Area health insurance agents face uncertain future

National health care reform has cut into broker commissions

The Obama administration’s health care reform efforts may provide positive results for millions of Americans. But for many health insurance brokers, particularly independent agents and those working at smaller operations, there are concerns.

Simply put, many brokers are seeing reduced commissions, creating for some the need to move into, say, property or auto insurance — or to leave the insurance sales business altogether.

In the Nashville market, some within the industry are worried.

“On individual health insurance policies, we’ve seen commissions cut up to 50 percent,” said Jeff Zander, president and partner with independent insurance brokerage agency Zander Insurance Group.

As structured, the Patient Protection and Affordable Care Act dictates that — effective Jan. 1, 2011, and driven by what is called the “medical loss ratio provision” — insurers are required to spend 85 percent of large-group and 80 percent of small-group and individual plan premiums on health care or return the difference to customers as rebates.

That leaves only 15 to 20 percent with which insurance companies can cover expenses. According to an online report in Forbes, about 17.4 percent of expenses typically have been reserved to cover office staff. Brokers’ commissions had been about 2 percent, Forbes reported. This leaves little, if any, margin for agencies to see a reasonable return, according to those interviewed for this story. The result is cuts to commissions, they said.

Local officials point to a Christian Science Monitor piece reporting that a November 2011 survey taken by the National Association of Insurance and Financial Advisors revealed that 80 percent of health insurance agents experienced commission decreases (including 52 percent whose companies cut commissions by 25 percent or more) since the health care law went into effect in early 2011. 

A year later, the impact continues.

Jim Walker, president of Brentwood-based Individual Health Care Specialists, employed 14 brokers before the medical loss ratio provision of PPACA took effect. Now he has six.

“The act had great intentions, but it has devastated the market,” Walker said. “For the most part, the insurance companies feel like the distribution of their product has taken a different form. [The industry has] had to slash commissions and do away with a lot of services.”

Zander (pictured above) said the industry must cope with what is essentially government-instituted price fixing.

“When the health insurance company has a good year, it has to return the profits,” he said.

To be fair, Zander said, large agencies that offer a comprehensive array of products “should be fine.” In contrast, those that specialize in employee health insurance “could be severely challenged.”

“People will merge their businesses, lay off employees or go out of business because of the change in compensation format,” he said.

At the end of 2011, the National Association of Insurance Commissioners approved a resolution urging Congress to remove health insurance agents’ compensation from the PPACA’s medical loss ratio provision. However, the Obama administration rejected the recommendation.

Bob Levy, president and CEO of Nashville-based Paradigm Group (an employee benefits, retirement services and human resources consulting provider) said the medical loss ratio provision is a challenge for those brokerage firms that can’t demonstrate the value they bring to the relationships with their customers.

“The main issue the industry is concerned about is that commissions are included in the 15 to 20 percent administrative component,” Levy said. “Clearly, commissions in some sections of group medical insurance have been reduced,” he added. “If you’re a [health] insurance broker that focuses attention on the small-group marketplace, it could have an impact on your revenue line.”

Chuck Bidek, chief executive officer of Insurors of Tennessee (a trade association for independent agents), said agents who have lost what is often a minimum of 20 percent in income are looking at changes.

“Anecdotally, I’d had a lot of life and health agents calling this office to see how they can get into the property and casualty side of the business,” he said.

Bidek said PPACA has forced companies to review their expenses.

“That may be a good thing [in some respects], but the fastest way to reduce expenses is to reduce compensation,” he said.

Uncertainties aside, Bidek said a practical approach to the situation is being taken.

“As an industry, we have to plan to go forward with the current law,” he said. “Certainly, the state association and I are not in support of the bill. We went to Washington three times last year. But we have to follow the law. We’ve been working with the Tennessee Department of Commerce and Insurance, the Tennessee Department of Finance and Administration and the state legislature.”

And that work will continue in earnest.

With government-regulated health insurance exchanges (essentially insurance plans with tiers of coverage offered to individuals without health care or to small companies) to take effect by Jan. 1, 2014, Bidek said Insurors of Tennessee will work with the state to “make sure agents are approved to sell for the exchanges and what type training they must undergo to participate. All this has to be done in time for ‘kickoff’ [of the exchanges].”

PPACA has spurred 38 states to sue the federal government, with the U.S. Supreme Court to hear the case. A court decision is expected before the November presidential election.

“This will be a monumental court ruling regardless of the outcome,” Bidek said. “The court is not going to be a flat up or down. It may declare parts of [PPACA] unconstitutional. Nobody knows. Everybody has conjecture.”