In health care reform, brokers’ future unclear

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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.

Alan Panebaker

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  • Tom Pelham

    For insurance brokers, “It’s all about the money” Commissioner Kimbell said. “Not as much of it is going to go to folks who have benefited from the current system.” he declares. It’s about “their financial interest” Rep. Michael Fisher affirms.

    So Alan Panebaker, is this a reasonable profile of the proportion of health care spending associated with the undesired behavior of brokers? They are paid, the article says, $17 million in fees and commissions for their role in Vermont’s $5 billion health care industry. That’s .34% of the total. Is this what upsets Kimbell and Fisher?

    Then, what should be said about Fletcher Allen, where salaries and benefits grew from $493.8 million to $529.3 million, an increase of $35.5 million or 7.2% in just one year, 2010 over 2009? And what about compensation levels in 2010 such as $1.144 million for Ms. Estes, $694,000 for Ms. Destigter, $681,000 for Mr. Deshaies, $639,000 for Ms. Ratkovits, $595,000 for Mr Taheri, $590,000 for both Ms. Bhave and Mr. Shields, and $486,000 for Ms. Dalton, among others. I know these are important positions necessitating talented and specialized people, but I also know this is Vermont where median incomes are around $50,000 and Finance Commissioner Reardon, CFO of a $5 billion state budget that’s both complex and more than 5 times the size of Fletcher Allen, receives total compensation around $130,000.

    I’m no expert on insurance brokers and whether or not they are a necessary component of providing health care to Vermonters. I do know, however, the major wind-in-the-sail of health care reform in Vermont was the Hsiao report which claimed that savings of over $500 million in health care costs, actual cuts in spending, could be had if Vermont implemented health care reform. But now I see two key leaders of the health care reform effort, Commissioner Kimball and Rep. Fisher, swatting at no-see-ums (insurance brokers) on the back of Vermont’s health care elephant for the marginal amount of $17 million relative to the $500+ million promised by Hsiao.

    Given that Fletcher Allen’s budget in 2010 was $909.4 million, or almost 20% of healthcare spending in Vermont, and much of it funded with public dollars (Medicaid, VHAP, Catamount, Medicare, public employee health insurance, etc.), I’ll know that Kimball and Fisher are serious about health care reform savings when they are as determined to constrain the big guys such as Fletcher Allen as they are constraining the little guys like Vermont’s small businesses and insurance brokers. Unfortunately, it seems, so far the powerful, like Fletcher Allen and the teachers’ union, have been left untouched.

    Alternatively, the result might be that these institutions are “too big to fail” or constrain and in the end, Vermont will be left with an even more centralized and oligarchical health care system with the less powerful (small businesses, Medicaid clients, the uninsured, and the self-employed) herded into the new system in the name of cost containment while the existing power centers, where the real health care savings reside, are made even more powerful. When the big providers like Fletcher Allen and the big consumers like the teachers’ union start complaining loudly, Vermonters will know that our leaders are serious about the health care cost containment Hsiao envisioned.

    • Lance Hagen

      Tom, “swatting at no-see-ums (insurance brokers) on the back of Vermont’s health care elephant” ….. absolutely a great line.

  • Bob Zeliff

    Could you please point me to a document that confirms this allegation?

    “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.”

    The last I knew, Broker/agent fees were part of any private insurance company”s overhead burden. Just like advertising, lobbying, bonus for executives or any of f the other cost they choose to spend their money on.

    I hope you surprise me with a crisp factual response confirming your allegation.
    However in the absence of that I feel this point and the rest of your piece seems to be self serving fluff.

  • Alan Panebaker


    Thanks for reading. Sorry I don’t have a crisp factual response for you. The specific rules for the exchange in Vermont are not out yet. The proposal to prohibit commissions stems from the plan to have brokers only act as navigators. This is what the commissioner of the Department of Vermont Health Access told me. Navigators are paid through grants rather than commissions per the federal law. Therein lies the difference. Hope this helps.

    • Bob Zeliff

      I think if you read the draft out no you will see NO mention on meddling within insurance companies at al. The exchange will require/mandate that those companies who work within the exchange align their benefits with the gold/silver/bronze level..what ever they turn out to be, in detail so insurance customer will be able to compare the identical level of coverage from different companies. i.e. the exchange. How the companies choose to price their offering or if they chose to give incentives fees to brokers and agents is up to them. This is just like any other expense/ cost of doing business they might choose.
      Shumlin, the administration or the state has nothing to do with the insurance companies choice.

      Having said the the insurance industry (who lobbied to have the exchange added to the Affordable Care Act) felt the exchange was a more profitable to them compromise than single payer. If the highly transparent exchange works as they planned the insurance companies may not need and therefore many not chose to fund brokers/agents from policies offered in the exchange. Doing this would help make that companies price more competative in the transparent exchange market.

      Insurance polices offered off the exchange would not have the same mandated transparency…ie the customer would have to read all the policy…so having brokers/agents (and their added costs) in this segment may make sense to the insurance companies. Their call. NOT any state laws.

  • Mark Kevorkian

    Deep in the initial legislation was language that (and I paraphrase) made any insurance broker (or similar) ineligible to be a navigator once the exchange was in place. Apparently, the Health Care Committe now sees some value in enlisting qualified people (eg brokers) to implement the plan.

    Mr Panebaker, your statement that “Vermont businesses paid nearly $17 million in fees and commissions to agents and brokers” is misleading, particularly in discussing the small (eg under 50) market. If, indeed, $17 mill was paid in compensation to brokers, this was for ALL groups (both over AND under 50 employees). I would speculate that the amount paid in commission for +50 groups is far larger than for under 50 groups (probably less than the .34% of overall cost that Mr Pelham mentions); furthermore, (as Mr Zeliff writes), in the small group market compensation to brokers is paid as a general expense by the insurance company. It is not a direct expense to the business; moreover, in the small group market rates are the same with or without a broker.

    Full disclosure: I am in insurance broker (and lifetime resident of VT) and I make my living, in part, from sales of health insurance, almost exclusively in the small group market. It is not, as the Shumlin Administration seems the believe, an easy or lucrative way to make a living.

  • Willie Moore

    Shouldn’t everyone working and providing service get paid? Aren’t those who will be working for the exchanges going to be paid? So what is the problem with an agent getting compensated for helping individuals and businesses? Agents have had to take continuing educations classes and be licensed, so I wonder if these same requirements will include those new people working within the exchanges. Shouldn’t quality and education be the same as was required for insurance agents? I wonder if the commissioner works for free or is it about the money as well in making a living.

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