HHS proposes broker compensation rules for health insurance exchanges

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The Department of Health and Human Services recently released a proposed rule that, if approved, would require carriers to pay brokers the same compensation for plans sold through a federally facilitated state exchange, or a similar plan outside the exchange.

Online health insurance exchanges are required under the Patient Protection and Affordability Care Act (PPACA).

According to the proposal, HHS would certify a health plan as “qualified” to operate in a federally backed state exchange only if broker compensation for that plan is “similar” to compensation offered for “similar health plans” offered outside the exchange.

The compensation would apply to individual plans or plans sold through the exchanges’ Small Business Health Options Program (SHOP).

The proposal does not define “similar health plans,” but instead requests comments on whether the term is specific enough or too vague. (Read/download the proposal here: HHS Proposal)

Robert O. Smith

The National Association of Insurance and Financial Advisors (NAIFA) applauded the proposal.

“Brokers provide myriad services, from analyzing clients’ coverage needs to helping individuals get claims approved to providing wellness programs for small businesses,” said Rob Smith, NAIFA president, as quoted on NAIFA’s website blog.

“Agents and brokers are the de facto human resources departments for many small companies,” he said. “These are services that no one else provides and that brokers cannot continue to provide if they are not fairly compensated.”

The NAIFA blog noted the negative impact medical-loss-ratio provisions have on compensation and the overall cost of health care.

A group of 10 senators, led by Orrin Hatch (R-Utah), sent a letter to the secretaries of Treasury, HHS and Labor seeking an extension of a 30-day comment period on the rule proposal, and two other rule proposals, to provide additional review and input. (Read the story, link to rules proposals here.)

PPACA requires states to have online exchanges by January 2014. Those that opt to not run an exchange will default to federally facilitated exchanges.

PPACA’s medical-loss-ratio (MLR) provisions require insurers spend at least 80% of individual and small-group, and 85% of large-group premiums on medical expenses. The remainder is spent on administrative costs, including commissions.

Since the MLR provision went into effect in 2011, carriers have slashed commissions, some by as much as 50%

HHS plans to charge a user fee of 3.5% of premiums on insurers that seek to sell plans in states that default to federal assistance.

20 Responses

  1. vince phillips Says:

    In a news report of this importance may I suggest a link to the HHS proposal? Thanks.

  2. David Krueger, CLU Says:

    That is encouraging news to us agents that have been working with small business and individuals for decades. It’s nice to think the federal government thinks about agents being paid a commission for “services that no one else provides”. I was expecting the ACLU to enroll everyone. Are we starting to see some sanity in the federal government?

  3. Gail Hiller-Lee Says:

    If the HHS feels there is a value and cost of Federally functioning Exchanges to charge 3.5%, that should also be the compensation to Brokers inside and outside of the Exchanges that are State run.
    When the MLR is a factor in State run Exchanges and NOT a factor in the Federally functioning Exchange cost of doing business, there is a disconnect in what the Fed’s feel they need to charge and what the Brokers cost is bundled into.
    A carrier will find it hard to function when the EHB’s drive up costs – something will have to give and of course it is always Broker compensation, ie: Empire BC, Oxford’s recent cut, etc.
    If the HHS wants to drive Brokers out of existence and still “recommend” that the public consult with Brokers, they are sending a mixed message. You can “recommend” in good faith, but the HHS understands the cost to the carrier. A good publicist advises words carefully chosen, but the intention and final outcome is known from the inception.

  4. vince phillips Says:

    Sanity? Interesting word re federally-facilitated exchanges. I’d feel more comfortable re receptivity to brokers if HHS and OPM were to begin using brokers for the Federal Employees Health Benefits Plan or the new national health insurance plans under PPACA coming out of OPM.

  5. Gary Slavin Says:

    There will be no similar plans outside the exchange because the federal. Credits are only available if a policy is purchased inside the exchange. Will you sell and service for .05% of the premium? On a premium of $22,000 that’s $ 110 per year ; what is your break even point . Secondly the only policies sold outside the e exchange will be castrophic or hospital only coverage which hopefully will not be subject to mlr or Obamacare

  6. Mike Crum Says:

    Finally they are getting something right. The Feds already compensate us
    brokers that sell Flood Insurance through FEMA. The companies that participate in the workcomp pool also compensate agents for their service.
    Our services are much less expensive than for the Feds to hire and train
    someone who really does not care about the individuals they are helping.
    An example the last couple of days I have taken calls from Medicare clients and health insurance clients about coverage and claim problems. This is something that we do daily to help our clients. We would do the same for clients through the exchanges.

  7. David Varisco Says:

    First of all, don’t let them fool you. The federal government is only trying to protect themselves against agents selling outside of the exchanges.

  8. Rick Gary Says:

    I would like to see more details. this almost sounds sane in BHO twlight zone so there has to be a catch some where.

  9. R Allan Jensen Says:

    I suspect that we will see:: (1) another wave of commission reductions, perhaps to PMPM; and (2) an eventual stipulation by HHS of maximum commission levels, as they did with Medicare Advantage and Part D sales.

    Another element that is just beginning to dawn on brokers is the apparent decision to unify and limit open enrollment to the same period each year — the first year will be from 10/1/2013 — 3/31/2014, and thereafter to the same period as Medicare’s Annual Election Period (10/15 – 12/7). For those brokers with business in both sectors, and along with their 4th quarter group renewal, this is going to be an incredibly difficult period.

  10. Ross Schriftman Says:

    Let’s not get ahead of ourself. Same compensation could mean something like $28 per year like they pay on the Medicare Part D drug plans. Then even if you are the very best agent for your clients you would have to close your doors and go out of business.

  11. David Noel Says:

    I will reserve my excitement until after we hear what carrier compensation will actually be. It doesn’t matter if compensation is the same inside and outside of the Exchange if carriers are paying 1% commission for both.

  12. William Kohn Says:

    My concern is that the 3.5% haircut the government is taxing on the use of the exchange will be another 3.5% haircut the brokers will need to be taking on sales outside of the exchange. I also can’t believe that they are setting on period from Oct – December each year that will force brokers into a very difficult role of learning new plans each year for the personal and medicare environment at the same time and service all the potential clients. Very foolish in my estimation.

  13. Scott Mayer Says:

    I echo David’s sentiments. Uniform commissions sound great on the surface, but if they are miniscule, then you may end up singing a different tune.

  14. Mike Says:

    With broker compensation no longer an incentive to compete with exchanges, the small (37) employers.

  15. Bob Chiesa Says:

    This could be the light the agent community was so hoping for to sustain us.

  16. Kevin J. Says:

    There is a link in the article above with the full HHS proposal; executive summary on page 9 of 373… (5th PP from bottom)

  17. Alex Poulter Says:

    I do not concur that there is anything “good” out of this proposal worth applauding. This proposal does not technically pertain to the 30 states who have rejected a state based exchange. Furthermore, Oklahoma is now leading the charge against Obamacare in a new lawsuit that has been joined by Texas and a handful of other states. Oklahoma contends that the IRS has no authority to fine any employer for non-compliance because the legislation was specific to state based exchanges. The only way the IRS can fine an employer is if Congress amends ObamaCare to include federal exchanges. This lawsuit appears to have more teeth than the one brought on by Florida pertaining to individual mandates. For those of us selling insurance in these 30 states, it appears to be sliver of light in a dark cloud….

  18. Anonymous Says:

    Brokers should not be paid commissions on health care premiums, period. The government should mandate carriers to have representatives to be advocates for the customer, so that the carrier can work directly with the customer with out a middle man reaping commissions. I personally prefer working directly with the carrier when I have any problems with claims, premiums, understanding my benefits. If the government mandates all carriers to hold high ethics and value in presenting their product, (which they all do all ready) the consumer can certainly cost compare each carrier and concur who they will enroll their business. It’s not rocket science. We need 5% off our premiums, not 5% added so that brokers can live easy. Please end this free ride. Think about it, I pay $40k per month for my employee’s coverage; my broker gets $2000 a month on that. He has over 100 health insurance clients. You do the math. Let’s just say (and this is a conservative figure) my broker gets paid $300 per month for 100 clients, that’s $30k per month times 12! I’m a physician and don’t make $360k per year, and the broker also has other business with us, not just health insurance. Please, like we don’t know any better. I’m hoping to deal directly with my carrier one day. I always get the answers I need when I go directly to the source.

  19. Scott Mayer Says:

    Anonymous…

    I understand your sentiments, but I would argue that you probably have a poor broker. As a physician, you have to worry about running your practice, your employees, ever decreasing reimbursements, new legislation, etc. Your own benefits are probably pretty far down the list. If your view of a broker is simply someone who spreadsheets plans from carriers and answers a few questions each year, then you are indeed not getting the value you seek and your broker is NOT worth the roughly $35k they make annually on your entire benefits portfolio. I would submit the vast amount of my clients would say I am well worth what I make (either in commissions, or in flat fees charged directly to my client). The difference is that as their broker, I am also an expert on ERISA, PPACA, Section 125, 105, 79, 129, etc. I consult on risk management, run analytics and modeling on utilization and consumption. I make value based plan design recommendations and work on comprehensive wellness and cost containment strategies. I would encourage you not to let your narrow broker experience formulate your opinion of an entire industry, just as if I saw a sub-par physician, I would not let that form a negative opinion for me of the medical practitioner community.

  20. Brad Says:

    Anonymous – Let’s see you work 80 hours a week without compensation.
    Let’s see the Federal Government or the Insurance carriers stay up late at night talking to a client on the phone because their kid hurt themselves or died and needs your opinion on how best to deal with the insurance company.
    Independent agents look out for the client far more than the government ever would. Our screwed up economic situation is proof of that.

    Are you under the bluderous assumption that part of your health care premium is higher because of Broker/agent commissions? That is absurd. Insurance is getting more expensive because of fraud and because of the government sticking it’s nose into the industry.

    It’s also getting more expensive due to the fraudulent litigation against doctor’s. Doctors have more overhead so they raise the rates. If insurance companies have to pay more so do patients in their premiums – It’s an old fashioned concept around for eons called shared risk.

    And again I say – why don’t you work 80 hours a week helping people for free and figure out how you’re going to provide for your family and then come back and talk to me about working without commission.

    The commissions paid out on health care over the last 5 years are about as abysmal as what travel agents make from airlines.

    Most agents don’t even make any money on health insurance as it’s a losing proposition. They make money off supplemental policies brought about because of higher and higher deductibles.

    You speak out of ignorance, that much is obvious.

    Your insurance broker works dam* hard to make that money.
    No one bemoans the money you doctors make, you doctors get more and more greedy every year. You provide a service the same as an insurance agent.

    Wny don’t we just make all doctors provide their services to hospitals and cut out the paycheck for the doctor and just pay the hospital. Probably don’t like that assanine idea too much do you?

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