Cuts in the amounts of commissions California individual health insurers pay agents and brokers could help offset the effects of new Patient Protection and Affordable Care Act (PPACA) taxes and fees on individual health premiums.
Consultants at Milliman, an actuarial firm, give figures supporting that assessment in a PPACA premium impact study prepared for the managers of the Covered California PPACA exchange, or health insurance supermarket.
PPACA calls for health insurers to sell all new, insured, non-grandfathered individual and small-group coverage on a guaranteed-issue basis starting Oct. 1., with issuers given little ability to base rates on health status factors other than a consumer's age and location.
PPACA drafters tried to hold down premiums by imposing a tax on many individuals who fail to have a minimum level of health coverage, in an effort to encourage young, healthy, relatively high-income people to buy coverage and hold down the overall riskiness of the risk pool.
The Milliman consultants looked only at the effects of PPACA on California individual market premiums, not on more comprehensive indicators, such as changes in life expectancy or the total share of California state income being spent on health care.
The consultants suggested that PPACA could increase overall premiums by a total of about 14 percent.
The ban on use of most health status information in underwriting could lead to a huge swing in claims costs, and that factor alone could increase premiums 15 percent to 40 percent, with a best estimate of about 26 percent, the consultants said.
A new PPACA reinsurance program could hold lower premiums by about 9 percent, and provider contracting changes could lower premiums by about 6 percent, the consultants said.
The consultants said three factors could each have an effect of about 4 percent: Increased use of care due to changes in plan design; increases in taxes and fees due to PPACA; and "change in administrative expense," including a change in the amount of compensation paid to agents and brokers.
Increased use of care due to reductions in out-of-pocket costs and PPACA-related taxes and fees could each lead to a 4 percent increase.
The cuts in administrative expense could lower premiums about 4.5 percent, the consultants said.
Covered California managers told the consultants that they think California individual market commissions are in the range of 13 percent to 15 percent of premiums.
Milliman found that commissions at one large California carrier are 8 percet to 12 percent of first-year premiums and 4 percent to 6 percent of renewal premiums.
"Other sources of anecdotal information suggest commissions may be even less than these data points," the consultants said.
"Currently, broker-driven sales represent a large portion of individual health insurance sales in California," the consultants said.
Covered California has estimated that "up to 80 percent of this business will transition from the broker distribution channel to the exchange," the consultants said.
But brokers perform a variety of administrative services for purchasers, and it might take years before the exchange succeeds at displacing that many brokers, the consultants said.
Covered California also plans to sell coverage through "certified assisters" who received a fixed fee per consumer enrolled.
Covered Califoria "estimates that 20 percent of exchange enrollment will be subject to plans paying agents' commissions and 80 percent will be subject to Covered California paying a fixed 'certified assisters' fee," the consultants said. "If these assumptions are borne out, then this shift could drive a reduction in administrative expenses."
When Milliman consultants predict that administrative expense cuts will lower premiums by about 4.5 percent, they are assuming an 8 percent average commission rate and 60 percent of sales being through Covered California.
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