I’m not a broker. I’ve never personally sold a single dollar’s worth of insurance to anyone unless you want to count a condom I sold to a buddy for two beers back in grad school. The broker/agent side of the business is one where I’m curious about how it works as the insurance agent selling policies is usually the most public facing side of the insurance universe. The broker/agent model is broken on the individual market.
Connecticut exchange: Carriers won't pay brokers for 2017. Will customer service suffer as a result? https://t.co/q9Kaq2ncsc @EyeOnInsurance
— LouiseNorris (@LouiseNorris) September 28, 2016
The fundamental problem is how brokers get paid and who pays them. Brokers who work the individual market and the very small group market are paid by the insurance carriers. Their commission can be a flat fee per covered life per month, it can be a percentage of commission, it can be a combination of a head fee and a percentage. The actual payment structure varies. At the same time, a good broker should be seeking to find the best situation possible for the person who is looking for insurance. And this is where the problem lies.
A good agent will place people into insurance products that are very appropriate for them. We looked at this in March:
A good broker should be able to talk to a perfectly healthy 26 year old and determine that they have minimal anticipated medical needs and no relationships with local providers so once their risk tolerance is established for which band they want to buy in, the recommendation would be to go to the cheapest plan possible with a minimally acceptable network. That same broker talking to a 45 year old diabetic will recommend a different plan in the same metal band. That 45 year old’s older sister who is anticipating an elective surgery next year would be better off in a plan with a low co-payment for inpatient hospitalization instead of a plan with a $3,000 per day inpatient co-pay.
The broker, if they are helping the consumer, is creating much closer to optimal choices for coverage instead of significant over and under coverage that confused individuals will buy on their own. Since most people are risk adverse and they also rely on branding, carriers can more easily up-sell to people who really don’t understand the insurance market intimately.
A carrier with a significant broker inflow of members for their individual and very small group products will see a higher percentage of their covered lives and premium dollars be attached to people with high medical loss ratios (MLR). High MLR means low profitability as there are fewer healthy, low cost premium paying covered lives to share the burden.
The defensive measure is to cut the broker inflow as much as possible. The easiest way of doing that is to make it utterly impossible for a broker to make money on selling a policy. The slightly more complex way is to change commission structures so the only profitable to the broker policies are profitable to the carrier as well even if they are not a good policy for the individual customer.
Brokers have the odd need of wanting to eat and pay their mortgage, so the rational response to the elimination of commissions by a single carrier in the individual market is to push policies offered by other carriers that still pay commission. If everyone no longer pays commission, one of the biggest sources of navigation and assistance disappears as brokers will shift their efforts to lines of business that will allow them to earn a living.
The PPACA Navigator program is a partial and incomplete work-around of this convoluted set of perverse incentives. The Navigators are paid by a third party whose revenue cycle is independent of the success or failure of any carrier. Their ability to make a living is not dependent on pushing people to go to Mayhew Super Narrow Silver even though Blue Cross Blue Shield Skinny Silver Enhanced is really the better plan at roughly the same price. The problem is that the Navigators are very limited in what they can tell people and as a cohort there is not a depth of experience nor knowledge that brokers have gained over working a field for an entire career.
But I think something like the Navigator model or buyers directly paying the broker a flat fee for insurance shopping assistance are the only models that make sense given the incentives of carriers to avoid having a higher than typically expected proportion of high MLR members.
Gindy51
We have never used a broker for any kind of insurance, be it health, car, life, or home. We use USAA for the latter three and the government exchange for the kid while we olds are on Tricare.
Xantar
In the first year of open enrollment here in Maryland, a broker set up a fake Maryland Health Connection website which at first looked like the real one but would then show his contact information. Fortunately we saw it on the first day of open enrollment and got him to shut it down.
Brokers are going to need to do a little PR work before they get sympathy from the public.
MomSense
A lot of hospitals now have enrollment clinics with navigators who can help people sign up on the exchange. The tough thing is to break through the old mindset that insurance is so expensive why bother trying. It is such a problem. I run into it all the time.
Foxhunter
This has been the trend for quite some time, well before implementation of the ACA. Back in the early ‘aughts’, commission structures were showing signs of collapse, at least with the big three in Georgia. BCBS led the way with an agent/broker contract change where payments were no longer a commission but a flat head fee or census count. In order to justify this reduction, they sold the idea of 1-800/service centers for our clients.
We are a service oriented shop. We want our clients to call us for policy changes, claims assistance and any other insurance related needs they may have. Are we redundant for some? Sure. But when a claim gets sideways or a payment fall through the cracks…we have means to get things done.
The BCBS service center move turned out to be a disaster for our large head count groups. No real single point of contact, timing issues, claims disputes. Our transaction costs went through the roof and we were losing money on every single call. 2005 was the year we called it quits on health business and decided to focus solely on property/casualty and financial products. We lost almost 7 figures in revenue, but the writing was on the wall then and it’s certainly borne itself out 10 years later. It’s not business we miss and 95% of those P & C clients are still chumming along with us, health insurance placed through someone else who can make a $5.00 per head per month fee work.
Full disclosure – I’m know there are *some* health insurance brokers in Georgia that operate under a commission structure, but not many of those exist today.
WereBear
I know there is such a thing. Like unicorns, it is getting harder and harder to actually see it.
Barbara
This is a real conundrum because the model, whatever it is, covers all service providers regardless of the actual level or quality of services provided. I have long thought that broker fees need to be transparent because in some markets they are significant enough that they really do make insurance less affordable. That has changed with MLR rules making high broker fees untenable. I suspect that you will see an eventual model in which brokers increasingly serve group customers at services fees determined by the customer, and that sales and marketing in individual lines will move to employees of the insurer, supplemented by more disinterested intermediates, such as navigators. This is already happening in some lines such as Medicare Advantage. The move to standardized benefit plans should help.
SiubhanDuinne, liberal mob enforcer bitch
That made me laugh. Thanks!
Villago Delenda Est
The fundamental problem is people need health care, they don’t need insurance.
liberal
Why not pass a law forcing brokers to be fiduciaries? (Not just insurance, but also (say) mortgage brokers.)
liberal
@Xantar: Or, alternatively, we could take people like that, line them up against a wall, and shoot them.
Kolaski
Moar profits for insurance carriers? Hoocoodanode
Monala
Richard, are you seeing or hearing anything about insurance denying claims, not based on the patient’s own pre-existing conditions, but because of family history?
Prescott Cactus
Aluminum, Bronze, Silver, Gold & Titanium. The problem to me lies that a great deal of our populace is unable to make truly informed decisions. Without Medicare, in a senior citizen community, every salesman would be driving a Porsche 911.
It’s bad enough they must get supplemental coverage because it confuses the be-geebers out of them. I will be one of them soon.
How about a standard form 2 pages in length of what’s in and what isn’t? Sub headings of Hospital, Doctors, ER, Ambulance, Prescriptions. Minimums, maximums and total out of pocket each year.
liberal
@Prescott Cactus:
Not picking on the ACA in particular, but who has time for all this crap, even if they’re very smart and a quick study?
I mean, I have a fairly standard homeowner’s insurance policy, and there’s no f*cking way I have time to read that $hit and understand it.
There’s a clear efficiency argument in the government mandating a set of standard, vanilla policies.