Affordable Care Act’s Effect on Broker Commissions
Michael Lujan, past president of the California Association of Health Underwriters (CAHU), estimates agent commissions in the individual market have dropped by 60% to 70% in the last 3 years. Nationwide, several major health insurers have reduced or eliminated agent commissions. Leaders in the industry have traced the steady decline in commissions to the 80% rule in the ACA, also called the medical-loss ratio. This rule requires insurance companies to spend 80% or more of their revenue from insurance premiums on medical care, leaving 20% or less to go towards administrative costs. It protects patients by making insurance carriers accountable to control administrative costs and spend more on medical care. If insurance carriers do not meet the 80% rule, they must now issue rebates to policy holders. That’s good for policy holders but not for brokers. Unfortunately, agent and broker commissions are counted as administrative costs. As a result, insurance carriers are cutting broker compensation to help their administrative costs stay under 20%.
The ACA has also created more confusion and more bureaucracy As a result,the public has turned to rely more heavily on health insurance agents for support. Agents are now required to know more than insurance to get their clients covered. They have to understand the rules and laws of the ACA and Marketplaces, and often times they have to deal with government entities that administer programs such as Medicaid. Problems arise on Marketplace plans, and policy holders need agents’ help to resolve issues. This extra support adds up to a lot more time that is required from brokers to service their clients which means an agent’s compensation is consequentially decreased even more.
If agent compensation continues to drop, it is likely that more and more agents will stop doing business in the individual and family market. Already there has been an increase in the number of professionals leaving this field. According to the 2014 Aflac WorkForces Report for Brokers, 49% of brokers who were surveyed “at least somewhat agree they are considering exiting their industry altogether,” and 67% “at least somewhat agree that many of their peers have left the business in the past year.”
When you take into consideration how much more health insurance agents are needed by the public due to the changes of Healthcare Reform, it is a detriment for both agents and the public for broker compensation to languish. Currently, organizations like CAHU are focusing their aim at compensation to increase for brokers in California. On a national level, Bills H.R. 2328, H.R. 815, and S.1661 have been introduced in congress to remove broker payments from an insurance carrier’s administrative costs when calculating the medical-loss ratio. But the legislation process is slow.