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AIS's Health Business Daily
Featured Story, May 14, 2010 Brokers Wonder if Health Insurance Exchanges Will Help or Hinder Their Client Base, Commission Rates Reprinted from HEALTH PLAN WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans. By Steve Davis, Managing Editor (sdavis@aishealth.com) The development of state-run insurance exchanges over the next four years will change the way individuals and small employers purchase coverage. For insurance agents and brokers, the new entities could represent either tremendous opportunity to boost business or the need to find a new career.
Brokers interviewed by HPW agree there is reason to be concerned about the impact the exchanges — called for by the health reform law — will have on their businesses and on commission rates. But they also are optimistic that the reform law could create new opportunities for them. The reform law will allow agents and brokers to sell coverage inside and outside of the exchanges. John Prible, vice president of federal government affairs at Independent Insurance Agents & Brokers of America, calls the language “a major victory” for agents and brokers.
Moreover, beginning in January 2011, commercial plans will have to report and maintain a minimum 80% medical loss ratio (MLR) for small-group and individual business. There is concern that to trim administrative costs, some health plans could reduce commission rates. If MLRs fall below that threshold, broker commissions could be cut. During an April 28 conference call to discuss first-quarter earnings, WellPoint, Inc. Chief Financial Officer Wayne DeVeydt said that “brokers are an important part of the long-term stability” of WellPoint’s markets under reform. He acknowledged that commissions could be affected depending on how HHS defines MLR. One possible strategy to reduce overhead costs might be to have members pay fees directly to brokers instead of embedding the fees in the premiums, he suggested in response to a question.
Once state-run insurance exchanges are operational, broker commission regulations will likely be left up to state regulators, says Prible. “We anticipate there will be a squeeze on [health plan] profits, and that could mean a squeeze on commissions. We are bracing our members for the possibility that [commission levels] could be reduced.”
States have until 2014 to set up insurance exchanges through which individuals and small employers (with fewer than 100 employees) can purchase coverage. Some exchanges could be operational sooner. California lawmakers on April 20 approved a bill (AB 1602) that would allow the state to move forward on the creation of the California Health Benefit Exchange and appoint an executive board.
“I really think there is an awful lot of opportunity for me as a broker as a result of health reform,” says Denny Ebersole, an insurance agent at Louisianabenefits.com based just outside of New Orleans. “Some [agents] believe they just have three years of income left. My message to them is ‘get out of my way because I’m going to take your clients.’”
Ebersole says he’s working to stay on top of reform-related issues that might affect his clients and is “pushing as much information to them as possible.” He tells HPW that he hopes that strategy can help him woo employers away from competitors who haven’t kept up with the issue.
“Brokers who try to continue business as usual will find it difficult to adapt to changes [under reform] and, in the long run, might not be able to compete,” warns Scott Leavitt, owner of Boise, Idaho-based Scott Leavitt Insurance & Financial Services and former president of the National Association of Health Underwriters (NAHU).
Brokers Must ‘Demonstrate Knowledge’
Janet Trautwein, executive vice president and CEO of NAHU, agrees and says now is the perfect time for agents and brokers to demonstrate their knowledge of the health reform law and to become a resource for their employer clients. To help its members, NAHU has launched a series of educational webinars, videos and PowerPoint presentations.
The exchanges might not make choosing the best health coverage option any less complicated, which means individuals and small-business owners will continue to seek out agents to help, says Jennifer Toups, vice president of Business Insurance Group and president of the Louisiana Association of Health Underwriters. “When you add in the government subsidies, it makes it even more confusing,” she says. While brokers and agents will be able to operate within the exchanges, she says there is concern about the impact on commissions. “I think most agents expect them to decrease in the coming years, so in order to stay competitive agents have to start diversifying by adding additional products or cross-selling.”
Ebersole agrees that commissions could take a hit once exchanges are operational, and estimates that to make a comparable income five years from now he will need to service far more clients.
But even if commission rates do decline, the number of people participating in private health insurance will only increase over the next four years. And during that time, individuals and small employers are going to have a lot of questions about the reform law and how it will affect them, says Prible. Along with finding the most appropriate coverage options, brokers also will be able to help determine which clients are eligible for federal subsidies that can be used to purchase coverage. “Agents have an opportunity now to demonstrate their value by directing clients and prospects toward the most suitable products,” he says.
Along with the potential impact on commissions, Trautwein says some NAHU members worry that HHS and federal lawmakers might not realize what agents bring to the table before and after a client selects a health plan. “While there is concern that strict MLR ratios could push brokers and agents out of the system, carriers tell me that they really depend on brokers to bring in business. And I don’t think the need for that is going to go away,” she tells HPW.
Although an exchange model in Utah has had limited success since it became operational last summer, it could serve as a model for future state exchanges. Unlike in Massachusetts where the exchange is focused largely on the individual market, the Utah Health Exchange is built around the small-group market. Under that model, brokers receive per-employee-per-month (PEPM) commissions directly from the exchange, rather than from health insurers. Brokers who operate in the exchange serve as customer service intermediaries between the employer/employee and the exchange, and guide employers and workers through the enrollment process, explains Don Garlitz, director of client services at FirstWest Benefit Solutions, a Utah-based insurance brokerage firm.
The commission rate is $37 per employee per month, about four times higher than rates paid to brokers through the Massachusetts Commonwealth Connector. However, fewer than 500 people — through about a dozen employers — have coverage via the exchange. A beta test last August opened the exchange for one week to a limited number of small employers. But many of them were either not qualified to participate or determined the coverage costs were too high.
Premiums within the exchange were initially up to 130% higher than for similar coverage offered outside of it. Under rating laws that were applicable at the time, insurers were permitted to charge different prices for the same products inside and outside of the exchange, Garlitz explains. Recently enacted legislation, however, will fix that problem. As a result, he predicts that more competitive rates will prompt employers to “flock to the exchange” in January. UnitedHealth Group, Humana Inc., SelectHealth and Regence BlueCross BlueShield of Utah participate in the exchange.
Employers can offer a defined contribution allowance, which their workers can use to purchase coverage from a variety of options, through the exchange. The approach means that employers typically have a more predictable budget for coverage and employees have more options, Garlitz says. Trautwein says the Massachusetts Connector model was expensive to implement, which might make Utah’s model more attractive to other states.
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