Mapping the PPACA world for agents and brokers

The outlines of the new “exchanges,” or Web-based health insurance supermarkets, seem to be emerging from the fog of legislation and regulation that has blanketed the U.S. benefits community over the past three years.

The Center for Consumer Information and Insurance Oversight (CCIIO) — the agency setting up the “federally facilitated exchanges” (FFEs) — says it hopes 250,000 producers will register to sell FFE plans.

The Minnesota Health Insurance Exchange hired a marketing agency to study the “need states” that might keep producers from working with the health insurance exchanges, aka “the HIX.”

The managers of Covered California have hired Michael Lujan, a longtime health insurance sales veteran who has written a trade journal article on “how to retain benefits clients,” to woo brokers for their Small Business Health Options Program (SHOP) small-group exchange division.

What do the producers think?

Scott Leavitt, a Boise, Idaho, producer who has been president of the National Association of Health Underwriters (NAHU), said he has seen 25 percent of the health insurance producers in his area pull back from the market because of concerns about the Patient Protection and Affordable Care Act (PPACA).

“We’re very scared about what’s going to be coming,” Leavitt said.

Jason Beyrouty, a benefits advisor in the Salem, Ore., office of AKT L.L.P., said the exchange managers in Ore. have been nice to producers. He expects them to continue to be nice to producers — until the flood of applications that comes in during the first exchange open-enrollment period passes.

After that?

“The brokers have a fair amount of fear,” Beyrouty said.

Members of Congress drafted PPACA because the United States is spending more than twice as much on health care as the typical Western European country, getting less access to care for its residents, and ending up with shorter, fatter people who die at a younger age.

PPACA is a huge law with many components. For brokers, one source of PPACA angst is the minimum medical loss ratio (MLR) provision.

Since January 1, 2011, the minimum MLR provision has required insurers to spend at least 85 percent of large-group revenue and 80 percent of individual and small-group revenue on health care or quality improvement efforts.

NAHU and the National Association of Insurance Financial Advisors (NAIFA) contend that customers are the ones who really pay broker commissions and that insurers simply collect the commissions as a convenience to the customers. The producer groups have been lobbying to get Congress to exclude producer compensation from the MLR calculations. Today, producer compensation is still part of MLR calculations, and producers think its driving cuts.

Another PPACA provision that worries brokers, the exchange provision, could start having a direct effect on brokers’ lives October 1, when PPACA requires the exchanges, or Web-based health insurance supermarkets, to start selling individual and small-group coverage.

Tension between insurers and their intermediaries first boiled over in California, in 1993, when an ancestor of the health insurance exchange, the Health Insurance Purchasing Cooperative (HIPC), gave employers that came to it directly a no-broker discount. The HIPC was a miserable failure until 1997, when it eliminated the no-broker discount and became a famous example of why insurance exchanges need brokers.

See also: PPACA: A history

The builders of the Massachusetts small-group exchange — who were operating in a state with a successful individual exchange program — laughed off the Tale of the Failed HIPC. In 2009, they offered brokers a small-group commission rate of just 2.5 percent of premiums. Commercial insurers were paying commissions of about 3.5 to 4.5 percent of premiums.

Mark Hall, a Wake Forest University law professor who analyzed the program, said managers also used a website that required a broker to enter a huge amount of information just to get a quote; it would then freeze up before it provided the quote.

In February 2010, managers responded to wretched sales by freezing enrollment.

In 2012, when Hall was doing his research, “Connector officials were [still] starting broker training sessions with an apology about past ‘mistakes.’”

The exchange managers are hazy about just how the producer community looks today. FFE officials have suggested in a regulatory filing that there might be about 700,000 active U.S. health insurance producers.

A unit of UnitedHealth Group Inc. says in a producer comp discussion on its website that typical base commissions for employer groups with 50 or fewer employees run from 4 percent to 7 percent of premium.

Consultants at Milliman, an actuarial firm, said a large health insurer in California has said that it’s paying commission rates of 8 percent to 12 percent for new individual policy sales and 4 percent to 6 percent of premiums for individual policy renewals.

“Other sources of anecdotal information suggest commissions may be even less than these data points,” the consultants said.

One possible problem: The exchange runners might have inaccurate information about commission rates. In California, the Milliman consultants said, the exchange managers think brokers are getting commission rates of 13 percent to 15 percent for individual policies.

Perry Braun, executive director of the Benefit Advisors Network (BAN), a national benefits firm consortium, said carriers have cut producer comp for some types of business in some markets in half by replacing premium-based commissions with fixed “per member, per month” fees.

Because of the weak economy and the compensation cuts, 21 percent of NAIFA members in the health insurance market have downsized their businesses, according to NAIFA President Robert Smith.

W. Michael Mann of Eustis Benefits, a Metairie, La.,-based benefits consultant, said the typical compensation drop in his area has been only about 10 percent to 15 percent. He has not noticed a mass exodus of health producers. But he has noticed that he is now getting two or three calls per month from agencies that would like to be acquired.

Uncharted seas

In the future, the exchanges might shape producer compensation.

PPACA gives a state the option of setting up an exchange for its residents or letting the U.S. Department of Health and Human Services (HHS) have CCIIO set up an FFE.

PPACA requires exchanges to offer consumers access to “navigators,” or ombudsmen who are not paid by the health insurers. HHS has said that exchanges will also need “in-person assisters” and possibly other types of registered intermediaries.

B. Hyatt Erstad, a Boise benefits specialist who has been active in NAIFA, said federal regulators seem to be saying reasonable things about how the FFEs might work with producers. “We just haven’t seen anything in writing.”

The FFEs and most state-based exchanges are leaning toward having the exchange insurers pay commissions directly to the producers.

CCIIO officials said commissions for similar products must be similar inside and outside an FFE, but they have not said anything about how high commissions must be.