More Producer Commissions to be Cut

Reform law costs insurance brokers
By: Kate Nocera
January 6, 2011 04:30 AM EST
Pay for health insurance brokers will be slashed by as much as 50 percent, according to documents obtained exclusively by POLITICO.
New insurance commission schedules show that brokers who were used to making 15 or 20 percent on plans they sold to individuals and small businesses will now typically make between 4 and 10 percent. Brokers are contractors who help individuals and small businesses buy health insurance from the larger insurance companies.

The medical loss ratio, a provision of last year’s health-care reform law that came into effect Jan. 1, specifies that insurance companies must spend at least 80 percent of premiums on medical expenses. With brokers’ fees categorized as administrative costs, insurance agents stand to see their commissions gouged.

For example, Blue Cross Blue Shield of Delaware, which previously paid brokers a 15 percent commission for plans sold in the first year and 7 percent in subsequent years, is now paying 5 percent across the board.

“Due to mandates imposed on our industry by the recently passed health care reform legislation we are attaching a commission schedule amendment which will be effective January 1, 2011,” a cover letter read.

Golden Rule, a UnitedHealthCare company, is now offering brokers a “generous per application bonus” in light of cuts made to brokers commission rates.

“We understand this will be adjustment to you current level(s),” a letter sent to brokers read.

The AHIP Center for Policy Research estimates there are nearly 470,000 people in health insurance jobs that are likely to be affected by the changes.

“This is a huge economic issue because of the potential for job loss as well as a consumer protection issue, because there will obviously be fewer people to service health insurance policies… in a time where consumers need the most assistance because of all of the changes,” said Jessica Waltman, vice president of the National Association of Health Underwriters.

Nearly 32 million Americans will be insured come 2014 and the National Association of Insurance and Financial Advisors warns that MLR regulations (and consequently the cuts in broker commissions) will negatively impact the public use of health insurance.

“The danger of having to comply with the MLR requirements is that smaller companies may go out of business, agents will see severe cuts in their compensation and consumer service will be diminished,” said Terry Headley, President of NAIFA. “The unintended consequences will be less competition, a disrupted service industry and significantly reduced consumer service, which will have the effect of destabilizing the marketplace.”

With or without the MLR regulation, when the state exchanges take effect in 2014 consumers will easily be able to find and obtain health insurance plans on their own. The role of the broker negotiating plans for individuals with pre-existing conditions becomes non-existent as companies will no longer be able to deny coverage to this section of the population. These changes thrust the importance of the insurance agent into question.

“Insurance commissions were trending downward anyway, and the industry can and will have to adjust,” said Tim Jost, a consumer advocate with the National Association of Insurance Commissioners. “Just because health care costs increased 20 percent, doesn’t mean the difficulty of the job of the broker increased 20 percent.”

Jost argues that while agents may not be needed for individuals, their services to businesses will take on a more important role. Thousands of small businesses have already started to buy insurance plans to take advantage of previously unavailable tax credits.

Industries will always go through changes and most survive, he said.

“Ten years ago you couldn’t buy a plane ticket without a travel agent. Now there are still travel agents, their services are just more specialized. Most people go on the web and buy a plane ticket,” said Jost. “If we had said then: ‘We need to protect travel agents,’ would that have been a good thing for the economy?”

© 2011 Capitol News Company, LLC



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