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AIS's Health Business Daily
Featured Story, July 7, 2010 Broker Commissions Will Get Squeezed by Health Reform, but a New ‘Navigator’ Role Is Seen Growing Reprinted from AIS's HEALTH REFORM WEEK, a new newsletter designed to help savvy business leaders in health care understand what the enormous changes mean to them ... and what they can do about it. By James Gutman, Managing Editor (jgutman@aishealth.com) Health insurance broker and agent commissions figure to get squeezed in the coming years because of several aspects of the new reform law, according to a broker panel in a June 10 webinar sponsored by AIS on the impact of reform on brokers and agents. But the panelists also envisioned a growing role for the brokers and agents as “navigators” for clients in the new markets growing out of the reform law.
Despite successful efforts of brokers and agents to get language in the reform law that provides a distribution role for them once exchanges begin in 2014, commission reductions are “inevitable,” said John Prible, vice president of federal government affairs for the Independent Insurance Agents and Brokers of America, Inc. trade group.
The likely reductions stem not only from the coming exchanges but also from such other reform-law requirements as minimum medical loss ratios, Prible said. Indeed, even though the MLR rule has not yet taken effect, and although how MLRs are calculated has not even been defined, some insurers already are citing the law as a basis for cutting commissions this year, according to Prible. For example, he said, UnitedHealthcare in Missouri sent a recent letter to agents cutting commissions in the individual and small-group markets effective Jan. 1, 2011, and attributing the moves to the reform law.
Such changes in commission rates can and do come at any time with proper notice — often 30 to 90 days depending on the contract, noted Donald Garlitz, benefit consultant at FirstWest Benefit Solutions in Orem, Utah. But he added that even if insurers stopped paying brokers entirely, which he does not envision happening in the coming exchanges, clients would pay since they recognize the value of brokers’ services.
Garlitz has a first-hand perspective on exchanges since he helped conceive and run the Utah Health Exchange. That is more like a “virtual exchange,” he said in the webinar, but it is “very dependent” on an active broker presence for its system of having eligible beneficiaries pick among plans from five insurers based on defined employer contributions. Agents help employers with enrollment and compliance in that exchange and facilitate the collection of all the online documents needed for the medical underwriting used in Utah exchange transactions, he added. That underwriting-related role, he acknowledged, will eventually disappear.
Commissions in the Utah exchange now are a healthy $37 per employee per month (PEPM), Garlitz said, but that’s because the workload for agents is so large there. Employers hypothetically could avoid using brokers in the Utah exchange, but that wouldn’t save them money because commissions are “built in” the system, he said. Garlitz explained that the commissions are set by a risk-adjuster board of actuaries that includes industry participation, and the current levels are similar to those prevalent in Utah outside the exchange.
The coming 50-state exchange system is likely to be far different, he conceded, and might perhaps resemble the more “bricks-and-mortar” format of the exchange in Massachusetts, where commissions are about $8 PEPM. Garlitz said that figure may represent what the state figures a “navigator” is worth, and this navigator role also will be needed in the coming federal exchanges. In any case, commissions in reform-law-created exchanges “won’t be anywhere near the money we’re accustomed to making,” he asserted.
Commission Rates Seen Staying ‘in the 20s’
He predicted that small-group commission rates eventually will settle at about the same rate as those for large groups. Since brokers still will have an important function, he said, Garlitz forecast that commission rates won’t drop to the “teens or below” PEPM but instead will stay “in the 20s.”
In Idaho, said Scott Leavitt, owner of Scott Leavitt Insurance & Financial Services in Boise and immediate past president of the National Association of Health Underwriters, typical commissions are about $27 PEPM. He noted that commissions in the exchanges will be paid through those entities and publicly disclosed, and agreed that commissions overall are likely to get squeezed, even though brokers’ workload won’t be reduced as much as some observers think.
But, like Garlitz, he was optimistic that users would pay for broker services, saying that many of his clients already do. Leavitt acknowledged that this will be tougher on the small-employer side (e.g., less than 50 employees) than among bigger employers.
One way that brokers may deal with this overall commission situation, aside from charging some sort of fee to clients, according to Leavitt, is by handling more ancillary product lines. Garlitz, however, said there isn’t much room to raise premiums to offset sales costs since there already is a lot of competition among ancillary benefits insurers.
Another big concern for the brokers related to health reform is the future of the high-deductible health plan (HDHP) products that they help market. Prible said there is a “real possibility” that those products may not be exempted from the “essential benefits” requirement in the reform law. If this occurred, their future would be cloudy because when exchanges start, HDHPs might find it hard to meet this requirement depending on how those benefits are defined in upcoming rules, Prible cautioned.
To purchase a recording and accompanying materials of the June 10 AIS webinar, please call (800) 521-4323 or visit the MarketPlace. |
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