Filed Under:Health Insurance, Individual Health

Up In The Air

It likely didn't register for NAIFA's annual meeting, but it was there all the same.

In workshops and general sessions, at networking events and complimentary lunches, producers from across the country worried and wondered about health care reform and what it would mean for their businesses.

The good and bad news? Nobody knows yet. The Supreme Court will likely have to decide whether PPACA, as a whole or just parts of it, is constitutional, and that could take years. Meanwhile, insurance industry representatives and politicians are hashing out the details of the law's provisions, and the outcomes of those discussions will prove crucial.

Whatever happens, insurance professionals are likely to face significant challenges -- as well as some opportunities -- while all of this gets sorted out.

The dreaded MLR
The most immediate challenge many advisors are facing concerns the medical loss ratio, or MLR. The provision went into effect at the beginning of 2011 and requires carriers to spend 80% of premiums on medical care and quality costs in the individual and small-group markets and 85% in the large-group market. The other 15% to 20% can be used for administrative expenses, marketing and profits -- a number that includes agent commissions.

Most carriers have either begun to slash commissions in order to reach compliance or plan to do so very soon. A NAIFA member survey found that 54% of respondents had seen their commissions decrease by 25% or more this year; another 21% saw decreases of less than 25%.

Some agents have made up for the reduction in revenue by requiring clients to pay an additional fee, says Diane Boyle, assistant vice president of government relations for NAIFA. But in some states, that's prohibited.
In an industry that has struggled to add new, young producers for years, NAIFA and other organizations are worried the reduction in income could make insurance sales an even less attractive field for newcomers. According to the U.S. Bureau of Labor Statistics, the average annual income for insurance sales agents was $62,520 in May 2010. Half of agents made less than $47,000 a year.

Boyle also points out that commissions are meant to compensate agents not only for the insurance sale, but also for claims service over the life of the policy. "We want to stress that it's really more than enrollment that the agent is involved with," she says. "When you file a claim, chances are, you're going to run into problems. Who's going to help with that claim? At some point, if you're providing both enrollment and ongoing services and only being compensated for one of those, how do you stay in business?"

Insurance lobbying organizations are working to have agent commissions taken out of the MLR. "It would allow the intent of the MLR to carry through, but you're not taking the agent's service and lumping it into that ratio," Boyle says. In March, Reps. Mike Rogers (R-Mich.) and John Barrow (D-Ga.) introduced H.R. 1206 to do just that, but to date, no senators have sponsored an equivalent bill.

Boyle says action needs to be taken -- and quickly. "How many people will leave the business? Where will customers find knowledgeable licensed individuals?" she says. "If we wait until long after this goes into effect, we start seeing years of permanent damage."

More challenges to come
Even if the MLR can be changed, there are plenty additional hurdles ahead for the insurance industry.
In 2012, the Community Living Assistance Services and Supports program, or the CLASS Act, is set to roll out. The program would provide a cash benefit for long-term care for certain individuals on a voluntary enrollment basis, but many doubt that it's sustainable as written. "We haven't seen any regulations yet, but we're not sure how it will be made actuarially sound as crafted," Boyle says. The benefit also isn't likely to be enough for most Americans, though many might not know that.

NAIFA is also fighting a flexible spending account, or FSA, contribution cap of $2,500 that is set to go into effect in 2013. The change will likely make FSA insurance options less attractive to consumers, who are used to a cap of about $5,000 in most plans today. "People, employees in particular, are going to see a reduction in what they can set aside," Boyle says. "The chronically ill are going to be the hardest hit."

Taxes are another key concern. In 2013, individuals making more than $200,000 annually ($250,000 for joint filers) will have to pay a new 3.8% tax on "unearned income," a category that includes annuities. "That's going to make it more expensive for middle-income individuals to plan for retirement," Boyle says.

And in 2018, a 40% excise tax will be placed on insurance companies and plan administrators for health insurance plans above the threshold of $10,200 for individual coverage and $27,500 for family coverage. "You're looking at increasing costs, and we're concerned about affordability at this point," Boyle says. "If you're increasing access but not affordability, then you're going to reverse the access issue anyway."

A silver lining?
If all of these changes seem complex to you, join the club. "I get paid full-time to keep up with health care reform, and I can't even do it," says Arthur Tacchino, an assistant professor of health insurance at The American College.

But that complexity is what many experts think will make insurance agents indispensable in the years to come. "There's a lot of information [about PPACA] floating around on the Internet," Tacchino says. "I can't tell you how many things I've read that are just wrong. I think, personally, the role of agents and brokers is more important than ever with this."

Tacchino taught a workshop at the NAIFA conference encouraging agents to become health care consultants to their clients, helping them comply with the new regulations and take advantage of available tax credits when possible. The Small Business Health Care Tax Credit, for example, is estimated to be available to 4 million businesses, he says.

"They may not know it, and that's where you guys step in and say, 'I think you're eligible. Let's take advantage of this tax credit," Tacchino told the audience. "This is why you should now consider yourself a consultant. They don't have to meet with their CPA. You can tell them about the tax credits right there."

Of course, the paperwork required for the tax credit is complex. "I have a hard enough time getting [clients] to submit renewal paperwork on time, let alone give me access to all of this," one producer told Tacchino. And when agents start doling out tax advice, liability can be a factor. As one producer in the audience pointed out: "What's that going to do to our E&O insurance? Obama didn't think of that."

Agents can team up with CPAs and law firms, however, Tacchino says. "At the very least, it's something you can bring up with your client. Even just bringing up the credit raises your value in their eyes."

Exchanges will also offer opportunities, at least for the agents who have access to them. "If you maneuver yourself properly, you'll have access to both the exchanges and the private marketplace," Tacchino says. Producers who want in should pay attention to their individual states, where all the exchange details will likely be hashed out in the coming months.

Still upset about all the changes and how they'll affect your business? Taking a wait-and-see approach before making any dramatic moves might be your best bet.

"As you're learning about these things, you have to take each one with a grain of salt," Tacchino says. "Is this program even going to be in place? It might never happen."

Corey Dahl is managing editor of Life Insurance Selling.

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Nichole Morford

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