When state-run health insurance exchanges open for business in 2014, some predict private insurance brokers will suffer the fate that travel agents suffered once online travel sites became available. Some stayed in the market and specialized; most found new professions.
State officials insist they are counting on the nation's 434,000 licensed brokers to play a vital role in implementing national health care reform; they're just not sure what that role is.
Still, brokers are already seeing big changes in the way they do business-and in the level of their pay. Starting last month, insurance companies cut the commissions they pay brokers to sell insurance policies to individuals and small businesses to comply with a provision in the Affordable Care Act that took effect January 1.
Under the provision-called the minimum medical loss ratio-insurers have to reduce administrative costs, including broker fees, or make refunds to their policy holders. For large insurance groups, at least 85 percent of premium costs must be spent on medical care; for smaller groups, it is 80 percent. With broker commissions making up 17 percent of administrative costs nationwide, the commission cuts came as no surprise.
In Las Vegas, Larry Harrison, owner of an independent brokerage firm, says his commission checks went from 15 percent of premium costs to 8 percent. As a result, he says he won't be able to hire the three additional brokers he had hoped to bring on board to handle phone calls from jittery business owners worried about the effects of national health care reform on their insurance plans.
"At a time when there's more confusion and more people signing up, brokers aren't available," Harrison says. "There's no young people coming into the industry and more and more veterans are getting out of the business."
Congress intended to lower brokers' commissions in an attempt to put a lid on overall insurance costs, says Timothy Jost, a consumer advocate to the National Association of Insurance Commissioners. After years of increases as insurance rates rose, the industry had already started to correct commissions, says Jost. Health reform just hastened the process.
Jost, who teaches law at Washington and Lee University in Virginia, agrees that brokers will be needed to help small businesses apply for tax credits and purchase policies, particularly those that previously have not insured their employees. Brokers will have to adjust to the commission cuts, he says, arguing that they may be able to make it up in volume.
When California Governor Arnold Schwarzenegger became the first governor to sign exchange legislation following enactment of the Affordable Care Act, he spoke warmly of brokers, but did not define a role for them to play. "The exchange will work in partnership with agents and brokers, community organizations and other 'navigators' to help consumers make informed decisions based on the price, quality and value," he said.
Brokers and their advocates took offense at Schwarzenegger's statement, because they said only state-licensed agents are familiar enough with both consumer needs and the nuances of the health insurance industry to help individuals and small businesses find their way in the new insurance marketplace. So-called "navigators" are defined in the health care law as individuals who are independent of insurance companies and who work for federal and state governments to provide "fair, accurate and impartial" information to the public.
A tale of two exchanges
Officials in Massachusetts and Utah-which started running their own versions of health insurance exchanges before national health care reform was enacted-have been busy advising other states on how to carve out a role for brokers.
The Commonwealth Connector , Massachusetts' online insurance exchange launched in 2007, has served as a model for national reform and successfully sold individual policies to thousands of residents. In April 2010, the connector began selling policies to small businesses-a market previously dominated by brokers. The Connector's Web site offers what chief marketing officer Kevin Counihan calls a simplified approach for businesses and small groups. "We represent a different shopping experience," he says.
Offering only seven plans, the connector charges administrative fees to participating insurers and uses the money to pay broker commissions that come to only three-fourths of what they get under the fully private system.
Even so, some brokers are choosing to work with the connector and sell policies through it. According to Counihan, they do it to stay competitive, because their business customers have heard about the connector and some want to try it. "We don't view ourselves as an alternative distribution channel for employers; we view ourselves as another solution for brokers," he says.
Still, brokers in Massachusetts are lukewarm about the connector, at best. "It adds costs and doesn't add value," says Boston broker David Shore, who serves on an advisory council to the state. Shore says he's less concerned about his commission structure than he is about his small business customers. "We're dancing around the problem in Massachusetts. We've got the lowest rate of uninsured, unlimited access to medical care, but we also have the highest costs. It's not sustainable."
Utah, which also launched an insurance exchange in 2007, took a very different approach to the broker relationship. Instead of paying a commission based on the cost of the premium, it pays a flat monthly fee of $37 for every employee of the business being covered. Under the Utah system, brokers not only work with business owners to set up a health plan, but they work directly with each employee to tailor their benefits.
Utah's exchange gives employers the option of making a so-called "defined contribution" towards employees' health coverage and letting employees use the money to purchase an insurance policy of their choice from the exchange. For employees that don't want to make that decision, brokers help businesses choose a "default" plan.
"In Utah, brokers were always part of the solution," says David Jackson, chair of the state's risk adjuster board. "That doesn't mean they always embraced it. We've had bumps in the road, but we're learning as we go."
Salt Lake City broker Ernest Sweat says he's generally happy with the Utah exchange and its commission structure. "It's where the industry is going," he says... I can tell the business owner 'I feel your pain' when he's unhappy with a high premium and he knows I'm not getting a higher commission."