According to the Congressional Budget Office, health care reform will expand health insurance coverage to 32 million Americans. While the tax credits and premium subsidies offered as part of the law will increase the health insurance market overall, only a small portion of this increase, if any, is expected to go to benefit brokers. With health insurance exchanges, or HIEs, coming online in 2014, brokers selling health insurance are wondering how their businesses will be affected. While it's unlikely that brokers will be eliminated from the market, the broker's role in selling to individuals and small groups may decrease significantly.
Exchanges will allow customers to research their insurance options online. As consumers become more educated about health insurance alternatives, brokers must be better prepared to discuss and debate options. Educated consumers will be more inquisitive, and researching answers to these questions will require more of a broker's time.
In addition, exchanges may lead to greater transparency regarding commissions. In turn, clients may be more apt to negotiate commissions or to turn to the exchange as an alternative.
This confluence may drive smaller brokers out of business or cause an increase in merger and acquisition activity. Large brokers are expected to consolidate their positions in the market by taking over smaller firms - potentially at heavily discounted prices. Moving from representing smaller groups to larger groups may be the way of the future for some.
Brokers in Massachusetts and Utah, the two states with exchanges already in place, are feeling the changes now. Massachusetts' health insurance exchange, the HealthConnector, was established in 2006; Utah's exchange, the Utah Health Exchange, or UHE, was established in 2009. These exchanges allow individuals and small groups of two to 50 individuals to purchase health insurance online.
The good news for brokers in Utah is that the UHE was designed to rely on them. According to state House Speaker David Clark (R), "Our core target consumer is the employer group, and those groups will continue to rely heavily on brokers not only for product distribution, but for help complying with numerous federal and state laws related to employer-based health plans." Since health insurance contracts are complex, Clark does "not envision a state-run sales operation as part of [the] exchange, so brokers are very important to its success."
Carol Chandor, CEO of Boston Benefit Partners, LLC, is an broker for large employers in Massachusetts. The HealthConnector has not yet affected Chandor's business because it is not available to her customers. When the HealthConnector came online, Chandor notes that there were more insurance options, which is confusing for consumers. Chandor believes that over time, however, consumers will become more educated and will understand their health insurance options better. This could present an opportunity for brokers to gain new clients in the individual market as consumers seek advice.
"I'm in favor of exchanges for individuals," says Chandor, "because there needs to be a place where individuals, especially those with pre-existing conditions, can get coverage. When the HealthConnector was established, it opened a market where insurers started working directly with people."
Anthony DeSimone, owner of AFDeSimone Insurance in Massachusetts, doesn't believe the HealthConnector will be successful in providing health insurance for small groups. "Health insurance is more complicated than it was 15 years ago," explains DeSimone, "and small groups still rely on my advice."
DeSimone's experience in Massachusetts illustrates what is expected to happen nationwide. As HIEs gain ground, benefit consulting is expected to increase in importance. With their core business - providing access to insurance - taking a significant hit, brokers are expected to evolve and develop their capabilities to take on a more consultative role. Most small business owners are experts in their industry, not health care, and they are turning to their brokers to explain regulatory changes affecting their coverage.
Joe Rolando, an insurance agent at Price Insurance Agency in Utah, says he spends more time than ever explaining changes in health coverage to his customers and has taken on an advisory or HR-oriented role for his customers - often uncompensated work, but it furthers the client relationship. He has also seen changes in his customers as they have started looking for health insurance information online. This information, coupled with customers' lack of knowledge, can lead to poor health insurance decisions. For example, "Customers want to enroll in a high-deductible plan because they're less expensive without realizing how much they'll have to cover in medical expenses if they get sick," says Rolando.
DeSimone is also seeing changes in the commission structures as insurers come under pressure to cut administrative costs. For DeSimone's largest customer, the carrier is trying "to avoid paying commissions" and wants to pay a consulting fee instead. According to DeSimone, compensation in Massachusetts was based on a percent of premium, not on a per capita basis. Now some insurers are only compensating him $10 to $15 per employee, per month.
Those with fewer than 10 employees may prefer to purchase insurance through exchanges. Some small employers may even give employees a stipend to purchase insurance in the individual market. To assist with the administrative complexities associated with insuring employees, larger employers are more likely to retain a broker. However, they may pay lower commissions or flat fees.
To remain competitive when the exchanges roll out, brokers for small groups should utilize their domain expertise to help small businesses purchase insurance that matches their needs. For example, through the Connecticut Business & Industry Association, a platform has been established to insure small groups of two to 50 individuals. Since its implementation, small groups can more easily compare plans and price competitors.
But with greater choice comes more questions. Valerie Koch, Vice President at Ganim Group in Connecticut, finds that she has been spending more time with her customers explaining different options that are available. "There are more carriers and so many options that the average person needs help," says Koch.
Brokers can also help small businesses develop comprehensive benefit plans for their employees that include health insurance through the exchanges, as well as other coverage.
As another alternative, brokers can diversify their businesses by developing a one-stop risk management services shop for employers that not only offers life and health coverage, but also property and casualty coverage. Diversification might require merging with or acquiring a property and casualty agency. Rolando is licensed to sell all lines of insurance, and the diversification has helped his business. Though, with the economy negatively impacting insurance sales, he is focused on keeping existing relationships.
Continue to become experts in HIEs, develop educational materials, conduct seminars and offer consulting services. With significant changes in health coverage coming, it's an opportunity to provide more value than ever by helping customers navigate regulatory changes.
Pierce is president of Chicago-based Stonegate Advisors.
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