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The DMHC Acknowledges Issues with California Broker Commissions

by John Hansen

Mary Watanabe, Deputy Director of the Department of Managed Health Care, spoke to a room full of California health insurance brokers on May 18. At the beginning of her talk, she said, “Remind me to talk about broker commissions if I forget.” Someone from the crowd called out, “Don’t worry. We will.” To which people responded with laughter.

Watanabe pointed out that the issue of commissions for agents of health insurance in California has been on the radar of the DMHC for a couple months. There are a few issues that are of concern.

Carriers Changing Commissions Based on Plan Tier

Some carriers have been varying commission rates based on metallic tier. They’ve paid lower commission rates for the Bronze tier and the high deductible health plans. Likely, carriers figured that since they were making less on these lower cost plans they would lower commissions. See Covered California Plans for a breakdown of benefits by metallic tier.

Health Plans Not Paying Commissions Outside of Open Enrollment

Also, some carriers have said they won’t pay commissions outside of Open Enrollment during the Special Enrollment Period (SEP). California health insurance plans have been concerned about the danger of adverse selection during SEP. They have found there to be a 40% increase in utilization for those who enroll after the Open Enrollment Period is over. Carriers figure since they are taking on greater risk during SEP, they don’t want to encourage insurance agents to sell their plans during that time, so they would just not pay commissions during SEP.

DMHC, Covered California and the DOL All Fighting for Agent Commissions

Mary Watanabe said that these discriminatory commission practices are a violation of the Knox Keene Act and a violation of the health plan contract with Covered California. The Department of Managed Health Care represented by Mary Watanabe, Covered California represented by Peter Lee, and the California Department of Insurance represented by Insurance Commissioner Dave Jones have all committed to crack down on these discriminatory policies.

This may be the first time that all three agencies have worked together to fight for agent commissions. The California Association of Health Underwriters (CAHU) and California insurance agents are hopeful that this is a good sign.

With the health care industry paying lower and lower commissions, perhaps at some point in the near future these organizations will work toward helping commissions to be high enough for agents to maintain their livelihood.

Watanabe said these issues bring up “questions about how low they can go. Is 0 acceptable?” She committed that the Department of Managed Health Care will survey plans about commissions. They will take a closer look. She closed by saying, “We are interested in what you’re experiencing.”