The Patient Protection and Affordable Care Act (PPACA)—all 2,600-plus pages signed into law by the president last March—not only radically affected over 17 percent of the economy, but will dramatically impact nearly every facet of how each American pays for and receives their healthcare. No issue in recent memory has been as politically charged and divisive as healthcare reform. Lawsuits are working themselves toward the Supreme Court, and the Republicans, fresh from their victory in November, have vowed and begun work to repeal the entire act.
The significant portions of the law will become effective in 2014, but there are some immediate changes—binding upon your first renewal after September 23, 2010—that your broker should be communicating as that renewal approaches. Surveys repeatedly show that a large majority of Americans do not like the law, yet when polled about the immediate changes—covering adult children up to age 26, eliminating lifetime maximums, making rescissions on children under age 19 illegal—they have been overwhelmingly positive.
What is not being discussed, however, is that the sector of the industry that has historically guided business owners and individuals alike—insurance brokers—is the one group that may be most adversely affected by the new law. Moreover, the cruelest of ironies is that this group is now most responsible for understanding, communicating and implementing the changes that PPACA brings.
How is your relationship with your health insurance broker going to be affected by the new law? Rather significantly, if the experts are correct. Surveys among business owners show that over 90 percent like their brokers and think that they do “a good job or better.” Undoubtedly, brokers and consultants provide an invaluable service, bringing efficiencies and expertise that are impossible to replicate outside of this system.
There are two dramatic and negative provisions within the law that may well indirectly force brokers out of the industry altogether.
The first is that the law mandates a minimum loss ratio provision to insurance carriers wherein they must spend 80 or 85 percent (depending upon group size) of collected premiums on actual claim payments to providers or “to improve healthcare quality.” This provision took effect January 1, 2011, and while it sounds nice and tidy at first read, it leaves insurance carriers with only 15 to 20 percent of revenues to pay for administration, human resources, marketing, physical plant and commission payments, and still show a competitive profit for shareholders.
We have already seen pressures upon brokers in the recent past as carriers have reduced commission percentages and begun implementing a per diem basis of compensation. As insurance carriers look for more ways to comply with the minimum loss ratio requirement, it is opined that commissions will be the first casualty and carriers will move to go directly to the client—cutting out the middleman and the market so important to advising and consulting business owners.
The second, and most serious issue faced by brokers are the state insurance exchanges that must be operational by 2014. The theory behind the exchanges is relatively simple. Fundamentally, they are to be internet portals that allow insurance companies to compete on a level playing field. The consumer, whether individual or business, must input their demographic data, choose their benefits, and is then able to compare prices among the many different insurance carriers operating within the exchange. Yet practical application is something entirely different, as we have seen recent and dramatic failures of exchanges in Texas and California. Many experts would argue that the largest ongoing exchange in Massachusetts is an abysmal failure that is sucking billions of dollars out of the state budget.
The role of the broker inside the exchange is unclear at this point, as PPACA left the design structure and subsequent operation of exchanges up to the individual states. States are also allowed to form cooperatives among themselves. Presently, the states are looking to model their exchanges after Massachusetts (hopefully with necessary fixes), and waiting for California, which is nearing completion of its exchange, before beginning serious work. However, it has been theorized that the broker will be allowed some sort of access in order to help the consumer on an “advocate” basis. What is yet to be determined is how brokers will be compensated—if at all—by helping individuals and businesses design and administrate plans, and more importantly, attend to service and claim issues that arise after the purchase of the contract. It is entirely plausible that there will be no broker, agent or advisor role inside the exchanges whatsoever.
The health insurance broker, at a minimum, has historically shown to benefit businesses by operating as a consultant in plan design, providing expertise in communications to employees, and handling day-to-day service issues. But unless implementation of the law allows brokers to make a fair living for their families, we will see the extinction of the average broker—some estimates have been as high as 75 to 90 percent—and American businesses and individuals will be left to fend for themselves in this complex world.
The end result will be that brokers must operate smarter and more efficiently in order to survive. They must act more as consultants and advocates and analysts, thinking in terms of long-range strategy instead of being one who simply brings the rate increase. A good broker must bring cutting-edge technologies to their services, expand their offerings, and allow the business owner to focus on their core business. A large majority of brokers will most likely look for work elsewhere. What will be left is a small, yet highly effective broker group that will act as an associate in your business.
Maybe that’s a good thing. However, it would be much wiser to allow the industry to handle that ourselves rather than the government forcing it upon us. Of that, there is no doubt. iBi