From the August 2011 issue of Benefits Selling:
The broker world has been turned upside down. Between the latest commission regulations and uncertain employer attitudes, brokers are looking at a new health insurance landscape, and many are wondering if there’s still a place for them in the market. But despite the doom and gloom, many brokers aren’t ready to give up their day jobs just yet. By demonstrating value and educating clients, brokers can continue to provide valuable services no matter what commission regulation lies ahead.
HEALTH CARE REFORM CAUSES ANXIETY At the center of the commission controversy is the medical loss ratio mandate, which requires insurance companies to spend 80 to 85 percent of premium dollars on health care while the rest of the funds are reserved for administrative costs and profit as part of the Patient Protection and Affordable Care Act. With this cap, brokers’ commissions are taking a hit.
Of course, with health care reform, the question continues to linger: Will employers keep their health care plans in-tact once reform goes into effect? If not, brokers could lose a significant portion of their current clientele, which, in turn, means lost commission. Many brokers think this could be the market’s future, says Warren Benoit, president of Benoit and Associates in Kenner, La.
In fact, consulting firm McKinsey & Company released a divisive survey in June stating that at least 30 percent of employers are likely to drop their health insurance plans once PPACA takes effect in 2014. While McKinsey noted in a statement that the study is not an economic predictor, it is meant to serve as an indication of many employers’ attitudes toward health care reform. To Benoit, dwindling employer-sponsored health care coverage is a real possibility.
Employers that drop their health insurance plans will be subject to fines, but paying the penalty will be cheaper than offering health insurance in many cases. “A lot of these companies will not be able to afford to offer the benefits that are required by the laws coming in 2014,” Benoit says. “They’ll either have to cut jobs or cancel their health insurance and just pay the fine. If that’s the case, all those commissions will be gone.”
Scott Mardis, however, believes this won’t be an issue for large groups. Instead, small- to mid-sized groups will be more likely to face the exchange system because it was designed with those sectors in mind. “The health insurance plans’ rating mechanisms are fully funded plans, either community or demographically rated,” says Mardis, senior vice president of sales at AmeriFlex in Mount Laurel, N.J.
“In other cases, you’re looking at self-insured plans in the large-group marketplace. The brokers who are servicing those self-insured plans are already charging a consulting fee; they’re not being paid based on a percentage of premiums.”
REMAINING RELEVANT Moving forward, brokers are likely to assume the role of benefits consultants, says Jim Christenson, field vice president of Allstate Benefits in Plymouth Meeting, Pa. The new model is fee based, rather than commission based, and the consultant still takes on similar tasks as the broker, such as conducting open enrollments. If there is no one to guide an employer, the task typically falls to the company’s human resources department.
But in today’s down economy, employers are slashing HR departments’ manpower, Christenson says, and those lucky few who kept their jobs don’t have the time to find an affordable yet robust health insurance plan. Benoit expects more brokers will put a greater emphasis on ancillary and voluntary products, as well. Disability, life insurance, dental and vision all will become critical pieces of a broker’s business because these products won’t be affected by health care reform.
By focusing on these untouched products, brokers can still make their mark in the benefits industry, despite the MLR mandate hurdles. “Most brokers are going to change their metabolism and adapt to what they can market,” Benoit says. “It’s a survival game. That’s the only way they can make a living. We can’t work for free. And that’s what they’re asking us to do. Our biggest competition now is the U.S. government when it comes to health care.”
Ultimately, the consumer is the player who really loses out in this situation, Christenson says, because there is less oversight, and the quality of health care is dropping. Brokers are there to work for the employers; they are the ones negotiating with health insurance companies to keep the rates down while obtaining the most complete coverage possible. But if there is no broker, there is no one to keep the carrier in line and act in the employer’s interest.
“All good systems in the world perform on checks and balances, but without the broker, you remove the checks and balances,” Christenson says. “Brokers make sure they put that pressure on health insurance companies to earn their commissions; they make sure the market runs smoothly and efficiently, so we will lose that.”
WHERE DO BROKERS GO FROM HERE? Brokers can’t rely on legislation or appeals to protect their commissions if they want to continue to play a role in the health insurance industry, because PPACA is not focused on brokers, Mardis notes. A broker’s commission is just a casualty in this heated new landscape. “They can make small creations to exchanges to make it less difficult to select them, but I think, at this point it will be very hard to repeal any significant measures in health care reform,” Mardis says.
“That’s not to say it won’t go through 10 to 20 changes in the next four years, but there isn’t a bill out there that says, ‘Thou shalt not cut out the broker.’” Instead, brokers have to appeal to their clients by proving they serve a critical need. The health insurance industry is a complicated world, one that most consumers are unprepared to navigate.
For the average consumer, determining an appropriate deductible amount, copayment, ancillary line and network –to name just a few components – would be overwhelming. However, brokers have the education, credentials and expertise to select the best policy. “Left to their own devices, consumers spend more time picking out cereal at the supermarket than understanding their health insurance plan, even though this is one of the largest purchases an individual employee will make,” Mardis says.
“There are obviously thousands of various plan designs, and brokers are the educators in helping employees understand benefits.” While no one can say for certain what the future holds, Mardis believes there is still a role for brokers; the model is just different. Brokers must work harder, and the money may not be at the same level it once was, making attrition likely, particularly among those who struggle to demonstrate value. But the ones who truly serve their clients’ needs will find a way to survive.
“I think the broker industry will see some reduction in numbers, and I think there will be continued consolidation within the broker community,” Mardis says. “You’ll see those brokers who were unable to make these transitions and show value will be squeezed out of the industry. Despite that, there is definitely a future for brokers and agents in the marketplace, but it will be well-earned.”