Rising Consolidation in the Health Insurance Industry: The Potential Negative Impacts of Large Brokers Acquiring Smaller Firms
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Consolidation in the health insurance industry is not a new phenomenon. According to a report by the National Association of Insurance Commissioners, the top five health insurance companies in the US held a 43% market share in 2020, up from 32% in 2010. A report by the Commonwealth Fund found that the largest insurance companies have been acquiring smaller ones since 2004, with the number of mergers and acquisitions increasing from 37 in 2004 to 107 in 2018.
Large Insurance Advisor Acquisitions Have Ramped Up
One of the main motivations for large insurance advisors to acquire smaller advisors is to increase market share and control the narrative. When large firms, in this case, dominate the market, employers have limited bargaining power, and the market is forced to accept the terms and prices set by the big firms, which leaves companies to choose solutions that aren't in the best interest of them and their employees.
This leads to the current scenario in the healthcare market. Healthcare costs are increasing at 5.3 percent per year, as measured by the BLS medical care index. You can't control healthcare premiums if you don't control healthcare costs. Once minimal loss ratios were implemented post-ACA, the game changed.
Then we see employee healthcare out-of-pocket expenses rise, higher premiums for employers, and reduced quality employee health benefits for employees, ultimately affecting their quality of life. Delayed healthcare due to the unaffordability of health insurance, etc...
Moreover, fewer options for coverage reduce the incentive for brokers to innovate and offer new and improved strategies and services. The lack of competition leads to complacency.
Fun fact; large advisors hire employees just to entertain their clients! You know, keep them happy. Dinners, concerts, etc, and don't get me wrong, that's great; however, once the smoke clears, the P&L statements always reveal the truth.
Prospect : "I went with the large firm because I am familiar with them and their customer service is great!"
Me: "Great! I agree customer services is a big deal. But, what does that have to do with overpaying for healthcare and a trending increase in premiums each year?"
Prospect: "It was time for us to pay our dues."
Me: "speechless..."
Large brokerage firms ramp up their customer service as much as they can and invest heavily in this area. Why is that? Customer service is crucial, but when most of the emphasis is placed on a company's ability to communicate with clients well, it's usually to compensate for something they lack. Large firms usually emphasize how stringent their hiring process is when finding new insurance advisors.
"We don't just hire anyone at _____ firm, we make sure the hiring process is stringent, and we only select the best of the best advisors we can find. We have 12 interviews and call every relative and client the advisor has ever dealt with to ensure the candidate is the best of the best. "
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It reminds me of this clip from "Men in Black." ;)
I'll be Will Smith in this scenario.
At the end of the day, it comes down to results. Period... Rob T.
Farmers Market vs. Giant Food Manufacturer
I don't know about you, but food quality is super important to me. To others, food is food, and they don't mind paying the health price later. I like to know all the ingredients in my food. If I can't pronounce it, I won't eat it. That's just me.
But let's say, I offer higher quality food all around but for a lower price. Would you take it? Many people would, and still, others will respond like the quote above. To each their own.
I tell prospects, we are like the farmer's market of the broker world. They can communicate directly with the farmers (us) rather than calling a 1-800 number and waiting for a response days or weeks later.
Hungry To Earn and Maintain Your Business
Smaller brokers are known to offer personalized service and build strong relationships with their clients, while larger brokers may prioritize profits over customer service.
When smaller brokers are acquired by larger ones, roles, and responsibilities often overlap, resulting in job redundancies. This can significantly impact the local communities where these brokers operate, particularly in rural areas where job opportunities may be scarce.
While it may benefit the large brokers regarding market share and profits, it can lead to higher costs, reduced benefits, and limited options for employers and employees. Moreover, consolidation can lead to layoffs and job losses, impacting the local communities.
At Worksite X , we want to raise awareness about this trend and encourage employers to support smaller, independent brokers to maintain competition in the market and ensure that they receive the best coverage options and customer service.
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