Affordable Care Act May Give Credit Unions an Edge
Depending on who’s offering an opinion, the Patient Protection and Affordable Care Act, commonly referred to as Obamacare by critics, is poised to either dismantle insurance coverage as we know it or will finally offer services to those who just don’t earn enough to pay for medical services.
John Harris, CEO of CU Insurance & Benefits Alliance, a Salem, Ore.-based CUSO owned by 18 credit unions, was one of the panelists on a session on the health care act signed by President Obama in early 2010 at NACUSO’s annual conference in mid-April. Some of the attendees expressed confusion and frustration on how the new law will impact credit unions.
Credit Union Times recently invited Harris to offer his take on if the industry will have to overhaul the way it offers insurance. Harris was also asked how the health care act factors in whether credit unions will have to contend with more competitors in this space and if so, how can they stand out from providers vying to court members and employees.
Credit Union Times: How can credit unions be the starting point for members and employees who are seeking insurance coverage?
Harris: This question has so many possible directions it can go. I’m going to pinpoint one area – health insurance benefits for credit union employees. Never before in the history of America has there been more press about health insurance availability and affordability. With the Affordable Care Act in full swing and the clock ticking toward the Jan. 1, 2014 trigger date for all Americans to have access to affordable health insurance, confusion is beginning to set in. But, what does this mean for credit union employees?
For most credit unions with more than 50 employees, there will be very little affect. All the credit unions I have met with will continue to offer a robust group health plan and pay for the majority of the employee’s premium cost. Credit unions typically offer a rich benefit plan to attract and retain good employees. This fact will most likely continue beyond 2014.
For smaller credit unions with fewer than 50 full time employees, there are other choices. Beginning in 2014, in some states, credit unions will have access to health coverage that gives more choice to their employees. For example, Cover Oregon will launch an online central marketplace where individuals and small employers can shop for, compare and enroll in health insurance plans and access financial assistance to help pay for coverage. Employers will be able to contribute a set dollar amount toward their employees’ health insurance coverage and let employees shop on Cover Oregon for the carrier and plan that best meets their needs. Every state is at a different place with their public exchange model so it’s important to get an understanding of your particular state’s program timeline.
Another question credit unions should be asking is, “how can we help our uninsured members through the health care maze?” Credit unions will undoubtedly have a percentage of their membership that will need to obtain health insurance. Many credit union executives will consider this issue not their problem. But, what if your credit union had the tools and ability to provide professional assistance to walk members through the health care purchasing game, which might be something they have never had to do before? I believe this type of proactive thinking will create long-term members.
CUT: Who would you say are among the credit union industry’s biggest competitors when it comes to insurance needs and why is that the case?
Harris: I will break this down into two categories; health insurance and personal insurance or auto, home and life insurance. With health care reform, the competition among health insurance agents will be almost eliminated in the individual and small group market segments. Agents and consultants will still have a role but they will be compensated less and in a different manner in place now. Credit unions that have been offering individual and small group health coverage to members will soon be competing with public and private exchanges.
One of the main problems I see with this is the fact that most people not only need help when purchasing a policy, they need help when they have a claim or billing issue. That is when the real value of having a trusted adviser in their corner becomes very important. The service process has yet to be proven in this new environment.
Competition in the auto/home/life insurance arena is everywhere. Personal insurance products have become commoditized over the years and most consumers buy these products based on price. A large number of credit unions offer some sort of personal insurance solution to their members. These programs come in various forms such as outsourced direct mail programs, outsourced call center, partnerships with local agents, ownership of insurance agencies and sometimes, partnering with multiple credit unions in a CUSO arrangement. Credit unions compete with many direct insurance companies like Progressive, AAA, GEICO, Hartford and others that market direct to the public. There is also strong competition among the thousands of local independent agents throughout the country. The more we can make it about the personal relationship with a member, the more success credit unions will have with insurance offerings and any other products for that matter.
CUT: How will the implementation of the Affordable Care Act change the playing field for credit unions and insurance providers?
Harris: The Affordable Care Act will provide more options for credit unions with fewer than 50 full time employees than for those with more than 50 employees. Regardless of size, many credit unions will still opt to offer their own group benefits plan in order to attract and retain the best employees.
Since the act was signed into law in 2010, many have speculated that employers will find it most efficient to simply drop coverage and pay the associated fines. However, according to a recent survey of over 7,800 employers conducted by Zywave, only 5% of all employers have dropped or plan to eliminate their group health plan.
If a credit union decides to drop its group health coverage, the organization or its employees will have to pay when they seek coverage from a health insurance exchange. If the credit union drops coverage but wishes to keep employees at the same level of compensation, the credit union will need to subsidize employee participation in an exchange. Because of the anticipated inefficiencies of the exchanges, if a credit union wishes to keep employee contributions at the same level after dropping coverage, the credit union may end up paying more than twice the annual cost per employee per year in the future. Due to the greatly increased cost to the credit union, it is highly unlikely many credit unions will adopt this strategy. Because a benefit program remains a vital portion of employee compensation, a credit union that forgoes coverage will be seen as reducing employee wages. These employers would face plummeting employee relations and morale, and would likely experience recruiting and retention issues.
I believe the credit union industry has a terrific human capital story to tell to their employees and members. Credit unions need to show their members and the public that they have the expertise as both a supplier and consumer of health insurance to promote best practices.
CUT: What advantages do credit unions have over other entities that want to woo members and employees for their insurance needs?
Harris: Credit unions tend to have loyal members that trust the products and services provided by the credit union. Let’s face it, when a person borrows or deposits money with you, they obviously trust you. Credit unions must find a way to leverage that trusted relationship by providing access to reputable products and services that are relevant to its membership. Member- based insurance products are a natural fit for almost every financial institution because of the simple relationship to the collateral being borrowed against. Every home, auto or small business loan requires insurance as part of the loan agreement. Making the insurance available at a competitive price is the greatest advantage a credit union has against the other providers of insurance. There are several insurance companies that will allow an insurance discount to members of a credit union. Credit unions should take full advantage of these savings for its members.
Regarding advantages for credit union employee’s insurance needs, life insurance comes to mind. I always recommend an employee buy as much group life insurance as possible from their employer sponsored group plan. It the cheapest insurance they will ever get. Also, disability insurance will be much less expensive in a credit union-sponsored group plan than in the individual market. Employees should take full advantage of these opportunities to protect their families and their income.
In health insurance, government statisticians estimate that health care costs will reach $13,100 per person in 2018, accounting for $1 out of every $5 spent in the economy. In 2012, health care costs exceeded $9,000 per person in America while CU Insurance &Benefits Alliance reported health care costs just under $6,000 per person among its participating credit unions. There are several common themes among credit unions that may explain why their employee health benefit costs are below national averages. In general, credit union employees are younger and in good health. Also, credit union corporate cultures tend to adopt health and wellness initiatives, contributing to better overall healthy lifestyles. The results of these trends are lower benefit costs and better cash-flow alignment tied to favorable membership health.
CUT: Where can credit unions improve when it comes to offering insurance services either through CUSOs or another third party?
Harris: Collaboration. I know collaboration may be an overused word in the credit union dictionary but I firmly believe it is where credit unions can move ahead of the pack when it comes to the delivery of insurance to its employees and members. Insurance pricing is very dependent upon the law of large numbers. The more volume that can be delivered to an insurance carrier/underwriter, the better the rates will be. This means lower cost to the credit union member and employee.
A multi-credit union owned CUSO is a great example of collaboration. Joining forces with other credit unions is becoming the new way of creating economies of scale and buying power with the insurance markets. For example, the cost of providing group health coverage to employees increases almost every year. In fact, the inflation rate for group health insurance is just under 1% per month. Finding a way to stop the madness has become a high priority with many credit union executives. And, business as usual just won’t cut it anymore. Through collaboration, credit unions can create group benefits solutions that accomplish several things they can’t accomplish alone.
Regarding personal insurance offerings to members, I seem to have the “how to improve insurance sales” conversation regularly with credit union and CUSO executives. The fact is there is no perfect solution. Every organization has different success measuring sticks and expects different results. The beauty of collaborating with other credit unions is that we can always learn from one another and eventually come up with tangible improvements in our insurance strategies.