The fate of a multi-million dollar insurance broker industry in Vermont is unclear as the state marches down the path of health care reform.
In 2010, Vermont businesses paid nearly $17 million in fees and commissions to agents and brokers to negotiate employee health benefit plans, according to data from the Vermont Department of Banking, Insurance, Securities and Health Care Administration.
The Shumlin administration has singled out brokers as one of the factors in the unsustainable rise in health insurance premiums.
Consequently, the role brokers will play when the state implements a health benefits exchange in 2014 has yet to be determined.
Mark Larson, commissioner of the Department of Vermont Health Access, said brokers in the individual and small group market will serve as “navigators” in Vermont’s health benefits exchange. Navigators are not eligible to receive commissions for plans sold inside the exchange. The Shumlin administration wants to make the sale of small business and individual insurance products exclusive to the exchange.
Brokers who serve businesses in the “large group market,” that is companies with 51 or more employees, will continue to receive commissions. Last week the Shumlin administration, which had lobbied to keep companies with 51 to 100 employees in the exchange, exempted mid-sized businesses from the insurance marketplace.
The exchange is supposed to provide consumers with an easy-to-understand summary of the total actuarial value of insurance products and the accompanying total out-of-pocket costs for premiums, deductibles, coinsurance and copays.
“Part of goal of the exchange is that people be able to compare insurance plans in an apples-to-apples manner and need less assistance in choosing a plan because it is more straightforward,” Larson said.
Larson said the state recently signed a contractor to develop rules for navigators in the state’s exchange and plans to issue a request for proposal for navigators in the spring.
H.559, the pending legislation that outlines many of the details for the exchange, does not address the future role of brokers.
The Shumlin administration proposes to prohibit broker commissions in the exchange, even though the Affordable Care Act does not require the state to do so. Under proposed federal rules, states can allow brokers to enroll individuals in the exchange. The regulations, however, don’t include a rate schedule for commissions.
Steve Larsen, director of the U.S. Center for Consumer Information and Insurance Oversight, told health insurance agents and brokers in January that federally created exchanges allow brokers to receive commissions at comparable levels to their percentage take for insurance plans outside the exchange, according to a report from Bloomberg.
For brokers in Vermont, the financial outlook is gloomier.
“Agents are easy whipping posts, but once they’re out of the system, many people will say ‘I really rely on my agent for advice and counsel, who’s going to help me now?”
Timothy Ford, executive vice president of the firm Hackett Valine & MacDonald, said the Vermont proposal to eliminate brokers in the exchange could put hundreds of people out of business.
Ford said the majority of brokers in the state help businesses with 50 or fewer employees find and enroll employees in health insurance plans. Under the administration’s proposal, those companies will have to buy health insurance on the exchange, and navigators, instead of brokers, will help them pick out plans.
Ford said navigators will likely provide call center services for individuals who phone in for assistance. While this approach may work for individuals, he said, employers often need the personalized services brokers offer.
“From an agent’s standpoint, we add value to system,” Ford said. “We believe at some point they (Shumlin administration officials) are going to realize they can’t build the infrastructure to match what’s available.”
Ford said many businesses rely on brokers for services they may not receive in the Vermont exchange.
“Agents are easy whipping posts, but once they’re out of the system, many people will say ‘I really rely on my agent for advice and counsel, who’s going to help me now?” he said.
Jeanne Keller, a health policy analyst and lobbyist for the financial planning and insurance agency Fleischer Jacobs Group and Business Resource Services, a small business association that offers group purchasing of health insurance, echoes concerns that brokers may see struggles in the years ahead.
“If you’re a broker who has concentrated on the small group and individual markets, there is a great deal of uncertainty right now,” Keller said.
Keller said she isn’t sure what the administration is trying to achieve.
The state’s apparent concern that brokers will “cherry pick” healthy people and scuttle them to certain insurers is unreasonable, Keller said, because risk adjustment safeguards required by federal law will prohibit companies from gaining an unfair advantage.
According to an issue brief from the American Academy of Actuaries, the law will require plans with lower-than-average risk to compensate plans with higher-than-average risk, eliminating the incentive to only insure healthy people in order to save money.
Tom Scull, an employee benefits consultant for the Richards Group in Norwich who was recently appointed a member of the Green Mountain Care Board Advisory Committee, said he supports efforts to reform the health care system.
“I want to make sure individuals are getting sound advice, and if the state takes on that role it needs to make sure it’s got educated professionals to play a similar role they play today,” he said.
How they would be compensated is up in the air.
Steve Kimbell, commissioner of the Vermont Department of Banking, Insurance, Securities and Health Care Administration, says much of the resistance to the Shumlin administration’s efforts comes from brokers who will likely make much less money as navigators in the simplified exchange than they do dissecting the current complexities of the insurance market for their clients.
Because navigators will be paid through grants instead of receiving commissions on premiums, brokers in the small group and individual market would likely see pay cuts.
“It’s all about the money,” Kimbell said. “This whole discussion about health care. Not as much of it is going to go to folks who have benefited from the current system.”
Rep. Mike Fisher, who chairs the House Committee on Health Care, says that the criticism of the administration’s proposal to prohibit insurance sales outside the exchange comes from brokers.
“A significant amount of the broker energy in trying to make sure there is an outside exchange market is about their financial interest,” he said.
Fisher said he wants to ensure that any fees brokers receive is public information.
