Last year, Jason Beyrouty, an advisor in Portland, Ore., met with a client who was facing a benefits crisis. Kelly Yunker and her 30 employees at Power Equipment Systems needed a health insurance policy fast. The Salem, Ore.-based distributor of lawn-care equipment had been using a trade association plan but was dropped suddenly because it's medical costs rose so quickly that the small business became too expensive to cover.
Beyrouty, who works for Aldrich Kilbride and Tatone, a Salem-based consulting firm that offers financial-advisory services, was able to match the association's low cost, while providing a wider range of physician choices for employees. He also found a way for employees to choose different levels of contributions by selecting health savings accounts, for example.
“It's all a matter of making sure the client is comfortable with the plan,” says Beyrouty, “For many small businesses, health care is their second- or third-largest cost item.”
While Beyrouty saved the day and landed a sizeable piece of business, not a lot financial advisors have learned how to help their small business clients survive the health-insurance crunch. “A lot of advisors don't think they get it, or don't want to get it — it doesn't fit into their plans,” says Leon Rousso, founder of Leon Rousso & Associates in Ventura, Calif., who provides health care insurance for a majority of his roughly 800 clients. He sees very few, if any, financial advisors as competitors for health insurance business in his market. “I think it's a mistake — health care expenses take up a huge part of someone's cash flow. It could be a real niche for planners.”
The market is wide open, particularly among the smallest of small businesses. According to the Kaiser Family Foundation, only 47 percent of small businesses with between three and nine workers offered health care coverage, the lowest percentage since Kaiser began the survey. An estimated 98 percent of firms with more than 200 workers offer health care coverage.
MAKING IT WORK
To be sure, the challenges can be great. Bob Rockwell, a certified financial planner with Clackamas County Bank in Sandy, Ore., says he nearly met his match in lining up a plan for a feed store with 10 employees. The store had a plan but decided to go with Rockwell, in part because Rockwell was able to find a much cheaper one. The drawback, as in many health plans, was that the feed store's new plan required that 100 percent of employees and 75 percent of dependents be enrolled in order to secure coverage.
That didn't sound like much of a problem for Rockwell or the owner until one employee said he didn't want any health care coverage. “He was very loud about it,” Rockwell recalls. At one point the obstinate employee claimed he had coverage from another plan (which would have exempted him from the 100 percent requirement), but when it came time to offer proof, he declined. Rockwell told the owner that the employee either had to produce proof of other coverage or sign on with the plan. If he didn't, the entire company's coverage was in jeopardy.
“It finally got to the point where this guy had to get on the plan or they couldn't get health insurance for the whole business,” Rockwell says.
Faced with the blunt choice of either signing the plan or getting fired, the employee caved, and Rockwell had a new small business client.
DIVIDE AND CONQUER
Rousso has a lot of accounts in the entertainment industry, providing health care coverage for management groups of rock bands or film actors or the production group of a television sitcom. “It's such a transient business,” he says. A sitcom staff, for example, could be together for three years, generate massive amounts of income and have a very extensive health-benefits package, then suddenly the sitcom is canceled, the group ceases to exist and the plan needs to get canceled, leaving former employees uncovered.
What Rousso typically does for such groups, particularly those with 10 employees or less, is to encourage each employee to get an individual health care policy. Although the premiums are higher than with group benefits, the portability is more important to his clients. If a sitcom gets canceled after a few episodes and the group of writers and producers go their separate ways, they can keep their health care coverage.
THE NEW ALTERNATIVE
Beyrouty is another advisor who'll try something different. He signed up one client, a family-run jewelry store with four employees, into health savings accounts. The reasoning behind going outside traditional plans was, as is often the case with Rousso, the nature of the business.
The jeweler makes much of its money around the winter holidays, so it made sense to make a big deposit at the beginning of the year when the company was flush with cash rather than to keep paying high monthly premiums in its low deductible (i.e., $250) health plan. Each New Years, the jeweler makes a yearly deposit in the $4,000 range into the HSA. For the past few years, because the employees had few medical expenses, the account more than covered their costs, Beyrouty says. A problem arose last year when one employee's spouse had major surgery, which tapped much of what they accumulated in the HSA, but “they had saved so much that it was worth it.”
Health savings accounts are not for everyone, advisors say. The clients best suited for such plans are family-run businesses with few employees or professional offices like small law firms or other practices in which most employees are well-compensated and generally on an equal playing field.
PRICING QUESTIONS
Advisors say the first meeting with a new small business client is the most critical, especially if the business has just decided to offer a health plan to its employees. Many times, advisors say, these business owners greatly underestimate the costs. “It's much harder with a brand new client that has never had insurance before — they have no [point] of comparison,” Rousso says.
And finding an affordable plan for a prospective client has become a tougher challenge due to the consolidation among insurers. (The Government Accountability Office recently found that in a typical state, the largest insurer had 43 percent of the market for small group coverage, up from 33 percent in 2002.)
“Once we've determined the type of coverage, I go out and try to find the most competitively designed and priced vehicle for the client,” says Paul League, who runs League Financial and Insurance Services, in Beverly Hills, Calif. “It is more difficult now that costs have gotten very high, the number of players has narrowed and, because of state regulations, you have less outside influence in the market.”
Advisors say that businesses with between 50 and 100 employees could be in the toughest spot because such businesses are large enough that they typically don't benefit from state-level protections (like California's mandated insurance coverage for small businesses), yet are not large enough to get premium discounts from insurers. And the needs of the few can overweigh those of the many — advisors say it is typical that insurance company auditors will decline to cover a small business that has even a handful of employees with serious medical conditions.
The amount of time and manpower a rep can expend on health care coverage varies, from a rep who handles health care on the side to someone like Rousso — who has two full-time employees dedicated to the practice — to those advisors who have an entire subsidiary devoted to health insurance.
NO DABBLING
An example of the last is Aldrich Kilbride and Tatone. Having a division entirely dedicated to health insurance enables this firm to offer expertise and choice at a level most of its competitors can't match, it claims. In particular, financial advisors who only dabble in health care can't match the depth of knowledge and the number of plans the firm's fully dedicated health care division offers, says Scott Barchus who runs the firm's retirement-plan services division.
Still, advisors who work alone, like Rockwell, can do well, too. He has built up his health care-advisory business over the past five years. One reason for his success is that he does not work on a commission basis (he gets paid a straight salary). So, he says, he has little incentive to recommend costly plans that have high commissions. Rather, the only thing that matters to him is which plan is the best for his clients.
For example, one insurer moved into the Oregon small group market “and really priced competitively, so they got a whole bunch of small group business,” Rockwell says, adding that for a time the insurer was the only one he offered. “But now they advertise massively on TV, have raised their premiums and they're not competitive anymore, so I'm selling a different carrier.”
But whatever the style, the work and the demands are the same. “It's a very highly service-intensive business,” Rousso says, “But my top concern is for my client.”