Health Care Reform Means Changes for Brokers, Not Elimination

There’s a big difference between bending and breaking; between change and destruction. This is especially important to keep in mind when talking about the impact health care reform will have on insurance brokers. Some commentators, like John Goodman, president of the National Center for Policy Analysis, are quite emphatic in their doom and gloom. In an interview published in HIU magazine, Dr. Goodman states “Under any sort of exchange that’s being envisioned by Congress or the White House, there will be no broker.”

I disagree. As I wrote several months ago, my take is that “brokers will continue to be a part of whatever new health care system emerges.” My confidence rests partly on the herculean efforts made by the National Association of Health Underwriters and other broker organizations to include specific language in several of the bills moving through Congress that explicitly permit brokers to sell products offered in an exchange. But more importantly, I believe that even after the exchanges are up and running (probably in 2013) individuals and small business owners will still need the services of independent brokers.

Whether this need for brokers will survive health care reform will be determined to a large degree by two factors: the nature of the exchange(s) created; and the viability of the individual market. While it’s (unfortunately) easy to imagine an exchange that eliminates the need for brokers, the exchanges most like to emerge from the debate in Congress are widely expected to be much more benign. In my previous post I articulated a “Theory of Disintermediation.” This theory hold that “whether the Internet will eliminate distribution intermediaries depends on the interplay of six factors of the product or service being sold, specifically how:

1. complex the product or service is to consumers
2. frequently the product or service is purchased
3. personal and critical the product or service is to consumers
4. expensive is the product or service
5. much on-site service is required to install or use the product or service
6. easily a description of the product or service can be digitized.”

Exchanges are likely to simplify health insurance policies and bring some standardization to marketing material and the like. However, consumers are still going to have to make a decision concerning an expensive, complex product they infrequently purchase which is critical to their health and financial security. For small business owners the need for independent expertise will be even greater: they are making a decision that effects not only their own families, but those of their workers. That’s a responsibility most employers will feel reluctant to make without expert support.

Whether individual coverage remains viable is still uncertain. The danger is that while Congress will require carriers to sell coverage to all applicants, they won’t require all Americans to purchase coverage. The result is the equivalent of allowing motorists to buy auto insurance after they’ve had an accident. Few consumers would voluntarily buy such coverage until they need it. The result would be price increases previously only experienced in states like New York where this dynamic has resulted in a costly health insurance surcharge.

This may be naive and wishful thinking, but I do think there’s enough common sense in Congress to recognize the need to require all residents to obtain coverage before they show up at the doctors office or hospital. The American people seem to recognize this. A recent ABC/Washington Post public opinion poll shows a majority of those surveyed support requiring everyone to buy health insurance. Indeed, if subsidies are offered to low-income households, support for an individual mandate rises to 71 percent. So the political wind is there to help Congress create a fair and workable approach to this issue. And that, in turn, would go a long way to keeping the individual market viable.

So if brokers are likely to be part of the new world of health insurance does that mean it will be business as usual for us?

No.

The value brokers bring to the products we sell is likely to evolve. So will the way we’re paid. For example, helping consumers find the plans that best fit their unique needs will remain at the forefront of what we do. The reforms will make that part of the job easier. The reforms will make after sale service a bit more complicated as a new layer or two of bureaucracy gets added to the mix. (Only someone working in Washington DC will claim that adding a government agency, like an exchange, to the mix will reduce problems or make resolving them easier).

These are mere tweaks in the average broker’s day. The biggest, most fundamental change brokers will face is how they are compensated. First, brokers will likely be paid less per sale. Requiring everyone to purchase coverage is a two-edged sword. It dramatically increases the number of consumers buying health insurance. It also creates tremendous pressure to keep premiums low. Distribution costs are generally the second largest budget line for carriers trailing only claims costs. With everyone having to buy, reducing broker compensation for each sale is all but inevitable. This doesn’t mean producers won’t be able to do well under the new system. They’ll just have to do more. Given that 30 percent or more of the individual cases they work on today are rejected by carriers, reforms which assure all applicants are accepted will go a long way to offsetting this per sale reduction.

The second impact of reform is likely to be the end of the commission system. At the risk of being flamed by brokers reading this blog, paying us a percentage of premiums makes little sense now and will make even less sense going forward. The reality is that the cost and rewards associated with making a sale don’t relate to the premiums paid by the consumer. The biggest driver of health insurance premiums is the underlying cost of medical care and these cost increase far faster than general inflation. It’s not uncommon for medical trend increase at twice the rate of rent, supplies, phones, and other costs associated with running an agency. Linking broker pay increases to medical trend is a historical, but no longer logical, practice.

No one likes to talk about how they’re paid and the public policy issues involved. When’s the last time you heard a doctor publicly criticize the fee-for-service model – you know, the one that rewards them for maximizing the number of tests and treatments a patient receives without regard for the outcomes of those treatments? But to think that policymakers and carriers aren’t aware of this disconnect between how broker compensation is calculated and their actual costs.

Yet broker cannot work for free – nor should they. In the current system, carriers charge consumers for the brokers compensation and pass this revenue through to to the broker. It’s an efficient method and is likely to continue, but instead of commissions, brokers are likely to receive a flat fee per month per member. There may be regular adjustments made to the level of this fee to account for inflation, but it will be independent of the underlying premium.

Additionally, we’re likely to see the emergence of consultants in the individual and small group market segments. Instead of being paid through the carrier, these entrepreneurs will charge consumers directly. This is a less efficient method –- and is currently illegal in many states. But laws can be changed and the context for a new approach to producer compensation will be strong. We shouldn’t be surprised if new systems emerge.

And many consumers may find this pay for services system appealing. When California ran a health plan in the 1990s it imposed on a five percent of premium surcharge on small business owners wanting to work with a broker. Over 65 percent of the employers enrolling in the state plan paid the surcharge.

I believe Dr. Goodman’s warning that health care reform will do away with brokers is overstated.  And brokers need to remember, just because someone – even someone as bright and respected as Dr. Goodman – claims the sky is falling, doesn’t mean it is falling. It could just be changing.

If You Could Ask Just Three Questions …

And now for something completely different: Imagine you’re a health insurance broker on a plane to somewhere. It’s not until the captain announces you’re approaching your destination that that you realize the person sitting next to you is a key player in the health care reform debate. Maybe she’s a lawmaker, an analyst at the Congressional Budget Office, a deputy in the White House, or a prominent policy wonk. Numerous questions occur to you, but you only have time to ask just three.

You realize a lot of people are talking about the details of health care reform (What legislation is likely to pass? When will its provisions take effect?). What very few discuss pertains to distribution (Do you see value in the services of brokers in today’s system? What role should brokers in a reformed health care system? That kind of thing). This is your chance to ask. What would your three questions be?

Between now and September 26th (Saturday for those keeping track) please list your three questions by adding a comment to this post. Starting on Sunday and at least through Monday (September 27th and September 28th) I’ll post a survey allowing visitors to this blog to vote on the questions submitted. Then we’ll see if we can’t provide answers tor some of the more popular questions.

Every reader of this blog is invited to participate in this exercise regardless of whether or not you’re a broker. If you can, please try to keep the questions focused on distribution (I know, with everything going on, that could be tough).

The plane is descending. You’ve got time for three questions. Ask away.

Obama’s Health Care Speech a Beginning, Not an End

Whether you support President Barack Obama or not, his address tonight on health care reform to a joint session of Congress is a major event. American want reform, but are increasingly wary of the what they are hearing is likely to emerge from Washington. Of course, much of what they hear about what’s being considered is wrong or concern proposals that no one expects to reach the President’s desk, but the public’s unease is troubling for reformers nonetheless.

A well established political law holds that it is easier to attack than to propose and promote change. Reformers, consequently, are always at a disadvantage. The White House has seen the tenor and substance of the debate hijacked by charges both serious and silly. Worse, from their perspective, President Obama is being tied to reform bills he has neither endorsed nor blessed. The media and voters describe Congressional proposals as those of the Administration even though the President has stated only principles for reform, not details.

That changes tonight. Or at least, it starts to change tonight. President Obama is going to step into the health care debate over the next several weeks in a far more forceful fashion than before. While it’s unclear how specific he will get tonight, there is little doubt that he will be very clear about what he wants in a health care reform bill – and what he does not – over the next several days. My guess is he will use the introduction of mark-up of legislation by the Senate Finance Committee, expected to begin as early as next week, as his foundation. But whatever vehicle he commandeers (to mix metaphors), we are very close to moving past accusations concerning what Obamacare is to seeing what actually what the President’s plan actually looks like.

And this process begins with tonight’s speech. The folks over at Politico have a good “what to look for” post. Among the most significant items:

1. Will President Obama keep it simple – and, consequently, comprehensible?
2. Who will serve as the President’s foil? (My guess – insurance companies).
3. Where does President Obama stand on a government-run insurance plan? We know he wants one, but will he threaten to veto a bill without a public plan?

Here’s some other questions to keep in mind while watching the President’s speech:

1. Is the President specific about ways of reducing medical costs?
   Health insurance premiums reflect the underlying cost of health care. So does the burden of public programs like Medicare and Medicaid. Will President Obama make this clear? And will he have ideas for dealing with them?
2. How will the President frame the rationing issue?
   The spurious fear mongering around death panels not withstanding, the public has legitimate concerns about what reform will mean to their own access to health care. There is rationing of care under the status quo (based primarily on the quality of one’s health insurance), but it’s mostly hidden and subtle. Every health system rations care in some way. How explicit will the President be about the inevitable rationing resulting from his plan?
3. What type of Health Care Exchange does the President support?
   Does he see these exchanges as bringing together information or are they actively negotiating with carriers concerning rates and benefits? Will they replace brokers or supplement them?
4. How does President Obama describe the efforts in the Senate Finance Committee to shape bi-partisan reform?
   Does he describe their efforts as central to health care reform legislation or as just one of many sources? Does he give its chair, Senator Max Baucus, political support and cover or leave him to fend for himself? As regular readers know, I’m one of those who believe the bill the Senate Finance Committee produces will be close to what eventually emerges from Congress. Part of my reasoning has been that President Obama wants reform legislation . Which brings us to …
5. Does President Obama show more interest in practical results or partisan purity?
   Will he seek to please the liberals or the moderates? Will he show a willingness to accept less than a full loaf or will he insist a host of specific elements be included in the reform bill?
6. Will President Obama succeed in making the status quo unacceptable?
   The devil known is always more welcome than the unknown variety. Right now those attacking reform have the easier task. The President needs to reverse the argument, putting the burden on his critics to demonstrate that the current system is worth preserving – or that it can be preserved. If he fails, the Administration will remain on the defensive. Not a fatal setback, but a serious problem.

Watching the spin doctors go to work on the speech will be a fascinating lesson in politics. Watching them will also be annoying. One can predict what Fox News and MSNBC will be saying, but they don’t really matter. They preach primarily to established constituencies. The public that still has an open mind on the issue will be tuned to the networks, CNN and waiting for their morning paper.

As you listen to the reaction, keep in mind that tonight’s speech is only the beginning of the Administration’s final push for health care reform.  The game isn’t over tonight. It’s just beginning.

Health Insurance Brokers Aren’t Travel Agents

There was a time when most travel, whether a short hop or a complicated itinerary, was handled by travel agents. Then came the Internet and sites like Expedia, Travelocity and the rest. There are a lot fewer people making a living selling airline tickets now days.

While it’s not clear yet what kind of health insurance exchange will emerge from the current health care reform debate, that whatever legislation passes will include such an animal is a certainty. The concept of  “an Expedia for health insurance,” as some have described these Exchanges, has broad bi-partisan support.

Does this mean health insurance agents are likely to go the way of travel agents, relegated to only the most complex situations and, if compensated at all for more routine situations, paid barely enough to pay the phone bill let alone Errors & Omissions insurance premiums?

Some comments to my previous post seem to think so, but I say, “probably not.”

The legislative process is a lot like a jury trial: any outcome is possible. The likely outcome, however, is that brokers will continue to be part of whatever new health care system emerges. 

When I look a the impact of the Internet on distribution systems, a handful of factors seem to determine if the web will eliminate middle men. Let’s call this Katz’s Theory of Disintermediation.

The Theory holds that whether the Internet will eliminate distribution intermediaries depends on the interplay of six factors of the product or service being sold,  specifically how:

1. complex the product or service is to consumers
2. frequently the product or service is purchased
3. personal and critical the product or service is to consumers
4. expensive is the product or service
5. much on-site service is required to install or use the product or service
6. easily a description of the product or service can be digitized.

Here’s some examples of how the Theory works.

Books:  Books are pretty simple. Everyone knows what they are and how they work. Most people who buy books buy them on a regular basis. Books are rarely personal or critical (unless we’re talking about the final installment of Harry Potter) and they’re relatively inexpensive. Books aren’t “local,” but information about them is easily digitized. Given these factors one would expect online book sellers like Amazon to dominate the market and it does. The niche reserved for brick and mortar book sellers is where advice, impulse or convenience are involved (best provided locally).

Travel: Booking a direct trip from one city to another is pretty straightforward and most travelers are comfortable with their own expertise. Travel can be expensive and getting there can be important, but getting it wrong by, for example, overpaying, is rarely devastating from a financial perspective. And while the traveler pays more than she should she still gets where she’s going. Travel is not consumed or installed locally. So the Theory would expect routine travel to migrate online. Complex travel, however, is different. Multiple destination points or several hotels and rental cars to arrange and the incentive to work with an expert increases. When a family is planning it’s one big vacation the importance of getting it right increases. Not surprisingly, travel agents still are commonly  used for these complicated itineraries or critical travel events.

Health Insurance: Health insurance is extremely complicated. Just ask someone  to explain the meaning of “co-insurance” or ”formulary.” People shop for coverage rarely — perhaps once a year or three times a decade. Health insurance is expensive and  it’s important to make the right decision. Your own health and financial security is at stake. If you’re an employer, you’re taking on the responsibility of making the right decision for your work force. At the same time, there’s no need to purchase health insurance locally and descriptions of rates and benefits are easily presented in a digital format. Given these factors one would expect consumers to seek expert advice — and they do. Yes, an increasing number of individual policies are being purchased online, but these buyers often consult a broker before making the final decision. And virtually all coverage purchased by small business owners is through a broker. Even if the Exchange presents information about policies in a standardized format, many if not most purchasers will seek guidance from a licensed and qualified counselor — in other words, from a broker. That’s what happened in California when the state created a purchasing pool. More than 65 percent of small business owners buying through the pool did so through brokers, even though it cost them more to do so.

Of course, there are some brokers who are simply sales mills, offering the same solution to every client. They add little value to the products they sell and offer no expertise. They can be, and should be, put out of business by the Internet.

This Theory of Disintermediation can’t predict what will happen to broker compensation. It may become fee based, it may be based on a per-capita fee, or it may stay premium based. But it does suggest that, unless lawmakers create artificial barriers, there will continue to be a role for brokers who deliver expertise to their clients.

Health Care Reform And Mirror-Colored Glasses

There’s nothing wrong with looking at health care reform through mirror-colored glasses. It’s very human and downright American to ask “what’s in it for me.” In this country we’re all entitled to seek our self-interest. The role of government is to balance those interests, to prevent the excesses this approach can create, to find common ground that benefits the many while protecting the rights of the few.

A few weeks ago I was interviewed by a reporter for Marketplace, the business program produced by American Public Media that airs on NPR.  The interview was far ranging, covering the latest developments in the  health care reform, it’s impact on brokers and others employed in the health insurance industry and the like. (It was “far ranging” in the sense. as regular readers of this blog know, that the reporter was kind enough to indulge my penchant for expressing opinions about health care reform).

The  reporter, Joel Rose, is a frequent contributor to Marketplace and other programs. He did his usual job of providing an interesting, fair and accurate report. He certainly presented my comment fairly (which was about the likelihood lawmakers would be unable to maintain fair competition between a government-run health plan and private carriers).

Even  given all we talked about, I admit to being a bit puzzled by the Marketplace report’s  focus. The story, at least on the web site, is entitled “Aetna workers fret about reform plans” and mostly concerns the possible job losses health care reform could cause in the insurance industry. It seemed to me, at first blush, to be an awfully parochial topic. Who cares what reform does to those in the insurance industry?

Then I started getting emails and calls from folks who heard the story. They cared — and had the mirror-colored glasses to prove it. Further it became clear that  Mr. Rose had raised a significant question. Should policy makers working on health care reform be concerned about the fate of the roughly 500,000 people ho work in the insurance industry?

Some of those who emailed pointed out the irony that the Obama Administration was, on one hand, spending billions of dollars to create jobs on one hand, while, with the other hand, it was planning on spending billions of dollars to eliminate jobs in the insurance industry. (As Mr. Rose noted in the story, however, there will be new jobs created in a post-reformed health insurance industry).

Still, the question is,  should it matter? Should health care reform be designed to save job categories?

My answer, at the risk of getting flamed, is that the only jobs health care reform should protect are those who add value to the system. If insurance company employees or health insurance brokers or anyone else cannot justify the cost of their services, the government has no responsibility to save their careers.  The Declaration of Independence calls for protecting life, liberty and the pursuit of happiness. There’s no constitutional right to a particular career path — just ask a buggy whip salesman if you can find one.

The reason I work so hard on behalf of preserving a role for brokers in America’s health care system is because I believe we do add value to the products we sell. Even after reforms, consumers will need the advice and advocacy licensed professionals provide.  Just ask the small business owners who bought health insurance through a state-run purchasing pool operated by the state of California in the 1990s. Roughly two-thirds of them paid a surcharge for the benefit of working with an independent broker instead of dealing directly with the state. 

Which is why I find proposals by some lawmakers to empower Department of Motor Vehicle clerks to sell health insurance so insulting and misguided. DMV employees are fine, bright people. But they’re not trained to understand health insurance or to help consumers battle health care coverage providers (private or public) when necessary. Consumers deserve better.

That lawmakers fail to perceive the value brokers provide is, perhaps, disappointing, but not surprising. Many, having always been insured through programs for government employees have never worked with an agent. That’s why the efforts of the members and staff at the National Association of Health Underwriters is so important. They are working tirelessly to educate legislators about the role of brokers while also providing the producers’ perspectives on various health care reform related issues.

I testified before several Congressional committees on behalf of NAHU during the debate over Clinton Administration’s health care reform plan. At one I was asked what the Clinton plan would mean to insurance producers. I said the Clinton plan “was both bad news and good news for health insurance agents. The bad news is we’d be out of a job. The good news is our health insurance would be free.”

It was a clever line that drove home what was at stake for the committee member’s constituents who sold health insurance. But what I said then I believe now: health care reform should not be about protecting brokers or any other profession.  The purpose of health care reform should be to create a health care system that will benefit the American people for the long term, a criteria it is difficult to argue the status quo will do.

The Clinton reforms failed because they were ill-conceived and ineptly handled. President Barack Obama’s reform efforts will be successful because the need for change is more obvious and he is wisely willing to accept what is, from his perspective, a partial loaf.

The coming reforms will change the way brokers work, but will not, and should not, eliminate them.  Brokers should survive not because we have a right to, we do not. We should survive because American consumers view health care reform through mirror-colored glasses, too.

Health Care Reform Is Coming. Don’t Panic.

The legislative process is like Kabuki Theater. Very stylized. Clear-cut characters. Starts off slow, proceeds through several acts, ends fast and furious. The Congressional tussle over health care reform is no exception. We have the champions of the left and right pounding across the stage, striking poses, shouting out their predictable lines, scaring the bejeebies (whatever they are) out of the audience (otherwise known as constituents) and generally creating high drama. This is important work as it gives the 24 hour news stations something to talk about and this, in turn, keeps the commercials from running together in an endless loop of paid messages for help fighting the IRS, encouragement to ask your doctor about the benefits of an unhealthy number of medications, easy ways to get low cost loans and willing buyers of your excess gold jewelry.

At the same time we have numerous audience members who are quickly losing whatever bejeebies they might possess. If you are among the 470,000 Americans employed by the health insurance industry, for instance or among the tens of thousands of health insurance brokers in this country, you might feel like people are out to get you. Good catch because people are out to get you. Don’t feel too bad, though, you’re not alone. They’re also out to get doctors, hospitals, pharmaceutical companies and a host of others. 

Every health care reform idea on the table is scary to someone. Government-run plans, exchanges, mandates to sell coverage, mandates to buy coverage, taxes, cost containment. The list of proposals go on endlessly. Everybody with a stake in health care (which is everybody) has something to lose from some these reforms and someone is out there working hard to make sure these stakeholders lose it. In the health care reform everyone is an archer and everyone is a target.

So as someone with a stake in the system, but who has also spent more time than sane people should involved in politics and the legislative process, I would like to offer some simple advice to my fellow targets:

         Don’t Panic.

Don’t get comfortable, but don’t panic.

The good news is the health care reform most likely to emerge from Congress will be far more moderate than the proposals whipping around the Capital hallways today imply. This is theater — and it’s politics. Everyone in Washington is busy staking out negotiating positions, trying to score points, and auditioning for an appearance on CNN, Fox or MSNBC. Which means what they say matters, but not as much as they’d like to think it does.

In negotiations you expect to compromise so you start off asking for more than you expect to get. Every eight year old discussing bed time knows this. So do politicians. What we’re seeing at this point is primarily Democrats and Republicans anchoring their positions. In Kabuki Theater, actors will strike stances that identify their role in the story. In Congressional theater, this role is played by lawmakers. 

Which leads us to the effort of scoring points. Nothing revs up the base like lambasting opponents. The number of people who make a living by keeping a significant portion of the American population seething is significant and appalling. These people (and I use the term loosely) paint the world in terms of good and evil, black and white, us and them. Anyone who disagrees with “us” is a traitor, a fool, a liar or all of the above. They care less about moving the country forward than in adding to their power or their bank account. (Have you ever noticed how often their diatribes are followed by an appeal for cash or an advertisement?) These blowhards replace bombast for thought. They have honed the cheap shot and the stiletto implication into art forms. Fortunately there’s a cozy spot in Hell reserved for them where they’ll have to listen to themselves blather for eternity. Until then, we’re the ones stuck in their noisy hurricanes of malicious hot air. 

The subset of these sub-humans who hold public office will be especially prominent during this portion of the legislative process. Ignore them. Like the extreme positions taken by negotiators, the extreme rhetoric spouting from these Katrinas of politics are designed to rile you up, get your money and generate news clippings, not educate or move the debate forward.

The real action on health care reform is taking place in the nooks and crannies of Washington where moderates dwell. For example, keep your eye on the Senate Finance Committee. They seem to be trying to find solutions the nation can afford and that might actually work. Track the movements of moderates in the Senate, too. Senators Olympia Snow and Susan Collins are the two trendsetters on the amazing-shrinking-group of GOP moderates. On the Democratic side of the Senate moderates gather weekly in a self-described  Working Group. (Insert your own snide comment here).

The fact is, in Washington moderates win. The system is designed this way. It may not seem like it, but that’s the way it usually goes. This is the point articulately made by Jay Cost in his HorseRaceBlog over at RealClearPolitics.com. In two postings (Part 1 and Part 2) he lays out the pivot points in the legislative process and applies them specifically to the current health care reform debate. (My thanks to John Nelson for sending these my way). What he shows is that the true partisans are merely the fodder necessary to get to the number of votes needed to turn legislation into law. These pivot points vary depending on the political context.

Need to overcome a filibuster? The most powerful Senator is not the true believers who immediately vote yes or no, but the Senator who represents the 60th vote for cloture. Only that Senator can move the bill forward. The rest simply set the stage. When it comes to health care reform, watch the moderates. They are the key actors in this play because it is from among their group, along with critical  negotiators like Senators Max Baucus and Charles Grassley, from which the decisive votes will come. 

With 17 votes (maybe 18 now that Senator Arlen Specter is a Democrat) the moderate Democrats in the Senate will determine the final shape of healthcare reform. They are the ones the partisans on both sides are already seeking to persuade or, failing that, threaten (good news for television and radio stations in their states looking to sell advertising time). If these partisans are serious about passing something, however, that something will need to earn the votes of these moderates. Keep in mind, Democrats have a large majority in both chambers of Congress, but they got it by appealing broadly to the electorate. Democrats rarely are genetically incapable of group thought even when there’s just a few of them. Put 60 into one room (say, the floor of the Senate) and the chances of agreement on anything controversial is reduced to a theoretical nil.

What all this means is that the partisan posturing of the current debate is simply sound and fury signifying the hopes and aspirations of sincere partisans and cynical pot stirrers (which is which is sometimes hard to tell, but there is a difference — only the latter are despicable). Eventually the play will reach its final act. At this point the moderates take center stage and with their arrival the odds of disappointed extremists on both sides  increases(disappointing extremists is, after all, what moderates d0).

This doesn’t mean they will come up with the perfect health care reform plan. If you care about the issue you need to make your voice heard. Moderates are capable of making bad policy — and whether the truck that runs you over is driven by a true partisan or a moderate doesn’t really matter, it still hurts. Moderates are more likely, however to produce reforms that are closer to something reasonable than might seem possible appear today.

In the meantime, let the loud and boisterous actors strike their poses. It’s all part of the play.

Phishing for Brokers

This blog focuses on health care reform. But it’s also read by a lot of agents around the country, many of whom are in California. In light of a very unusual warning issued by California Insurance Commissioner Steve Poizner I thought it appropriate to borrow the blog for one post to spread the word.

According to the Commissioner, scam artists are calling licensed insurance agencies representing themselves as DOI personnel. Claiming the agents’ licenses are about to expire, they request credit card and other information in order to expedite payment of a penalty fee. They are not DOI personnel and no penalty is due.  They are simply thieves who take the money and sell or misuse the credit card information. Producers receiving this call should immediately contact your local law enforcement agency.

According to Molly DeFrank, Deputy Press Secretary at the California Department of Insurance’s Communications Office, the scam first came to light on May 29th. At least three brokers are known to have fallen victim to the scam, but there may be others.

Brokers in other states should be careful as well. It is unlikely this scam is solely a California broker problem. And as the California DOI’s warning is disseminated, the thieves are likely to look for easier (meaning, less informed) victims.

And now back to our regularly scheduled blog.

Health Insurance Brokers to the GOP: “Et Tu?”

Health insurance brokers are appropriately worried about the impact health care reform will have on their livelihood. That’s human nature. Politics is about the management of self-interest. When it comes to health care reform, the list of concerned onlookers is long. Patients, doctors, hospitals, carriers, government bureaucrats, health insurance agents, employers, lawyers, dentists, chiropractors, pharmaceuticalfirms and, well, you get the idea.  Anymeaningful change is going to require sacrifice by most all of these stakeholders. 

When it comes to balancing all these competing interests, the partisan nature of American politics usually comes into play. Public policy flowing from the Democratic party tends to benefit some at the expense of others. The same holds true with the Republican party.

Health insurance brokers, for example, tend to rely on the GOP to promote policies supportive of their profession. One reason for this connection is political. I’ve no empirical data, but long experience in working with health insurance brokers leads me to believe that the majority vote Republican. Another reason, however, is ideological. Republicans tend to support market-based health care reform solutions  and brokers are integral to making the market work. Brokers take competing health plans and interpret them to their prospects and clients. One method they use is to take the different explanations of benefits used by different competitors and put them into a consistent template. They serve as consumer’s advisers and, when needed, their advocates to assure they get full value from their health plans.

As President Barack Obama’s Administration works with the Democratic majority in Congress to fashion health care reform, many brokers are relying on Republicans in Congress to stand firm against a public plan (which most brokers believe would eventually drive private plans out of existence — and take brokers down the drain with them). And they are trusting Republicans will make the case for the value brokers add to the system.

This trust may be misplaced.

Last week four leading Republicans put forward “The Patients’ Choice Act.” The Act is their call to action for fixing what they refer to as America’s broken health care system while at the same time seeking to preserve much of the current market driven arrangement. The authors of the proposal, Senators Tom Coburn and Richard Burr and by Congressmen Paul Ryan and Devin Nunes, are leading voices within their party on health care reform. It’s not clear whether the Patients’ Choice Act is the official position of the Republican caucuses in Congress, but no other proposal has been forth by the GOP. And the media is certainly treating it as the “Republican health care reform plan.”

Not suprisingly, the GOP lawmakers explicitly reject a public health program. Indeed, while acknowledging other factors leading to runaway costs (new technology, an aging population) their document proclaims the primary reason America’s health care system fails so many patients is “government intervention.”

Nonetheless, there are several elements of the Patients’ Choice Act which occupy common ground with Democrats (more on these in a future post). Some of what’s in The Patients’ Choice Act summary is, suprising and even amusing. For example, Republicans have taken to accusing Democrats of seeking to move America to “European-style socialism.” Yet, in justifying some of their ideas the sponsors of the Act turn to similar programs working in — wait for it — Europe.

Some elements of the reform package are just foolish. For example, under the Patients’ Choice Act carriers to accept all applicants regardless of their health condition (often referred to as “guarantee issue”). However, explicitly reject requiring individuals to obtain coverage stating that “if individuals do not want health insurance, they will not be forced to have it.” In fact, they go so far as to suggest that individuals be able to purchase coverage at any time “through places of employment, emergency rooms, the DMV, etc.”

In taking this position it appears the the Republicans have adopted the greatest flaw in then candidate-Obama’s health care reform plan – and made it worse. Why would anyone purchase coverage before they need it? Any reasonable person would wait until they’re on their way to the doctor, stop by the DMV and purchase coverage. In case of an accident, all they would need to do is go to the emergency room (the most expensive place to receive care), sign up at the receiving desk and enter the facility as a fully insured patient. As soon as they’ve recovered, it would be safe to drop the coverage.

(I find it hard to believe the Republicans are taking such a naive view of insurance. And, to be fair, the Patients’ Choice Act is somewhat lacking in details. However, what I’ve described comes from the Republican lawmakers’ own document. If they are creating safeguards to prevent such gaming of the system, there’s no evidence of it yet.)

As with any health care reform proposal, there’s elements to like and to dislike in the the Patients’ Choice Act. What will be most troubling for brokers, however, is the GOP’s call for creating state-based exchanges. The benefits of such exchanges includes a “one-stop marketplace for health insurance. Individuals would get a hassle-free opportunity to choose the plan that best meets their needs through an Exchange.” Most brokers believe that’s their role in the current system. To have Republicans propose a state agency to take on this responsibility is disconcerting at best; a betrayal at worst.

Then there’s the “auto-enrollment” feature touted by the Republicans allowing individuals to obtain health insurance at the DMV and other locations. Apparently the GOP sees little value in having consumers work with licensed, regulated agents and brokers, not when there’s a clerk at the DMV available.

To be fair, the Republicans are not explicitly excluding brokers from their version of a new health care system. In fact, they are expected to remain a part of the system. In the GOP’s “Patients’ Choice Act Q&As they write, “Whether an individual uses an insurance broker, an internet [sic] comparison page, or calls a toll free number, individuals are provided the information needed to choose a plan tailored to their individuals [sic] needs.” This basically equates the knowledge, skills and expertise of  independent brokers to what can be delivered by an Internet site or a customer service rep at the state Exchange. How comforting.  Perhaps they are relying on the Exchange to standardize health insurance so much that professional guidance is no longer required. Although if coverage is that standardized, then perhaps calling their proposal the Patients’ Choice Act might be somewhat misleading.

The National Association of Health Underwriters, the primary professional organization for health insurance brokers, is working hard to educate lawmakers concerning the value independent brokers add to the system — value which should be preserved in whatever reform package emerges from Washington.  To the extent the Patients’ Choice Act represents Republican thinking on health care reform, relying on the GOP as an ally in this effort could be a painful path to disappointment.

Health Care Reform: The Power of Stories

Facts are facts. Logic is logic. When it comes to health care reform, both are critical, vital elements of informed decision making. At the end of the day, however, facts are only facts and logic is only logic. What moves people are emotions and empathy. And what elicits emotions and empathy are stories. Stories are what enables people to connect data and logic with real, meaningful situations and they are what drives people to take action.

Chip and Dan Heath make this point in their book Made to Stick: Why Some Ideas Survive and Others Die. They point out that “stories have the amazing dual power to simulate and to inspire.”  By simulate they mean to describe reality and, consequently, convey knowledge.

Politicians understand this. So do successful sales people. A white paper is a great way to set forth a policy. A brochure may be just the ticket for describing an item. But it’s the stories that politicians and sales people use that connects those facts to people in a way the moves them to act.  President Ronald Reagan was a master of this. His reputation as the Great Communicator rests in large part on his ability to shape stories that inspired and moved his audiences. President Barack Obama shares this gift.

So it’s not surprising that President Obama is soliciting stories to post on his Organizing for Health Care site (which is a part of his grass roots organization, Organizing for America). It’s part of his effort to build grass roots support for his health care reform initiative. The email went to supporters of his campaign and others who have signed up at Organizing for America. It reads, in part: “As we know, challenging the status quo will not be easy. Its defenders will claim our goals are too big, that we should once again settle for half measures and empty talk. Left unanswered, these voices of doubt might yet again derail the comprehensive reform we so badly need. That’s where you come in.” It then asks his supporters to share “your personal story about the importance of health care reform in your life, and the lives of those you love.”

President Obama promises to personally read some of the stories submitted and he clearly intends to make use of them in the coming fight over health care reform. As he notes, “I know personal stories can drive that change, because I know how my mother’s experience continues to drive me. She passed away from ovarian cancer a little over a decade ago. And in the last weeks of her life, when she was coming to grips with her own mortality and showing extraordinary courage just to get through each day, she was spending too much time worrying about whether her health insurance would cover her bills. She deserved better. Every American deserves better. And that’s why I will not rest until the dream of health care reform is finally achieved in the United States of America.”

Facts and logic will play a major role in health care reform. But what ultimately will carry the day are stories like those of the President and his mother. Which is why others are also gathering stories.

As I mentioned in a previous post, the value professional, independent brokers add to the health care system is too often overlooked. The National Association of Health Underwriters, the nation’s largest organization of health insurance brokers and related professionals, is working hard to change that. In addition to attending endless meetings and submitting volumes of testimony and comments to Congress, NAHU is very appropriately gathering stories.

NAHU has created a web site, Brokers Making a Difference, to house the stories it has gathered. And more are coming in from NAHU members and the clients they serve. They tell stories of brokers going the extra mile for their clients when they needed help the most, after a serious illness or accident. They tell of brokers doing the straightforward work of being a counselor and advocate, helping their clients to find affordable health care coverage that meets their unique situation. They tell of brokers going beyond the call of duty and of those fulfilling their responsibilities as professionals.

For brokers these stories are critical. It’s one thing to talk about helping individuals or businesses through the health insurance maze. It’s another, altogether more powerful thing, to describe what that means in action. Stories of coming to the hospital to help a new mother whose baby was undergoing surgery to provide comfort, support, and, as important, assistance in dealing with the paper work have an impact. Stories of bringing together hospital and carrier administrators to get their clients out of the waiting room and into surgery have impact.

Brokers play a critical role in helping people maneuver through the health care system in this country. Health care reform is likely to become a reality this year. The stories President Obama is gathering will help see to that. It is the stories being collected by NAHU that will help assure brokers are able to continue to help their clients in whatever changed system emerges.

Health Care Reform And The Value of Brokers

There are a lot of stakeholders in the health care reform debate. Patients. Doctors, hospitals and other providers. Insurers. Employers. And  so on. One often overlooked group with a great deal at stake in the current reform effort are health insurance brokers, especially those whose practices focus in the individual and small employer market segments. Today they provide some of the services expected of an exchange, helping to translate benefit plans into understandable options. Professional brokers go further, helping health care coverage shoppers find the plans that best fit their unique needs and then assisting them in gaining the benefits they’ve paid for.

The bad news is the media all but ignores the role of agents in the system. They focus on how confusing health care coverage can be (and it certainly can be opaque) and how consumers are at a disadvantage when dealing with their insurers (and they are) without once mentioning the counselors and advocates available to them: professional brokers. (Note added 5/9/09: An Associated Press article published today proves the point: it looked at the positions of the “10 groups with the mostinfluence, or most at stake, in the health debate…” Health insurance brokers were not mentioned.)

The good news is that lawmakers involved in drafting health care reform legislation are aware of brokers and what we do. They’ve sought out the National Association of Health Underwriters (the primary professional organization representing health insurance brokers) for testimony and input.

A seat at the table is great, but eventually brokers needs to justify their value to the system to those who live and work beyond the Beltway. If the media and public are unaware of what brokers do lawmakers can ignore agents with impunity. Which is why NAHU is launching a grassroots campaign to educate decision makers and opinion leaders to show why brokers “can’t be replaced by a government-run call center.”  Core to this intitiative is a white paper focused on the value of licensed producers. Titled “Americans Deserve Access to Professionally Licensed and Trained Health Insurance Agents, Brokers and Consultants,” the report describes the various services producers provide to consumers and how they compare to alternatives such as government call centers.

The challenge facing brokers is that we are, at the end of the day, overhead. We don’t heal the sick. We don’t deliver medication. But that doesn’t mean professional producers aren’t valuable. Whether health care in America is managed by private enterprises or government agencies, there’s more to health care than stethoscopes and MRIs.

The NAHU white paper does an excellent job of laying out the important role producers play in helping Americans get the most out of their health care coverage. For instance, it cites a study by the Center for Studying Health System Change that noted “In contrast to the notion that brokers merely make insurance more costly, these findings suggest brokers can provide important benefits to small employers, plans and policy makers.”

This sentiment is echoed by the Congressional Budget Office, cited in the NAHU report, which concluded that, especially in the individual and small group market segments, producers “handle the responsibilities that larger firms generally delegate to their human resources departments — such as finding plans and negotiating premiums, providing information about the selected plans, and processing enrollees.” In fact, the CBO recommends that “because many small firms and individuals may find brokers’ services valuable, policymakers might consider allowing such services to be used in conjunction with [a buy-in option to FEHBP].”

Too often those policymakers look at health care too narrowly. The technology sector shows how misguided this can be. In his book Marketing High Technology, venture capitalist William Davidow describes the difference between a “device” and a “product.”  A device, in an IT context, is a piece of code or some hardware. It’s what is invented in the laboratory. Products, however, goes beyond that. “A product is the totality of what a customer buys,” writes Mr. Davidow. “It is the … service from which the customer gets direct utility plus a number of other factors, services , or perceptions, which makes the product useful …” (emphasis added).

Medical care is obviously the core service (the equivalent of the “device”) when it comes to health care. Staying healthy or getting well is the ultimate goal. But the health care system is about far more than what happens in the doctors office or a hospital. It’s the development of new medications and devices, it’s healthy living education, and it’s the expertise provided by professional health insurance agents, brokers and consultants.

Health care reform is coming. That’s a good thing. In shaping what that reform accomplishes, lawmakers would do well to look at the system holistically — as a product, not just a device. That includes, as the NAHU white paper shows, acknowledging and preserving the value brokers provide to their clients.