@patpaule from insurer POV a member is a member; a broker sourced mbr may be less valuable as commissions + broker knowledge for adv select
— Richard Mayhew (@bjdickmayhew) February 10, 2016
This is part of a conversation I was having with an insurance broker. I think that most brokers will be leaving the individual health insurance market in the next couple of years for a variety of reasons. The biggest one is that brokers are expensive with commissions that range between 3% to 6% of the monthly premium. That chunk has to be paid for from the 20% of the premium that is not allocated to medical expenses. Insurers will often find a new customer is cheaper to acquire on the Exchange than from a broker.
However, the biggest reason why I think brokers will be forced to the margins of the individual market is they are a source of adverse selection from the insurer’s point of view. Let’s postulate the following:
a) The individual buyer has a decent idea of their probable health needs
b) The individual buyer will make significantly imperfect choices on the exchange.
c) The exchange has a wide variety of policies with both minor and major differences that make different policies attractive to very different people.
d) The broker is working towards the best interest of the individual buyer.
A good broker should be knowledgeable of the market and how different individual need profiles should play through a variety of different policies. A good broker should be able to talk to a perfectly healthy 26 year old and determine that they have minimal anticipated medical needs and no relationships with local providers so once their risk tolerance is established for which band they want to buy in, the recommendation would be to go to the cheapest plan possible with a minimally acceptable network. That same broker talking to a 45 year old diabetic will recommend a different plan in the same metal band. That 45 year old’s older sister who is anticipating an elective surgery next year would be better off in a plan with a low co-payment for inpatient hospitalization instead of a plan with a $3,000 per day inpatient co-pay.
The broker should help people choose better plans that meet their needs than what they would have chosen otherwise. That is the broker’s value proposition to individual buyers.
The alternate scenario with minimal broker support is that the 26 year old may buy a broader network and more expensive policy because of the branding of the insurer even though it is extremely unlikely that they’ll need any signficant services. Or the diabetic may buy a plan with high prescription co-pays but a low deductible that they were not going to hit anyways. Those errors of sub-optimal choice lead to higher revenue for the insurers for the same medical expenses. These errors may be small, a few dollars per member per month or they could be large. Medicare Advantage with broker support still shows sub-optimal plan purchases that ran to at least $25 per person per month in excess premiums.
If we assume that the Exchange markets will be reasonably competitive and fairly low margin, insurers in markets where one Exchange issuer drops broker commissions to either a nominal amount or pays no broker commissions will have to follow suit in order to avoid significant risk dumps that are created by optimal plan matching. And since some of the major national players are already at the point of paying brokers nothing for individual enrollments, most of the regional and local carriers will not be too far behind.
Kylroy
While I exult at the thought of agents no longer selling health insurance, do we have a sufficient amount of navigators and similar to provide buyers with this kind of help without being financially staked to the outcome?
Richard Mayhew
@Kylroy: no
Richard Mayhew
@Richard Mayhew: we need to rework the revenue model for brokers/agents
Nelle
I met with someone yesterday to try to understand Medicare options. I turn 65 in about a month and came back to the States with insurance from Southern Cross (I’m a dual citizen, New Zealand style). How do people figure this out, this gambling about the future? It seems so alien to me after National Health care.
So I’m stumbling around between just going with A, B, and D. Or finding some Supplemental – I can’t predict my future enough for a narrow geographical setting. But first, I’m stumbling over the insanity of the whole structure of paying for health care in the States.
Raven Onthill
We’re so screwed.
Maybe Consumers Union can start doing insurance evaluations along with automobile evaluations.
EdinNJ
@Richard Mayhew:
I’ve been saying this for years. Here’s my story from the group side: One of the unintended consequences of health care reform is that you have a massive army of brokers fanning across the country every year during open enrollments blaming every carrier switch, every premium increase, every network narrowing on ACA. Every worker in this country who gets company-subsidized health insurance is told every year how bad health care reform has been to them. It’s frankly amazing the law isn’t more unpopular.
As an agent who works with brokers and frequently attends these open enrollment meetings (I do life/disability/VBs), it’s easy to see that the brokers are getting squeezed out of the equation, and have a vested stake in ACA being repealed.
But how does the individual or small business owner even bypass a broker in this climate? I still see many limited to the crappy choices offered by brokers because they don’t even know the exchanges are available to them. Broker have an incentive to keep people in the dark.
Miss Bianca
@Nelle:
That would be enough for me to turn tail and flee back to NZ if I had the chance. Just sayin’.
In all seriousness, tho’, a good broker can help in your situation. I had a really great, really conscientious broker who was invaluable in helping me and others thread the maze of what was out there for us when ACA started up. Now that I have insurance thru’ work I haven’t used his services this year. Sad to see such a good guy’s job go redundant, in a way, tho’ I am sure he will have work for some years to come.
MomSense
@EdinNJ:
I work at a small business and the payroll service sends out an announcement ( I think it is an ACA requirement) that my employer inform me about the exchange because we are not offered health insurance.
It seems like a lot of companies should figure out how to subsidize their employees’ purchase of health insurance through the marketplace.
karen marie
@MomSense: It is called paying you more for the convenience and cost saving of not providing you insurance, in whole or in part. Hahaha. Yeah, good luck with that.
Given that an insurance broker’s money is made selling you a more expensive product than you need, I am not seeing the downside to brokers going away. I buy my car insurance directly from the company. That’s been going on for a while, and I haven’t read anything indicating that insurance brokers are a vanishing breed. But even if they are, why should their position in the industry be any more protected than other jobs in other industries that paid a decent wage?
EdinNJ
@MomSense: Sure, that happens in companies that don’t offer insurance because most understand the requirements. What I am referring to are those companies that could save money by going on SHOP, or the uninformed self-employed or unemployed that still call their local broker to buy overpriced plans that pay higher commissions and offer less coverage.
There is an entire industry out their hellbent on making ACA a failure because it justifies their existence.
Jay S
This seems like a natural area for automation through expert systems. Perhaps there is a business model for a Turbotax-like product for insurance buying.
Richard Mayhew
@Jay S: there are some interesting automated decision support tools that are getting piloted and deployed, so yes, the broker job as a seller of information and complexity reduction to the buyer is in serious trouble. This is doubly true in California as the standardized plan format of CoveredCA is wicked simple to understand compared to other states. Insurers can’t create a stream of similar but slightly different plans that create profitable confusion.
David
Sorry for an ignorant question, but what’s a broker? I mean I know technically, but it’s not like they advertise at open enrollment time like H.R.Block does at tax time. Do they do more than one thing? Are there national firms or franchises? Is my State Farm agent also an ACA broker without me knowing it? I have coverage at work, but if I didn’t, I wouldn’t even know where to start to look.