Filed Under:Life Insurance, Prospecting

The Brave New World of Health Insurance

Health insurance agents across the nation seem to be asking one question: What happened to my commissions?

After the medical loss ratio provision of the Affordable Care Act went into effect, commissions across the country were slashed, leaving many agents wondering whether they were in the right business. Meanwhile, consumers, thinking that the government was about to swoop in with a new health insurance plan, shied away from agents and held out for the fix they hoped was coming.

Agent Sales Journal's 2011 Health Market Study, conducted in partnership with the National Association of Health Underwriters, shows how these very real concerns have changed the market. Agents are making less and selling less, facing new challenges and, for the first time since ASJ started the study in 2007, they're not optimistic about the future.

Product sales and market outlook

As the Affordable Care Act continues to be implemented bit by bit, many agents are being forced to shift their market focus. And while individual major medical still makes up a significant portion of their sales (76 percent), products like Medigap (55 percent) and long-term care insurance (45 percent) are receiving increased attention as agents expand their product lines.

"I plan to move into the Medicare supplement business [in the next 12 months] and hope to establish an 'Obama-proof' market for my business," said an independent agent from Plano, Texas who saw business decrease in the past year.

This agent isn't alone. In the past 12 months, 34 percent of agents saw their new individual health insurance business fall, and another 34 percent reported that it remained the same.

In light of this, it's no surprise that agents are becoming less optimistic about the future of the business: The percentage expecting a substantial increase in sales in the next year has fallen an average of 8 percentage points since 2007, while the percentage of agents expecting a decrease in their sales has increased 16 percent from 2010 to 2011.

Overcoming challenges

The perceived cost of health care is still a major challenge for insurance agents; 47 percent of respondents cited it as their top challenge when selling health policies.

Janet Trautwein, NAHU's CEO, thinks this is mostly a communication issue, though.

"Coverage is actually expensive, but clients may not understand why it is expensive," she said. "Health insurance is expensive because health care is expensive. We don't ask enough questions, we don't know how much a health service costs in advance. One of the things agents can do is talk to their clients about what IS in their control."

Another big challenge for insurance agents is rate increases, likely caused by the Affordable Care Act (38 percent). Troy Bangs, owner of Lake Travis Insurance and Financial Services, said in general rates have gone up, mainly as a result of several components of health care reform, including limits on cost-sharing on preventative and on lifetime maximums. Some carriers haven't increased their rates, however, and Bangs said agents could seek out carriers who are keeping them more stable. But unfortunately, rate increases are part of the health insurance market right now.

Other obstacles that agents face include a range of issues; some long-standing, others more recent: clients aren't qualified because of too many health problems (36 percent); difficult underwriting (29 percent); and the uncertainty of health care reform (20 percent).

ACA: Making business more difficult

When health care reform was first introduced, many agents agreed that some type of change could be good for the health insurance industry. In 2010, when ASJ asked, "Do you support health care reform?" 87 percent of agents said that they did (though 8 percent said they would support reform in a different form.) This year, that number dropped a staggering 35 percent to 52 percent, with just 3 percent of agents supporting the legislation in its current form.

The reason for this dramatic decline likely has a lot to do with a massive decline in commissions over the past year. Fifty percent of agents received lower commissions from at least 70 percent of their individual major medical carriers, and 14 percent said their decrease has been 50 percent or more (46 percent reported commission cuts of 10-49 percent). Largely, these frightening numbers stem from the new medical loss ratio mandate.

"Medical loss ratio was pretty much a job killer for agents," Trautwein said. "It said that health insurance policies in both the individual and small group markets would be subject to tight rules as to what portion could be spent on claims and medical and what portion could be spent on administration costs ... So the immediate result was that, overnight, agents' commissions were cut."

Trautwein said NAHU is working with the department of Health and Human Services and the NAIC to modify the regulations so they're fairer to agents, and she's been happy with the headway they've made so far. Still, NAHU didn't want to wait on the commissioners to act, so they started lobbying on their own, and currently have a bill working with 45 co-sponsors in the House, which will subtract agent commissions from the medical loss ratio.

In the meantime, however, all this commission-slashing means that many agents are moving away from individual health insurance sales and expanding into fields they might not have explored otherwise.
"With the new ACA regulations and decreased commissions, the labor and resources involved in writing individual products is simply not worth the effort (not to mention the liability)," said an agent from Metairie, La.

Bangs noted that his insurance practice has started to expand in order to make up for the deficit caused by the ACA.

"Anytime you experience a 50 percent dent in your commissions, it's hard to rebuild that cash flow, and you have to do it through more business or new products," Bangs said. "You just have to understand other needs clients have, whether it's long-term care or life insurance ... specifically for 2011, we're focusing more on the senior market -- Medicare Advantage and Medicare supplement."

But not everyone is feeling the pinch. Travis Middleton, president of Trademark Insurance Agency and treasurer of the Texas Association of Health Underwriters, said most of the changes he's felt from the ACA have been internal. Most companies have had to focus on repositioning themselves in the market and using more electronic communications. And while that's not ideal, he doesn't think it's been too detrimental.

Health savings accounts: The wave of the future?

Trautwein said that, when the ACA first passed, many people thought consumer-driven health products and health savings accounts would disappear. But in the last few years, the products have only increased in popularity.

"People like them," she said. "They find them affordable, they like the tax savings associated with the account, and they like the ability to save for the future."

And while health savings accounts haven't necessarily become any more popular over the past year, they haven't lost sales, either. Mostly, the product is remaining consistently popular, with 46 percent of agents reporting that their HSA sales remained the same. Even better, it seems that HSA understanding is increasing, as well; last year, 57 percent of agents reported that their clients found HSAs difficult to understand. This year, that number dropped to 44 percent.

Middleton said one of the reasons HSAs are so popular is because they put health care into the hands of the policyholder.

"It makes your health care easier to handle and easier to use," he said. "And I've got people who've been using HSAs 10 years or more and have substantial money saved in their HSAs. Those people are very happy with it."

This doesn't mean, however, that the product is problem-free. Trautwein said that the provision limiting deductibles on HSA plans could hurt small businesses if it's not repealed, because the business owners have to offset the cost of the deductible or find another plan.

Additionally, the restrictions on flexible spending accounts have been very unpopular. The first change is that FSAs can no longer be used to purchase over-the-counter medications, and the second limits the amount that can be added to the FSA to $2,500.

"I know a lot of employees would like those two provisions to change, but I'm not sure they're going anywhere," Trautwein said.

Study Methodology

In February 2011, Agent's Sales Journal partnered with the National Association of Health Underwriters to survey licensed insurance professionals across the country about their experiences in the health insurance market. The names were randomly selected from Agent Media's proprietary database of health insurance agents.* Producers were invited via email to take the survey.

*Editor's note: Agent Media owns Target Agent Lists, a proprietary database of financial services professionals that includes 1.8 million licensed life, health and annuity agents.

Heather Trese is a freelance writer who has covered the insurance industry for a number of years. She is a frequent contributor to the Agent's Sales Journal. She can be reached at hmtrese@gmail.com.

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