisons of quality and cost measures at the medical group level. In related news, the two organizations unveiled a quality report card or medical groups caring for enrollees in Medicare Advantage health plans.H 40 | CALIFORNIA BROKER

NEW PRODUCTS HEALTH AND WELLBEING SCORECARD ON INTERNATIONAL EMPLOYERS HERO and Mercer launched The HERO Health and Well-being Best Practices Scorecard. The free Scorecard, allows employers to evaluate their health and well-being efforts based on best practices compiled by industry leaders. The domestic version of the Scorecard has been available since 2008. The Scorecard asks employers about their support for employee health and well-being, program offerings, integration of health and well-being programs with other areas of the company, strategies to encourage participation (such as communications and rewards), program costs, and outcomes. After submitting the online scorecard, the employer immediately receives an email showing their best practice scores in six areas that contribute to employee well-being. For more information, visit hero-health.org. RETIREMENT AGE PREDICTOR AboutLife is offering a recommendation engine that identifies opportunities to close the gap in customers’ retirement needs, making it possible to retire four to nine years earlier, on average. Users can connect with handpicked certified financial advisors to answer questions about retirement planning, without the cost and commitment imposed by the traditional financial planning model. For more information visit aboutlife.com. WORK LIFE WEBSITES Two new websites from Unum and Colonial are designed to help consumers make the most of their work life: WorkWell (www.workwell.unum. com) and WorkLife (www.worklife. coloniallife.com) The websites offer stories about workplace issues, career development, benefit packages, and healthy living tips. ENROLLMENT Benefitfocus has updated its BENEFITFOCUS Platform. Large employers and insurance carriers will be able to support mobile open enrollment

- CalBrokerMag.com -

and life event changes beginning this fall. Large employers and their employees will be able to complete open enrollment in the BENEFITFOCUS App. There are new tools to offer employees highly personalized content when they need it the most. Users will have access to a media library that allows them to build custom pages and manage content across the entire benefit enrollment workflow. The company says that the new capabilities will reduce the amount of time HR leaders spend on content management from days to hours. With a few clicks, administrators can predict lost time at a given location due to absenteeism resulting from chronic conditions. They can use the information to design plans to manage chronic conditions and reduce costs. Administrators gain greater visibility into plan activity and clinical prediction—all within one consolidated dashboard. For more information, visit benefitfocus.com. ACA MANAGEMENT & REPORTING The BENEFITFOCUS ACA Management & Reporting system offers an easy-to-follow workflow that helps administrators complete IRS forms 1094-C and 1095-C. Built-in rules and validations help administrators avoid IRS penalties and ensure forms are completed with the right information and in the required format for IRS reporting transmission. For more information, visit www.benefitfocus. com. VOLUNTARY SHORT-TERM DISABILITY The MetLife Worksite Short-Term Disability Plan provides a simple income protection solution that is easy to understand, enroll in, and use. The plan is 100% employee-paid. Features include guaranteed issue coverage, the ability for employees to pay for coverage via payroll deduction, and auto-portability, so the employee does not need to fill out forms to keep the coverage when changing jobs. For more information, visit www.metlife.com. H

APRIL 2016

WELLNESS

Why Wellness Programs Matter

by Dr. Douglas DiSiena, DC, FICA, QME, CNS, CCHC

espite spending more money and then any other country on the planet, we are sicker than ever. According to the National Health Institute, “Americans are in worse health than their counterparts in other, peer countries.” This study measured the U.S. against 16 counties and concluded that of the 16 other countries the U.S. had the highest morbidity and the shortest life expectancy. To make matters worse, at the end of February, the CDC released its quarterly age-adjusted death rates for the year and found the rates to be higher for many of the leading causes of death: heart disease, stroke, diabetes, and chronic respiratory disease. There was a slight decrease for cancer and HIV. “Poor lifestyle choices, such as smoking, overuse of alcohol, poor diet, lack of physical activity, and inadequate relief of chronic stress are key contributors in the development and progression of preventable chronic diseases, including obesity, type 2 diabetes mellitus, hypertension, cardiovascular disease and several types APRIL 2016

of cancer,” said Mladen Golubic, MD, PhD, medical director for the Center for Lifestyle Medicine at the Cleveland Clinic. According to the CDC, as of 2012, about half of all adults—117 million people—had one or more chronic health conditions. One of four adults had two or more chronic health conditions. PREVENTION IS THE KEY There is good news in all of this. With proper education and lifestyle choices, many of these diseases can be mitigated and prevented. Such was the conclusion in a study on heart disease, which is the number one killer in the United States. Many patients with classic risk factors for cardiovascular disease can achieve risk reduction goals without medications in only three months of initiating therapeutic lifestyle changes, according to a 2004 study presented to the American College of Cardiology, 53rd Scientific Sessions by Neil Gordon MD, PHD, MPH, from the Emory University School of Medicine. His co-author, Emory Heart Cen- CalBrokerMag.com -

ter cardiologist Dr. Laurence Sperling said, “Therapeutic lifestyle changes can generally be implemented less expensively than most medications and, unlike single drug therapy, they favorably impact multiple cardiovascular disease risk factors.” In the intervening 12 years, we are learning that lifestyle changes can positively impact basically all chronic disease through diet, exercise, stress reduction, and smoking cessation. INFLAMMATION A CONTRIBUTING FACTOR TO CHRONIC DISEASE Over the past few years, more research is shedding light on the role that inflammation plays in chronic disease. Inflammation is an important function of the body’s healing process against damage or disease, and helps prevent infection. But long-term unresolved inflammation becomes a problem. According to the August 2015 British Journal of Nutrition, an unresolved inflammatory response is likely to be involved from the early stages of disease development. Controlling inflammation is crucial to human health and a CALIFORNIA BROKER | 41

WELLNESS key future preventative and therapeutic target. The connection between chronic inflammation and disease is important to consider in a wellness program. Consumer demand is growing rapidly for organic, fresh, and natural foods. Supermarkets are answering the call with expanded choices in virtually all categories. This trend of avoiding refined, processed, and manufactured foods is a direct result of the increased awareness of toxins and inflammation. While some have a clear understanding of this link, the vast majority still have much to learn. Just because a product says “natural” or “organic” does not mean that it doesn't have excessive sugar or sodium. It is not always best to buy frozen or packaged foods that are low fat (high carb) or reduced calorie. Preservatives and the plastic packaging can be toxic. Plus, the microwave may unleash BPAs into the food, defeating the purpose of the “healthy” item. Stress is another well-documented contributor to inflammation, which manifests in the increase of the hormone cortisol. Environmental toxins also contribute to inflammation, and ultimately chronic disease. Affecting our bodies before birth and throughout our lives, they are present in the air we breathe, the water we drink, the food we eat, the clothes we wear, and even the office furniture we sit on. Look no further than your neighborhood to understand how inflammation can affect the body and weight loss. Have you ever noticed that there are more gyms around than five years ago, yet we are still getting fatter? Even if we eat healthy and exercise regularly, chronic undiagnosed inflammation is generally the culprit for the inability to shed those extra pounds. WHY CORPORATE WELLNESS PROGRAMS ARE A GOOD INVESTMENT Aside from the fact that everyone benefits when the country is healthy, it also makes good business sense. Healthy employees who are more productive reduce the cost of chronic disease management. Companies are often very much like families. We spend so much time at our jobs that 42 | CALIFORNIA BROKER

colleagues become a natural support system who can foster participation, encouragement, and follow through when implementing a wellness program. When possible, involving the employee’s family offers added reinforcement for success. Seventy percent of U.S. employers offer a general wellness program, up from 58% in 2008, according to a 2015 report from the Society for Human Resource Management. What is truly fascinating is a recent RAND Wellness Programs study, which found that ROI varied dramatically based on the type of wellness program. The average ROI was $1.50 for every dollar invested. The study concluded that general lifestyle programs in which benefits were realized in the longer term had a $.50 ROI for every dollar spent. These lifestyle programs constituted 87% of employees who participated in a program. Savings were generally attributed to lower absenteeism. Helping employees quit smoking, exercise more, and eat better are clearly important objectives that prevent disease, but do not have an immediate effect on the bottom line. Conversely, disease management programs that saw only 13% employee participation had the largest ROI of $3.80 for every dollar spent. Effectively addressing employees with heart disease, obesity, and diabetes had the biggest immediate effect, primarily by reduced hospitalizations for heart attacks and amputations. YES, WELLNESS PROGRAMS MATTER Ask a few questions to determine which type of wellness program is best for your client's company. There is no one-size-fits-all answer. Each business needs to review their objectives, their ability to commit long-term, and the needs and composition of the employees. It does not benefit anyone to offer a wellness program that no one participates in. Conducting a survey of what would interest employees provides an opportunity for greater buy-in. Larger companies have more resources to implement a comprehensive wellness program than do smaller businesses. But that doesn’t mean that small businesses need to be left - CalBrokerMag.com -

behind. At a minimum, opportunities to learn about different aspects of health can motivate employees to take more responsibility for their health. Offering incentives or subsidies for fitness or weight loss programs can be a benefit. Promote healthier eating by substituting cookies and candy in the office for healthier food choices. Walking, exercise, or yoga groups can be started. Offering fitness bands or activity trackers is also a positive step. If there is a room, plant a vegetable or herb garden and share home-made recipes.

"There are a myriad of options to promote health and wellness. With a little research and creativity you can find a program that is right for a small, medium, or large businesses. It's important to remember that success does not happen overnight." There are a myriad of options to promote health and wellness. With a little research and creativity you can find a program that is right for a small, medium, or large businesses. It's important to remember that success does not happen overnight. Transforming lives takes time, baby steps, and all of us working in the same direction. The important thing is to take the first step. Dr. DiSiena is an author, board certified chiropractor, nutrition specialist, and lifestyle coach. Doctor Designed Wellness has more than 32 years of experience in functional wellness through a well-coached, scientific-based holistic approach. Focusing on a low-glycemic index dietary plan, nutritional supplements, exercise, and stress reduction techniques, patients are helped to maintain or enhance lean body mass while they lose unhealthy fat. The program integrates body composition testing (measuring body fat and lean mass) as well as indicators of cellular health as a part of the assessment. The company also offers a popular lunch and learn program. For more information, call 949-6829551, email info@DoctorDesignedWellness.com, or visit DoctorDesignedWellness.com. APRIL 2016

LONG-TERM CARE

Flexibility Is the Key

THE FUTURE OF PRIVATE LTCI by Bruce Stahl, MAAA, ASA, and Eric Stallard, MAAA, ASA, FCA

bout half of Americans turning 65 today will need longterm care (LTC); one in seven of them will need care for more than five years; and one in six will need to set aside at least $100,000 for LTC expenditures or have access to these funds via insurance, according to the Dept. of Health and Human Services. The need for LTC and the perception that private LTC insurance (LTCI) is costprohibitive present formidable challenges to planning for LTC. Reforming public policies that limit and shape LTCI offerings, will be integral to changing LTCI in order to meet this important societal challenge. What should these changes look like? The key to answering this question is understanding options for flexibility in pricing and product design of LTCI policies, as well as major challenges facing reform efforts. The American Academy of Actuaries has analyzed both. APRIL 2016

LTCI plans have been offered and purchased on a level-premium basis for the life of the policyholder, but pricing flexibility could be introduced in the following ways: • Reduce initial premium levels by allowing premiums to increase for ages beyond 65. One example is having premiums that increase with the percentage of inflation and/or investment returns for all future years. •Streamline the approach to premium rate increases, such as basing premium rate increases on a national index, such as a change to the average life expectancy for a disabled 65-year-old. • Change the reserving process, which may currently require reserve levels higher than needed. This can add pressure to increase premium rates. Interest rates and inflation assumptions are at historic lows. These low investment returns are locked in for the remaining lifetime of policies that are being issued now. Reserves could be reduced by reflecting higher investment returns. Pursuing these options would re quire changes to the following: • A National Assn. of Insurance Commissioners model regulation requirement for level premiums beyond age 65. • The process of filing premium rate increase requests. - CalBrokerMag.com -

CALIFORNIA BROKER | 43

LONG-TERM CARE

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• Generally accepted accounting principles in the United States that require many LTCI issuers to hold reserves according to assumptions established in the year the policy was issued. Public policy makers could also consider product design approaches that would attract consumers to LTCI. The following are just a few options: • Allow 401(k)s and similar funds to pay LTCI premiums without incurring a tax penalty. • Limit the coverage term to reduce the cost of insurance. • Allow people to purchase coverage that begins after retirement by paying premiums in advance of retirement. • Establish higher disability standards to qualify for LTCI benefits. • Allow for different degrees of benefits for different levels of disability. Reimburse actual expenses and have daily maximum benefits that are high enough to allow for higher degrees of disability. • Create universal LTC, similar to universal life products, in which the policyholder accepts more of the investment risk and LTC benefit cost. • Implement care sharing in which a person chooses the number of days of care per week (or month). An informal caregiver would provide care before the insurer becomes responsible for paying for formal care. This could mean establishing a monthly deductible in which the insured pays a fixed amount per month out-ofpocket before the policy covers the cost of services that month. • Allow the lifetime maximum to decrease as a person reaches a specified age. There are a number of challenges to flexibility in product design. Here are some examples of how state laws and regulations affect LTCI design features: • They require LTCI products to be in effect for the life of the policyholder unless the policyholder terminates coverage. • They impose specified benefits, such as care in an assisted-living facility. • They require the benefit qualification to include deficiencies in at least - CalBrokerMag.com -

two activities of daily living (ADLs). At the same time, they don't permit minimum benefit triggers at higher disability levels for at least three or four ADLs. Federal tax-qualification standards allow for stricter criterion, but states generally don't. • They impose restrictions on the size of policy provisions, such as elimination periods. Also, state partnership programs are designed to protect policyholders from spending down assets and having the states pay for unnecessary Medicaid

"Having more flexible LTCI pricing and product designs could help mitigate the cost of financing future LTC needs and allow for innovative designs that meet the needs of a broader segment of the population." assistance. But they also impose requirements that can limit who can afford coverage. Federal tax qualification standards require that qualifying for benefits be based on deficiencies in ADLs or cognitive impairment. This eliminates other criteria for identifying degrees of disability. For LTCI policies that are not federally tax qualified, insurance companies establish smaller reserves, for tax purposes, than for statutory financial statements. This requires the insurers to report artificially high profits and pay the federal taxes on these profits. Consequently, many insurers only issue tax-qualified plans, which may prevent the availability of policies based on other reasonable criteria or the provision of some services. Having more flexible LTCI pricing and product designs could help mitigate the cost of financing future LTC needs and allow for innovative designs that meet the needs of a broader segment of the population. H Eric Stallard is chairperson, and Bruce Stahl is vice chairperson, of the American Academy of Actuaries LTC Reform Subcommittee. APRIL 2016

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APRIL 2016

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Meet Karen. As one of Word & Brownâ&#x20AC;&#x2122;s first employees, Karen was here when John Word and Rusty Brown opened their doors more than 30 years ago. Today you can find Karen and her team working behind the scenes ensuring the accuracy of our carrier partnersâ&#x20AC;&#x2122; rates and benefits. While brokers might not be as familiar with her name, they value her passion, expertise, and commitment to Service of Unequalled Excellence.

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