The outlines of the new “exchanges,” or Web-based health insurance supermarkets, seem to be emerging from the fog of legislation and regulation that has blanketed the U.S. benefits community over the past three years.
The Center for Consumer Information and Insurance Oversight (CCIIO) — the agency setting up the “federally facilitated exchanges” (FFEs) — says it hopes 250,000 producers will register to sell FFE plans.
The Minnesota Health Insurance Exchange hired a marketing agency to study the “need states” that might keep producers from working with the health insurance exchanges, aka “the HIX.”
The managers of Covered California have hired Michael Lujan, a longtime health insurance sales veteran who has written a trade journal article on “how to retain benefits clients,” to woo brokers for their Small Business Health Options Program (SHOP) small-group exchange division.
What do the producers think?
Scott Leavitt, a Boise, Idaho, producer who has been president of the National Association of Health Underwriters (NAHU), said he has seen 25 percent of the health insurance producers in his area pull back from the market because of concerns about the Patient Protection and Affordable Care Act (PPACA).
“We’re very scared about what’s going to be coming,” Leavitt said.
Jason Beyrouty, a benefits advisor in the Salem, Ore., office of AKT L.L.P., said the exchange managers in Ore. have been nice to producers. He expects them to continue to be nice to producers — until the flood of applications that comes in during the first exchange open-enrollment period passes.
“The brokers have a fair amount of fear,” Beyrouty said.
Members of Congress drafted PPACA because the United States is spending more than twice as much on health care as the typical Western European country, getting less access to care for its residents, and ending up with shorter, fatter people who die at a younger age.
PPACA is a huge law with many components. For brokers, one source of PPACA angst is the minimum medical loss ratio (MLR) provision.
Since January 1, 2011, the minimum MLR provision has required insurers to spend at least 85 percent of large-group revenue and 80 percent of individual and small-group revenue on health care or quality improvement efforts.
NAHU and the National Association of Insurance Financial Advisors (NAIFA) contend that customers are the ones who really pay broker commissions and that insurers simply collect the commissions as a convenience to the customers. The producer groups have been lobbying to get Congress to exclude producer compensation from the MLR calculations. Today, producer compensation is still part of MLR calculations, and producers think its driving cuts.
Another PPACA provision that worries brokers, the exchange provision, could start having a direct effect on brokers’ lives October 1, when PPACA requires the exchanges, or Web-based health insurance supermarkets, to start selling individual and small-group coverage.
Tension between insurers and their intermediaries first boiled over in California, in 1993, when an ancestor of the health insurance exchange, the Health Insurance Purchasing Cooperative (HIPC), gave employers that came to it directly a no-broker discount. The HIPC was a miserable failure until 1997, when it eliminated the no-broker discount and became a famous example of why insurance exchanges need brokers.
See also: PPACA: A history
The builders of the Massachusetts small-group exchange — who were operating in a state with a successful individual exchange program — laughed off the Tale of the Failed HIPC. In 2009, they offered brokers a small-group commission rate of just 2.5 percent of premiums. Commercial insurers were paying commissions of about 3.5 to 4.5 percent of premiums.
Mark Hall, a Wake Forest University law professor who analyzed the program, said managers also used a website that required a broker to enter a huge amount of information just to get a quote; it would then freeze up before it provided the quote.
In February 2010, managers responded to wretched sales by freezing enrollment.
In 2012, when Hall was doing his research, “Connector officials were [still] starting broker training sessions with an apology about past ‘mistakes.’”
The exchange managers are hazy about just how the producer community looks today. FFE officials have suggested in a regulatory filing that there might be about 700,000 active U.S. health insurance producers.
A unit of UnitedHealth Group Inc. says in a producer comp discussion on its website that typical base commissions for employer groups with 50 or fewer employees run from 4 percent to 7 percent of premium.
Consultants at Milliman, an actuarial firm, said a large health insurer in California has said that it’s paying commission rates of 8 percent to 12 percent for new individual policy sales and 4 percent to 6 percent of premiums for individual policy renewals.
“Other sources of anecdotal information suggest commissions may be even less than these data points,” the consultants said.
One possible problem: The exchange runners might have inaccurate information about commission rates. In California, the Milliman consultants said, the exchange managers think brokers are getting commission rates of 13 percent to 15 percent for individual policies.
Perry Braun, executive director of the Benefit Advisors Network (BAN), a national benefits firm consortium, said carriers have cut producer comp for some types of business in some markets in half by replacing premium-based commissions with fixed “per member, per month” fees.
Because of the weak economy and the compensation cuts, 21 percent of NAIFA members in the health insurance market have downsized their businesses, according to NAIFA President Robert Smith.
W. Michael Mann of Eustis Benefits, a Metairie, La.,-based benefits consultant, said the typical compensation drop in his area has been only about 10 percent to 15 percent. He has not noticed a mass exodus of health producers. But he has noticed that he is now getting two or three calls per month from agencies that would like to be acquired.
In the future, the exchanges might shape producer compensation.
PPACA gives a state the option of setting up an exchange for its residents or letting the U.S. Department of Health and Human Services (HHS) have CCIIO set up an FFE.
PPACA requires exchanges to offer consumers access to “navigators,” or ombudsmen who are not paid by the health insurers. HHS has said that exchanges will also need “in-person assisters” and possibly other types of registered intermediaries.
B. Hyatt Erstad, a Boise benefits specialist who has been active in NAIFA, said federal regulators seem to be saying reasonable things about how the FFEs might work with producers. “We just haven’t seen anything in writing.”
The FFEs and most state-based exchanges are leaning toward having the exchange insurers pay commissions directly to the producers.
CCIIO officials said commissions for similar products must be similar inside and outside an FFE, but they have not said anything about how high commissions must be.
CCIIO officials have said that the FFEs will work as closely with brokers as state law will allow. In California, Michael Lujan declared at a producer outreach webinar that, “The exchange values the role of the agent.” Managers of the New York exchange have said brokers will be the primary distribution channel for SHOP enrollment.
But, even as the exchange managers court brokers, they are posting proposals describing the fees they might pay navigators and in-person assisters.
Covered California could pay assisters $58 per completed enrollment.
The Washington state exchange could pay a typical navigator firm about $85 per application, with about half of the money going toward general expenses and half being tied to application volume.
State exchanges have indicated that the navigators and in-person assisters will focus mainly on helping low-income consumers enroll in Medicaid plans and Children’s Health Insurance Program (CHIP) plans.
Milliman consultants have painted a different picture in their California PPACA premium impact report.
“Currently, broker-driven sales represent a large portion of individual health insurance sales in California,” the Milliman consultants said.
Covered California has predicted that “up to 80 percent of this [individual market] business will transition from the broker distribution channel to the exchange,” the consultants said.
Covered California “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.
HHS says that brokers can’t be navigators, and states are saying that brokers can’t be in-person assisters. Even if brokers could be in-person assisters, they question whether they could provide live human help for just $58 or $85 per application.
Simply helping a well-organized consumer enroll in health coverage over the phone takes about 30 to 45 minutes of agency time, and agency time costs a minimum of about $50 per hour, producers said.
Producers point to the sad end of the PPACA Pre-existing Condition Plan (PCIP) program as a reason to question how reliable the exchanges will be.
Congress allocated $5 billion for the PCIP program to help uninsured people with serious health problems get health coverage before 2014, when a PPACA ban on use of personal health information in underwriting decisions is supposed to take effect.
At first, PCIP managers shut out brokers. In 2011, when PCIP enrollment proved to be embarrassingly low, managers began offering a $100-per-head enrollment fee. In 2012, when sales improved — and PCIP managers discovered that the average annual medical expense of a PCIP enrollee was four times higher than expected — managers axed the $100 enrollment fee.
In February — about 10 months before PPACA is supposed to give sick people access to guaranteed-issue coverage — CCIIO officials suspended the PCIP enrollment process.
A number of producers said they like the idea of exchanges having insurers pay producers directly, rather than the exchange itself paying the commissions.
“That’s a relatively simple process,” Mann said. “The systems are already set up.”
In states with Republican governors, some producers think having their states run state-based exchanges could help. In Idaho, for example, Leavitt and Erstad helped get a state-based exchange bill signed into law.
If Idaho runs its own exchange, “that way, we'll have a voice,” Erstad said.
Braun urged producers to prepare for whatever is coming by being active in industry groups and in producer consortiums.
“I don’t think everybody’s going to suffer the same,” Braun said.
Producers who diversify and get good service from insurers may do better, Braun said.
Now that PPACA is limiting producers’ ability to tinker with the design of a health plan or the price of health coverage, “administration is an important part of brand value,” Braun said.
David Shore, a Boston-area benefits specialist and president-elect of the Massachusetts Association of Health Underwriters, has survived in a state affected by a program that served as a model for PPACA.
“Every state is different,” Shore said. “Any exchange will have a unique set of circumstances.”
But Shore said producers who are preparing to face exchanges should diversify, focus on bigger groups and emphasize fee-based business.
Shore also recommended that producers treat the start of a complicated new health program as a way to get a foot in employers’ doors.
Serving as health program experts “has provided us with a great opportunity to increase our business,” Shore said.
In the long run, Shore said, he expects producers who adapt to change to do well.
“I firmly believe the broker is the least expensive distribution channel in the market today,” Shore said.
Beyrouty said the best proof of brokers’ value is all of the insurers’ and exchanges’ failed attempts to wipe them out.
“If they could have gotten rid of us,” he said, “they would have already done it by now.”
State exchanges have indicated that the navigators and in-person assisters will focus mainly on helping low- income consumers enroll in Medicaid plans and Children’s Health Insurance Program (CHIP) plans.