Insurance brokers seek protection as health-care law squeezes payments to them
By Jordan Rau and Julie Appleby,
Insurance brokers, worried that their livelihoods are in jeopardy from the health law, are pressing Congress and state legislatures to safeguard agent commissions and guarantee them a role in new online marketplaces where people will shop for coverage.
The efforts are spawning political clashes between consumer advocates and brokers as well as a debate about whether the proposed broker protections would help people save money or increase premiums.
“Obviously, the brokers are nervous, and this is a time of dramatic change,” said Sabrina Corlette, a research professor at Georgetown University’s Health Policy Institute who is critical of the brokers’ efforts. “They’re doing everything they can to survive and evolve.”
Brokers warn that alienating them could undermine the success of insurance exchanges, the online marketplaces that will allow people to compare plans’ prices and benefits. Beginning in 2014, small businesses and individuals will be able to use the exchanges to buy policies.
In some state legislatures, broker-backed bills would give agents seats on the exchange board, which will set the operating rules. In Iowa, a bill that’s getting national attention would require the use of a broker when buying policies through the exchange and guarantee the broker a commission of at least 5 percent. A bill pending before Minnesota lawmakers would require that anyone selling, negotiating or soliciting insurance for a health plan be licensed by the state.
Other places are moving in the opposite direction. Maryland and the District of Columbia, for example, are weighing bills that would bar brokers from decision-making positions. Many states, including Virginia, haven’t set rules on brokers yet.
On the national level, the brokers’ lobby and a task force of the National Association of Insurance Commissioners are preparing legislation for Congress that would exempt broker commissions from new rules that require insurers to spend at least 80 percent of the money they collect in premiums on medical care. Only 20 percent may go toward administrative costs and profits.
Insurers who fail to meet the 80 percent requirement must, under the law, give consumers rebates. Brokers say the rule is prompting insurers to cut commissions to reduce administrative costs.
Gary Cox, a broker in Sterling, said insurers have been cutting commissions by 25 to 50 percent because of the new rule. “We’ve seen disruption here in Virginia, and Lord knows elsewhere as well,” he said. “We haven’t really seen people say goodbye yet, but I would imagine there’s going to be a significant percentage of brokers or agents who are going to say, ‘I’m not going to play in that game anymore.’ ”
Ethan Rome, executive director of the liberal group Health Care for America Now, said the federal legislation being drafted by the NAIC would “allow insurance companies to spend less on actual health care and more on administration, profits and CEO salaries. That means consumers will get a raw deal.”
There are more than 434,000 insurance agents in the United States, according to the federal Bureau of Labor Statistics; most sell health insurance. The median annual income for a broker in 2008 was $45,430. Commissions generally run between 3 and 10 percent of premiums, according to the National Association of Health Underwriters.
Timothy Jost, a professor at Washington and Lee University School of Law and a consumer representative to the NAIC, said most people won’t need brokers because buying policies on the exchange will be simple. “Frankly, I don’t think that there’s going to be quite as much to do as there is now,” he said.
In Congress, Rep. Mike Rogers (R-Mich.) has said he plans to introduce legislation along the lines of what the brokers want, but health law supporters are gearing up for a fight. “I think it’s safe to say that there will be a vigorous debate in Congress on this,” said Vincent Morris, a spokesman for Sen. John D. Rockefeller IV (D-W.Va.).
In a letter to the NAIC, Rockefeller on Tuesday expressed his disappointment that the group was reopening debate on the issue “on behalf of just one of the many interest groups not completely satisfied” with the minimum spending rules. He said he would oppose any such legislation that “would protect the income of health insurance agents and brokers, but at the expense of millions of American consumers and businesses.”
Brokers are often powerful voices in states — which license them — and have allies among many insurance commissioners.
“The majority of commissioners do believe the agent role is just so important in purchasing health insurance,” said Mary Beth Senkewicz, the deputy commissioner in the Florida Office of Insurance Regulation. “The agents, they’re little mini-HR departments. The agent actually goes out, shops the plan and looks at the demographics of the group.”
Brokers’ representatives say that buying health coverage is complicated — that individuals and small businesses need professional guidance to select the best policies and exchanges need brokers’ help in setting up their rules.
Jesse A. Patton, a broker and president of the Iowa Retail Federation, warned that if brokers don’t have a financial incentive to bring people into the exchanges, they might steer people to policies sold elsewhere.
“For the states that have the agents as a foe, that’s going to put real pressure on the exchange,” Patton said. Without brokers, “the exchange is going to have a really tough time of surviving.”
This article was produced through a collaboration between The Washington Post and Kaiser Health News. KHN, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health-care-policy organization that is not affiliated with Kaiser Permanente.