Brokers who sell health insurance are set to be profoundly affected by the Patient Protection and Affordable Care Act (PPACA). New cost pressures and the emergence of health insurance exchanges are set to fundamentally change the way coverage is purchased.
The final report of Gov. Rell's Advisory Board on Health Care Reform contains recommendations to quickly establish an exchange purchasing mechanism in Connecticut.
Historically, insurers have paid commissions to brokers for selling health coverage to small- and medium-size employers. In what looks like a classic disintermediation scenario, forces are converging to put power and influence directly in the hands of insurance purchasers. Similar shifts have occurred with travel bookings, medical advice, stock trades, and vehicle purchasing. The pressure to reduce costs and provide greater access to information is effectively squeezing the role of sales professionals.
Does this spell doom for health insurance brokers?
Creation of health insurance exchanges will introduce a new channel for purchasing individual coverage, one that circumvents brokers. In Connecticut, the advisory board recommended that the exchange platform be structured similarly to the Massachusetts Connector. This is an easy and transparent retail channel, with greater efficiency and direct-to-consumer choices than what brokers have provided. Fully functioning versions could take purchasers right from the initial quote to the benefit card. As a result, many of the incremental insured lives that an exchange generates are likely to elude brokers.
Brokers won't simply disappear, however, since the health insurance exchanges are directed to smaller employers (less than 50 employees) and consumers lacking employer-sponsored coverage. Employers will still work through brokers to find coverage, particularly medium-sized employers that lack resources to engage a benefits consultant. The J.D. Power and Associates 2010 Employer Health Insurance Plan Study finds that 59 percent of employers shop for health insurance with a broker. Once health insurance choices are in public view, brokers will need to do more than simply know where to find policies. Justifying their value will become a greater challenge.
The study also finds that employer satisfaction with health plans can vary depending on how they work with their broker. Service excellence may be what assures their continuing value and relevance to employers.
Health plans are expected to closely scrutinize broker commissions, as PPACA calls for them to keep administrative costs low and not exceed an 85 percent threshold for the medical-loss ratio. Large area insurers are showing signs of moving toward paying flat fees instead.
The National Association of Health Underwriters is championing legislative efforts to secure placement of insurance brokers on new web-based exchanges.
Better customer service will probably improve broker fortunes more than will a political solution. The path forward for brokers will require new models of engagement that focus on customer service excellence.
Additional findings of the Employer Health Insurance Plan Study help point the way to success for health insurance brokers. The study contrasts the esteem that employers hold for their health plan, based on whether they used brokers merely to shop for coverage or as an ongoing partner in their dealings with health plans.
What are the different service models that brokers might apply, and which ones will produce the kind of customer satisfaction that may be necessary for them to stay in the picture? Essentially, there are three ways that brokers work with employers to find insurance: the Shopper Model, the Full-Service Model, and the Collaborative Model.
In the Shopper Model, the broker exits the picture after connecting an employer to a suitable health insurance carrier.
The Full-Service Model funnels all communications through the broker for the full duration of the contract.
The Collaborative Model consists of ongoing joint communications that engage the broker, employer (purchaser), and the health plan in a team approach. Employers indicate that they are most satisfied overall with the Collaborative Model.
How can brokers focus on service and best satisfy their clients who are seeking affordable coverage? It's not merely a question of finding the lowest costs.
When an employer shops with a broker, it can be the beginning of a relationship that continues over the term of their contract, all the while also interacting directly with their insurer. Satisfaction declines when the broker exits after the sale, as in the Shopper Model. Employers appear more satisfied with their health plan when a broker becomes integrated within communications that occur between them. Rather than acting like a gatekeeper, as in the Full Service model, it may help the broker to function more like a facilitator. The broker's role is to assure open and transparent dialogue, not simply to function as an agent of the health plan.
The Collaborative Model can be a demanding one for health insurance brokers, as it requires them to continuously facilitate communication between insurers and employers. It also requires excellent customer service, which can include issues such as speedy problem resolution or communication of account management details.
To justify their continued role in the new PPACA world, brokers will be challenged to move beyond simply finding coverage for their clients to focusing on how their clients' needs are fulfilled throughout the course of the relationship between the purchaser and the insurer. This kind of ongoing communication requires more effort by the broker, but it also appears to be the approach that best favors the broker's odds of survival.
Richard Millard is senior director of the healthcare practice at J.D. Power and Associates, based in Rochester, N.Y. Reach him at Richard_Millard@jdpa.com.