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Calif. exchange to pay "competitive" commissions

By Allison Bell

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The Small Business Health Options Program (SHOP) exchange in California wants to pay health insurance agents commissions comparable to the commissions individual commercial health plans in the state are paying.

Michael Lujan, director of the SHOP division at California’s “Covered California” exchange program, talked about Covered California compensation policies recently during an agent webinar.

The old Health Insurance Plan of California (HIPC), a failed state-based exchange that California started in 1993, charged customers higher rates when they worked with agents, and that approach might have contributed to the HIPC’s lack of success, Lujan recalled.

“We have absolutely nothing like that approach on our minds,” Lujan said.

Health insurers that sell individual policies through Covered California will negotiat

e commission rates directly with producers and pay commissions directly to products, just as they do today, Lujan said. 

The Covered California board decided in the summer neither to try to prop up individual commission rates nor push insurers to cut the commission rates, Lujan said.

If commission rates change when the exchange programs come online, “that’s something that might be a market factor that happens on its own,” Lujan said. “If you want to know what commissions will be, you might want to ask the carriers if they have any plans to change agent commissions.”

In the SHOP exchange, which will serve employers with fewer than 50 employees, Covered California will take over payment of exchanges, because it wants to encourage producers to offer employers multi-carrier coverage menus.

To free the producers from the need to worry about six or seven separate commission payments, the exchange will take over the job of paying the “market-competitive” commissions, Lujan said.

“What does ‘market-competitive’ mean?” Lujan asked. 

Today, he said, the typical carrier pays small-group commission rates that amount to similar percentages of small-group premium revenue.

“If the market stays more or less the same as it is today, so will we,” Lujan said. “If conditions change, we’ll be competitive with that.”

Covered California will not use general agencies in the individual market, but expects to form relationships with several general agencies in the small-group market by July, Lujan said.

The Patient Protection and Affordable Care Act of 2010 (PPACA) requires the U.S. Department of Health and Human Services (HHS) and states to offer exchanges, or Web-based health insurance supermarkets, to individuals and small groups in all states and the District of Columbia by Oct. 1.

California has decided to run its own individual and SHOP exchange programs.

Covered California hired Lujan, a former Blue Shield of California small-group sales director, to run the SHOP division in June 2012.

While at California Blue Shield, Lujan wrote an article for Agent’s Sales Journal, one of the publications that has participated in the LifeHealthPro.com website, on how producers can retain benefits clients.

During the webinar, Lujan noted that the exchange program has some quirks, such as a state law prohibiting anyone other than the exchange itself from pretending to be the exchange.

“You can call yourself an exchange-certified agent,” Lujan said. “I highly suggested that you don’t secure domain name that says, ‘I am the CoveredCaliforniaExchange.com.’”

Lujan also said that, in some cases, he feels obligated by state law to discuss exchange program rules that producers have been following in other contexts.

In most cases, for example, exchange producers will have to market all plans available through the exchange without regard to the commissions a specifc plan pays, Lujan said.

Some agents seem to be irked at Lujan for stating the obvious, he said.

“We don’t mean to insult you,” Lujan said.

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