Finding Opportunity In A Changing Landscape
Health insurance professionals have definitely felt the effects of changes brought about by the Affordable Care Act, as has the insurance industry as a whole. With some companies cutting commissions in response to medical loss ratio requirements, many brokers have seen substantial reductions in income. And while the new president has promised to make dramatic changes to the ACA, much remains to be seen about how and when those changes may take effect.
The $300 billion government-contractor market represents a huge opportunity for brokers who want to continue working in the health insurance industry. Federal contractors are required to spend a certain amount of money to provide benefits–including health insurance–to workers on contracts that fall under either the Davis- Bacon Act or the Service Contract Act. Many states and municipalities have similar laws and requirements as well.
Here are some of the advantages of working with government contractors:
- While most know they’re required to spend a specified amount on benefits, many don’t realize that doing so results in significant savings on payroll burden and other taxes. Contractors that use these funds to pay for health insurance, dental insurance, life insurance, vision insurance, disability insurance and retirement plans–rather than including the funds as additional cash wages for their workers–can increase their profitability as a result of these savings.
- Funds to pay for worker benefits are included in the “wage determination.”
Government contractors are required to pay workers what’s called a “prevailing wage,” which is determined by the Department of Labor and varies for each job classification on a contract. The wage determination includes both a base wage and a set amount to be spent on fringe benefits, including health insurance.
- Savings realized by using fringe dollars to provide benefits make contractors more competitive. When contractors prepare bids for government work, every dollar counts. Contractors that use fringe dollars for benefits lower their payroll burden, in turn lowering job costs. This makes them more competitive and increases their chances of winning contracts.
- Construction is rebounding, making employee attraction and retention even more critical. Housing starts have risen in each of the past six years, and several industry sources predict healthy advances in commercial construction as well. That means competition for skilled construction workers is tough. One way employers can differentiate themselves when it comes to attracting and retaining good workers is by offering a robust benefits program.
Help is available. There are third-party administrators that specialize in working with brokers and their government contractor customers. These TPAs can provide guidance when it comes to working with this niche market, and they can be a valuable resource when it comes to prospecting for new clients. Some providers that specialize in benefits for contractors working on Davis-Bacon Act projects handle the administration of the program for their contractor clients and offer a unique program called hour banking.
Administering health benefits for hourly employees can be very challenging. Hourly employees may not work a full week or full work year and it becomes very expensive to pay full monthly premiums for hourly employees. It is also very difficult to monitor eligibility and seasonal layoffs. One approach that many contractors will use is an hour bank, which is designed to manage the seasonality of the hourly work force and manage the true cost of employer-paid health benefits by tracking the health premiums by the hour instead of per month.
Hour banking is a way for employees to put extra hours worked (or the equivalent hourly premium) during peak construction periods into a “bank.” If there’s a slowdown in work due to weather or a lag between contracts, the employees can then draw from these banked hours and premium to extend coverage for themselves and their families. This is especially beneficial for contractors that work on projects in several states and across multiple job sites, as well as for those with employees who perform work in different job classifications. Hour banking breaks the monthly premium into an hourly rate, which makes tracking and accounting much easier for the employer. This significantly simplifies the accounting process and reduces the chance of overpayment of benefits. Having a per-hour cost for benefits is also a great strength when contractors are preparing bids.
For brokers interested in working with government contractors, the first step is learning about the Davis-Bacon Act and the Service Contract Act, as well as any state and local prevailing wage laws in your area. Partners can help you understand the basics of prevailing wage and how to develop business in the $300 billion government contractor market. The Prevailing Wage Resource Book is available on the U.S. DOL website at www.dol.gov/whd/recovery/ pwrb/toc.htm. The DOL also holds several free prevailing wage workshops throughout the country each year. The schedule can be found at www.dol.gov/whd/govcontracts/ PrevailingWageConferences.htm.
Working with government contractors provides brokers with a real opportunity to become a valued partner and resource for companies in a highly regulated environment. It’s a stable market sector with hundreds of billions of dollars of opportunity each year. And it opens up a whole new area of business with commissioned sales of health insurance, as well as opportunities to sell supplemental benefits and retirement plans.
John Allen is a regional vice president for Fringe Benefit Group, which has been helping brokers and government contractors design and administer fringe benefit programs since 1983. John joined Fringe Benefits in 2004 and has won numerous sales awards there. He graduated from the University of Kansas in 1983 and has been in sales ever since. He can be reached at 800-635-6912 or firstname.lastname@example.org. For more information on government contractor opportunities, visit www.thecontractorsplan.com.
America’s Benefit Specialist – Jan/Feb 2017
Finding Opportunity in a Changing Landscape
John G. Allen, CRPS
Regional Vice President
Fringe Benefit Group