Brokers Bracing For Pinch Of Reform

A sweeping provision in the federal health care reform that requires insurance companies to spend a fixed percentage of premium revenue on medical services — as opposed to policy administration — could reduce sales commissions and make insurance brokers an endangered species.

Under the Affordable Care Act that starts in 2011, insurers selling small group products and individual policies to businesses with 50 or fewer workers will have to spend at least 80 percent of that premium revenue on “clinical services provided to enrollees and activities that improve health care quality.”

Insurers of groups with more than 50 workers will be required to spend at least 85 percent of subscriber premiums on health costs.

“The question for the broker community is whether the commissions and fees will be a part of the 80 or 85 percent,” says Jason Gutcheon, an independent broker and partner at Professional Business Insurers in Hartford who serves 350 clients.

“If so, brokers will be able to maintain their commitment to their clients without fear of earnings compensation. If not, the commissions paid to brokers will be a part of the 15 to 20 percent of research, administrative, marketing and management expenses.”

The prevailing wind seems to be toward counting commissions as part of the administrative costs. That’s what the National Association of Insurance Commissioners, a group of state regulators, has recommended to the U.S. Health and Human Services, which will make the final decisions.

“The National Association of Insurance Commissioners has stated that the role of the broker is important, but not important enough to be included in the medical loss ratio,” says Gutcheon.

“Ironically, as commission and fees for brokers are reduced, the role of the broker will be met with even more importance. The health insurance landscape for employers and individuals will become more cumbersome,” says Gutcheon.

“Health plans are becoming more complex and complicated, which necessitates the increased need for professionals to educate and explain the plans.”

Gutcheon said health insurance carriers have already started to restructure their commission payout in advance of the final ruling and governmental pressure.

“The fact is insurance carriers will undoubtedly reduce commissions and fees regardless … (resulting) in a less competitive environment and increasing expenses,” he says.

Insurance brokers, small business consultants and health care leaders are grappling with how the government-mandated medical-loss ratio will change the way businesses and individuals buy medical coverage.

Connecticut brokers who sell insurance plans to small businesses and individuals say it is too soon to know how much the health care overhaul will hurt their bottom line.

Traditionally, brokers have played an important role in the complicated market for health care insurance companies that sell policies to small businesses and individuals.

Brokers like Gutcheon act as a go-between for businesses and insurance companies. They have access to dozens of carriers and can quickly find health care plans that match a client’s needs.

Brokers earn commissions from the insurance companies when they write a policy. The pay — classified as an administrative expense — typically ranges between 3 and 8 percent of the premium, with fees as high as 20 percent during the first year.

Many brokers are concerned insurers will put the squeeze on commissions — their livelihood — in order to maximize profits without violating the medical-loss ratio.

That ratio is an important component of health care reform.

“This is very good for consumers because it gives them the assurance that the vast majority of their health care premiums are actually being spent on health care,” said Jennifer Jaff, executive director for the Advocacy for Patients with Chronic Illness Inc. in Farmington.

“Broker fees are definitely a concern for us and for consumers as well,” said Jaff. “We don’t want brokers to go away because they help get people what they need and understand all the complexities surrounding health care plans.”

Tom Casey, a certified financial planner at Casey Thomas & Associates in Shelton, believes that instead of saving money and having more choices, consumers will lose their ability to select a competitive health care plan.

“The new health care mandate was designed to drive down costs and I don’t think that’s happening,” said Casey. “This is health care backed by the government. Where is the incentive for government to do the job for a lower cost? None; there is no price competition.”

“I think we’re going to see fewer jobs in the insurance industry,” said Casey. “Employers are going to continue holding out on hiring more people until they know whether they can afford to offer health care benefits for the employees they have now.”

Licensed brokers and professional consultants who specialize in the health care industry say they have discovered that helping businesses make sense of the new, complex insurance rules is keeping them busy.

“I have many years of experience working in the insurance market and it can be challenging for me to figure something out,” said Gutcheon. “I can’t imagine a business owner taking the time out to understand all the rules and regulations when they have other things they need to focus on.”

Gutcheon refuses to have a glass half-empty attitude about the new health care reform.

“My job is not just about selling insurance to businesses and individuals,” said Gutcheon. “I work with my clients to help them understand what their choices are and I stay in touch even after we write the policy so that if there are any problems or account issues, we can resolve it quickly for them.”

Gutcheon says he suspects the reform will drive up premium costs and reduce commissions.

“The health care reform bill will not reduce premiums,” says Gutcheon. “It is a critically flawed piece of legislation that focuses on the ability to obtain coverage and not address the actual drivers of healthcare costs.”

He believes the new medical-loss ratio mandate creates more opportunity for licensed brokers and professional consultants to help business owners understand the complex insurance, tax and compliance issues associated with the fragmented health care market.