Agent Commission Chart from NAIFA Study, courtesy NAIFA
Agent commissions have declined dramatically since the medical loss ratio (MLR) provision of the health care reform law went into effect, forcing many agents to reduce their services to clients, consider charging fees for services they had been providing at no additional charge and in some cases, laying off employees and leaving the health insurance market.
That’s according to a survey by the National Association of Insurance and Financial Advisors (NAIFA) of 861 of its members who sell health insurance. Seventy percent of respondents who sell health insurance have seen a decrease in commissions.
Almost a third are ready to leave the market. The survey reports that 30% say that if commissions remain depressed they will stop selling and servicing individual health policies and 22% say they will stop selling all health insurance
“The medical loss ratio is going to cause most if not all truly professional agents to vacate the health insurance market,” stated a NAIFA Member from Oxford, Miss.
Of the agents whose commissions have decreased since the MLR went into effect almost one in five have had to reduce non-sales services they provide customers, according to the survey.
Among the almost three-fourths of member health insurance agents who had seen a decrease in commissions, 65% said they have absorbed the lost income, while 19% have reduced customer service, NAIFA found.
Over half of respondents have or may have to lay off employees, they said. Fifteen percent have either laid off or reduced the hours of support staff, affecting an average of two employees per agency while 14% have considered reducing staff and 21% say they will do so if commissions remain depressed.
As all agents are aware, sometimes painfully, they say, the MLR provision requires insurers to spend at least 80% of individual and small group health insurance premiums and 85% of large group policies on medical or quality improvement expenses. Since it went into effect in January 2011, the MLR has prompted most insurance companies to slash the commissions of insurance agents and brokers, say agent groups.
As most consumers know, and the U.S. government itself has reported, health care costs continue to rise. Ninety percent of agents say their clients’ premiums have increased or will increase in 2012, in spite of the MLR, the survey said.
In a recent MLR rebate estimate report, Kaiser analysts predicted that 3 million U.S. health insurance customers will split about $1.3 billion in health insurance MLR rebates.
That would average out to about $4 per U.S. resident and about $9 per U.S. resident with commercial health coverage.
In the individual market, about 3.3 million people, or 31% of holders of individual coverage, could get a total of $426 million rebates, and their rebates could average $127 per recipient.
Drafters of the Patient Protection and Affordable Care Act of 2010 (PPACA) included the minimum MLR provision in PPACA in an effort to make sure health insurance policyholders were getting more bang for their buck from insurers.
Others say that insurers have been cutting commissions for at least a decade, and the issue even exposed a fissure in the state regulatory body recently about the state of the health insurance business, recent laws and state regulators’ role.
For months now, agents have been seeking a legislative fix if the PPACA remains upheld when the Supreme Court rules next month.
Senate bill S 2288 would change the way agent compensation is considered in PPACA’s MLR provision while a broader bill, H.R. 1206, has more than 200 bipartisan cosponsors and may get a markup after months of languishing in the House.
