A consumer group is warning that “health insurance salespeople” are attempting to “rewrite the health reform law to guarantee broker income at the cost of increasing consumer premiums.”

The nonprofit consumer advocacy group, Consumer Watchdog, said in a statement that legislation backed by lobbyists for insurance brokers would “let” insurance companies pay commissions on individual and small-business policies without counting them as administrative costs under health reform.

“Now the insurance sales lobby is trying to guarantee private brokers’ excessive commissions by law, no matter how much it causes premiums to rise,” said Carmen  Balber, Washington director for Consumer Watchdog, in a statement.

The broker system was “losing relevance” even before the enactment of the federal reform law, according to the group, which has a history of railing against the insurance industry, most recently about health insurance rate increases in California.

“More people purchase insurance online, unaware that they are paying for the broker fee whether they seek help for the purchase or not,” the statement said. “States are increasingly demanding that brokers disclose their fee structures, including financial incentives that favor one insurer over others and appear to constitute a conflict of interest.”

The reference to disclosure of fee structures appears to point toward New York, where regulators are forcing agents and brokers to disclose any compensation they receive, if asked. However, that regulation remains the subject of a civil suit.

“It is not the job of Congress, or of state insurance commissioners, to protect an archaic commission payment system for insurance brokers by decreeing that such payments are magically not administrative costs,” according to the statement.

Members and lobbyists representing the National Association of Health Underwriters (NAHU) and the National Association of Insurance and Financial Advisors (NAIFA) have been lobbying members of Congress, state regulators and the U.S. Department of Health and Human Services, seeking an exemption from the medical loss ratios (MLR) for agent and broker commissions.

The National Association of Insurance Commissioners (NAIC), the national association of state regulators, also is seeking to ensure agents play a role in health reform in the future.

At issue is where agent and broker commissions fall under the Patient Protection and Affordable Care Act (PPACA), the federal health reform law passed in March 2010. The health reform law establishes minimum funding requirements for insurers. The MLRs require insurers to devote 80% of individual and small-group premiums collected, and 85% of large-group premiums taken in to medical costs. The remainder includes all administrative costs and any profit insurers can generate.

With the new MLRs, carriers have seen their administrative budgets shrunk, leading to reductions in agent and broker commissions of up to 50%.

Broker commissions–up to 20% of premium in the first year of a policy and a few percentage points each year after that–have always been considered an “overhead cost,” according to the Consumer Watchdog statement. If the commissions are removed from the cost equation, insurance companies will be “free to ignore the original intent of the law, which was to force insurers to operate more efficiently, spending more on patient care…and less on overhead,” the statement adds.

“The insurance industry succeeded in killing any public alternative to private insurance,” Balber said.

Insurance trade groups did work to ensure that health reform did not include a single-payer or universal health insurance system, which would have made health insurance a federal program.

 

10 Responses

1. Carolyn Goodwin Says:
   March 7th, 2011 at 5:33 pm

   I am an insurance broker in Texas. Not one single carrier pays me anywhere NEAR 20% of premium on individual or small group (my specialties) clients. Excessive? I think not. For the average 5% I receive, it’s my job to provide service after the point of sale, which is how I build lasting relationships and trust among the consumers I serve. Consumer Watchdog has this all wrong. The broker system of distribution is NOT losing relevance, it’s actually gaining. Our clients, the people we serve depend on us to provide answers to the maze that is today’s healthcare reform. We ARE the consumers’ watchdog.

2. Susan Karlson Says:
   March 8th, 2011 at 8:39 am

   I would like to reiterate what Carolyn says. We “rescue” people all the time who tried to buy insurance from the internet and don’t understand what they are getting. There are too many differences between insurance policies to eliminate brokers- Health Insurance commissions do not make brokers rich. They work very hard and make a good living by helping many people (volume) find the best policy and keep the insurance companies’ feet to the fire when it comes to paying claims.

3. David Says:
   March 8th, 2011 at 8:54 am

   Just another another attack on entreprenuers…most health insurance brokers are folks that took a risk to start their own business. We are moving so far left, so quickly, I can’t imagine why anyone would want to start a new business in this country…very sad.

4. Sherry Harris Says:
   March 8th, 2011 at 9:39 am

   I cannot imagine where many of my clients would be today without my help. Not only in making purchasing decisions, but help with claims and updates to their coverage when life changes occur. I also have a rather large +65 book of business and I can assure you they are thankful for the service I provide. From taking time to visit them in their home when they are unable to get out or to just reviewing a letter (and they get a lot) from the Social Securtiy office or insurance company. I don’t believe for a moment there are many other occupations that have the opportunity to impact the lives of it’s clients as much as an Insurance Agent. And while your article has exaggerated the compensation levels what bothers me more is that you seem to think these types of services should not be offered and instead everyone should just fend for themselves. Pretty scarey stuff.

5. John Still Says:
   March 8th, 2011 at 9:52 am

   Brokers are not needed? I submit we are needed now more than ever to help individuals and small business’s sort through the dizzying array of new lingo, confusing options, and interpertation of contractual language foreign to most folks. For 35 years, we have focused our attention on building client trust and strong relationships based on the “value added” benefits of an broker knowledgeable and caring for their personal needs.

   Of course many individuals seek initial information about insurance through multiple distribution channels, including the internet and companies without agents or contacts with brokers. WE compete all the time with direct writers of coverages….albeit, auto, home, etc. People who value our advice and counsel will still seek out competent, creditable, and knowledgable brokers.

   As for compensation, I very rarely have a client complain about what they pay in the way of commissions vs fees, which is what we do more and more now anyway. There is no free lunch in business and brokers must provide the value added or they will not be successful.

   As for the commission being 20%…not happening. Current commissions are shrinking as premiums escalate. Most group carriers pay 4 to 5% commissions. After taxes and expenses, that means an broker may net about 2.5% if they are efficent.

   Clients, big and small, rarely read their insurance contracts, and that applys to home, auto, life, health, etc. They expect their agent or broker to know what they need, supply it, and get the claims paid.

   In this new environment of more standardization, uniformity, and government involvement our services are in demand more than ever. In some respects, comparisons between “bronze, silver, gold, and platinum” plans will be much easer. Of course this new standardization and the PPAA Act of 2010, as amended, is designed to get the camels nose under the tent for a move to a government run program similar to other government run healthcare programs like: Tricare, Medicare, Medicaid, Veterans healthcare, and the federal RX Plan D program.

   Lets see….Social Security’s medicare program is in the red, pensions are underfunded, our national debt is $ 14 trillion, the regulators missed the big ripoffs in the financial services business’s, and we still seem to think our government can do everything for us..better, cheaper, and so on. Not so! Waster, fraud, and abuse reign.

   I am not too worried about brokers being employed at my age, but I do worry about personal service diminishing to the point that carriers continue not hiring and training new agents or brokers and thereby capitulating to the internet sales a product or service that is inferior and the consumer won’t get the real value they are accustomed to and pay for.

   Transperency and accountability are buzz works..like infrastructure and investment by government folks. My clients know I am paid and they know they are paying for it. I have no problem disclosing my fees or commissions…always have. Most folks know it is a cost of doing business.

   What I am most concerned about is taking this business which is 17% of our GNP and giving more contril to Sec. Sibileus of HHS, and a government that can’t even balance its own books, but will tell us what they will provide and when and how…good luck with that.

   John STill

6. Alan Smith Says:
   March 8th, 2011 at 10:55 am

   These watchdogs are usually without all the facts. If you want to see how well the single-payer system is working in Canada, all one needs to do is to check the patients in hospitals in Buffalo, Detroit and Seattle who have fled Canada to survive. If you have a cold, great system. If you have heart disease or Cancer, you wait in line until it’s your turn, provided you survive. And if you’re old and have big problems, make final arrangements. Agents and brokers provide a light on the most confusing industry in America, health care. Why don’t we deal with the 14 million who may not be covered for reasons other than they’re illegal or don’t have health care by choice. While the industry does need attention, it doesn’t need to be scraped for what doesn’t work elsewhere. Why do these people believe that we can do it better? Has the government proven that when they get involved things get better? Let’s check Social Security and see how well it’s doing…

7. Jim Says:
   March 8th, 2011 at 11:00 am

   Ms Balber sits back and gets paid to mock other people earning a living in a somewhat technical field, have their compensation slashed by Obama Care (another hidden tax) and when we speak up about it, we are suppose to sit back down and shut up. I’m sure she is an ardent supporter of the Government Unions foisting their rath on the tax payers. Heck, WI can’t even get a comparison rate for the Union Health Plan because they are required to pay the union directly to run the health plan, for people forced to join the union to have a job. They get a better health care plan than the tax payers paying for it. Since my commissions are now slashed – I won’t hire anybody, I can’t spend what i don’t have, and I guess I’ll just deduct it off my school tax bill. Seems fair to me.

   Ms Balber is here at: http://www.consumerwatchdog.org/about/our-team

8. Brandie Shaw Says:
   March 8th, 2011 at 11:05 am

   I agree as well. I worked for a managed care organization for years and partnered with a great many excellent brokers who took a big administrative burden off of the clients they represented. This Watchdog group makes the commissions sound like some under-the-table deal between MCOs and brokers when of course it is a justifiable fee for services rendered. Not to mention the article states several times that the MCOs pay the brokers which isn’t so. The commission is collected by the MCO and passed through. Lastly, 20% HAH!

9. Frank Says:
   March 8th, 2011 at 3:27 pm

   This logic is so flawed; I don’t know where to begin. First, the independent agent and GA structure exist because it is the most profitable way for insurance companies to market insurance. The insurance industry learned decades ago that it was cheaper to give “producing” agents 15% or 20% than to hire a staff with salary, benefits and the buildings to house them and phone systems and on and on…
   To think that insurance would be less expensive if there were no agent commission is delusional. Most likely by a Liberal Arts major that never ran a business in his life.
   Fast forward; you terminate all independent agent’s contracts and hire the needed staff to sell these products. (See above). The cost is still there. If this would reduce overhead, don’t you think the insurance companies would have done this long ago.
   Also, on the internet sales; that “they pay a broker fee whether they seek help or not.” Do you think those web pages are free? That Google, does not charge for all those hits?

10. Neil Says:
    May 2nd, 2011 at 11:22 pm

    I’m a licensed professional. I’ve taken countless hours of licensing, ongoing training and continuing education. Every day, I help people understand a product that may likely save their life as well as their assets. When I 1st meet new clients, they’re asking “What’s the copay when I go to the Dr.” Really? Is THAT what’s important when buying health insurance? Whether your copay is $20 or $30? I’m trying to keep people out of bankruptcy court. Meanwhile, I’m going bankrupt based on the new commission rates. I’m expected to buy leads, maintain an office, travel to call on clients and service them after the sale for 5% commission? I should have had a career driving a garbage truck, with guaranteed salaries and lifetime pensions. What was I thinking?

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