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What should commissions be for health insurance agents?

by John Hansen

Dropping Commissions, Fewer Agents and the Question of Appropriate Commission Levels

Since the implementation of the Affordable Care Act (ACA) commissions for health insurance agents have drastically decreased. This has caused many brokers to rethink whether or not they want to stay in the industry.

Michael Lujan, the current President of CAHU, says that by 2018 they are expecting that the amount of agents in the California market will drop by 25%. This is an alarming trend in an industry where consumers are desperately needing the assistance of knowledgeable professionals.

May 17, California Insurance Commissioner Dave Jones commented that insurance agents did the “lion share” of enrollments for Covered California. Mary Watanabe, Deputy Director of the Department of Managed Health Care, argued that agents are critical for consumers and promised the support of her organization in helping agents solve customer disputes with California health insurance plans and providers.

How about 8-10% commissions?

Lujan says he feels personally that agent commissions for individual as well as for California group health insurance sales should be around 8-10%. Currently, for small group health plans agents are receiving around 5-6% commissions, and for individual sales they are receiving even less. Kaiser Permanente, who pays some of the lowest commissions in the market pays only a one-time fee of $100 and $50 per year for renewals.

Maybe PMPM Commissions Are Better

Don Cooper, health insurance agent and President of Triflex, argues that commissions should be paid on a Per Member Per Month (PMPM) basis, so that there is no incentive for agents to steer clients toward more expensive plans. When agents are paid a percentage, they make more money when they sell the richer plans.

A 5% commission on platinum plan is a whole lot more money than 5% commission on a Bronze Plan. With PMPM the agent makes a set dollar amount like $18 per member each month. This removes the conflict of interest and rewards the agent based on the amount of sales rather than based on the amount of premium being paid by clients.