I’m writing this article on Monday morning after just returning from a trip to Starbucks where I had the opportunity to read Monday’s Wall Street Journal.  One of the articles that I read was titled “New Medicare plans offer fewer benefits“. . . . And, one of the first descriptions of why this would be so, according to the article, is that “Medicare Advantage plans are leaning toward focusing on margin repair“.  (Bolded added emphasis by Funeral Director Daily).

I grinned and laughed when I read that as I thought to myself “that’s what we need in funeral service — margin repair”.  The article went on to say that Medicare Advantage plans will probably be more expensive and at the same time have limiting health care networks that the insured can use for their care.  There were other changes mentioned but the end result was the fact that the insurers are trying to limit coverages to health care networks where they can make increased margins.

I agree that health insurers financial metrics are very complicated but I did think to myself, “Margin Repair” — that’s what we need in the traditional funeral home business right now.

I’m not involved on a day-to-day basis in funeral service anymore but when I talk to those that own and operate traditional funeral homes about how their individual business is doing right now one of the most frequent answers I get is that “my margins are really being compressed”.

I would also argue that is a pretty simple explanation of what is happening, and continues to happen, when a funeral home, or in a national case, when traditional funeral home business goes from a high percentage of traditional casketed burial clientele to an ever increasing cremation percentage over a short period of time.

I asked Gemini Artificial Inteligence if “funeral homes are suffering margin compression at this time?” and this was the answer I received:

Yes, funeral homes are currently experiencing notable margin compression. The industry is facing a challenging financial environment caused by a combination of declining service volume, high fixed costs, persistent inflation, and a major shift in consumer preferences. 

The compression is hitting both independent operations and consolidated industry giants. For example, Service Corporation International (SCI), the largest funeral provider in North America, reported that its funeral gross profit margin contracted by 300 basis points (dropping from 24.4% to 21.4%).

1. The “post-pandemic” volume drag —  Volumes of deaths are now evening-out and the pull-forward effect of those pandemic deaths have lowered volumes, at least temporarily, nationwide.
2. The continuing accelerating shift to cremation.
3. Inflation and rising operational costs
4. Mandatory price transparency and tech disrupters —  online pricing allows consumers to find lower-cost alternatives to their traditional funeral homes

Tom Anderson
Funeral Director Daily

Funeral Director Daily take:  Funeral homes are not the only businesses suffering from margin compression.  However, when margin compression happens to you it is difficult to find a solution as you try to move forward.

 

I’m a Medicare Advantage client.  One of the reasons Angie and I choose the plan that we do, from a national insurance provider, is that our coverage network is “nationwide” regardless of where we are in the United States at the time we may need services.  While we are very fortunate we are not unique in our situation in that we live part of our year in Minnesota and part of our year in Florida.

 

We recently were informed by our provider is that if we want the same “national” coverage for the 2027 calendar year, our premiums will increase by 41%.  While we have options to limit that increase, like staying in Minnesota all year, none are real appealing to us.

 

Whether you are buying health insurance or buying a family meal at McDonalds, you notice that most companies deal with the issue of compressed margins simply by raising their prices within the industry standards to help alleviate the problem.  That is probably what will happen with my health insurance choice.

 

The margin compression with traditional funeral home business is not that easy to solve.  While you can raise your prices within the industry standards to improve margins that increase may lead consumers to choose lower-priced options which may actually exacerbate the margin compression problem.

 

More news from the world of Death Care:

• How Seattle built a beautiful death industry.  Seattle Met (WA)
• Inside London’s “Magnificent Seven”:  the Victorian cemeteries turned hidden green havens.  Conde Nast Magazine
• Getting the most out of the National Funeral Directors Convention (or any funeral trade show).  Southern Funeral Director Magazine
• Employee estate gaps are becoming an employee benefits problem.  Insurance Business Magazine
• “The wrong solution to the right problem”:  Why a committee said no to a Westview crematory.  The Lexington Observer (MA)
• Family-run Hudderesfield funeral business celebrates 21 years with Business of the Year award.  Huddeersfield Hub (Great Britain)

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