The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Medical Loss Ratios and Commissions

Posted by Alan on August 19, 2010

People don’t like uncertainty. In times of change, however, the unknown dominates the landscape. For health insurance brokers, the new health care reform legislation has created uncertainty of gargantuan proportions. Chief among the questions as yet unanswered:  will the medical loss ratio requirements contained in the Patient Protection and Affordable Care Act result in such severe reductions that brokers will need to leave the health insurance market?.

The import of this question is not a function of greed or avarice. Lots of people make a lot of money from health care. Mother Teresas are few and far between. America spends roughly $2.3 trillion on health care costs – roughly 16 percent of he nation’s GDP.  Hundreds of thousands of people put food on the their tables, roofs over their heads, and keep up with the Joneses by earning their share of these dollars. There’s nothing wrong with that. And there’s nothing wrong with professionals earning a living by helping consumers find the right health care plan, navigate the system, advocate on their behalf when problems arise, and keep them informed of new products and changes to the industry that may impact them.

After all, we’re not talking about selling iced coffee here. Health insurance is complicated, expensive, shopped for rarely and both personal and critical to a family’s health and financial wellbeing. When it comes to making decisions on products or services like health insurance, consumers – whether buying for themselves or for their company and its employees – want and need expertise. And that expertise is best delivered by professional, licensed health insurance brokers. (While there are legal differences among the terms “agent,” “broker” and “producer,” I am using them interchangeably here).

Don’t take my word for it. A lot of Insurance Commissioners agree. The National Association of Insurance Commissioners just passed a resolution calling on federal policymakers to “acknowledge the critical role of producers and to establish standards for the exchanges so that insurance professionals will continue to be adequately compensated for the services they provide.” (NAIC Resolution “To Protect the Ability of Licensed Insurance Professionals to Continue to Serve the Public,” adopted August 17, 2010). The Commissioners are concerned that the creation of “Navigators,” as called for in the PPACA, to help consumers use the new health insurance exchanges to be available by 2014 “could provide an avenue for untrained individuals to evade producer licensing requirements and expose consumers to harm.” But their appreciation of the role played by brokers goes beyond the context of exchanges. The NAIC is saying that consumers – and regulators – benefit from the involvement of professional brokers.

Which brings us to the medical loss ratio provisions of the new health care reform legislation. By limiting the percentage of premiums carriers can spend on administrative costs to 20 percent for individual and small group policies (and 15 percent for large group contracts) broker compensation will, by necessity be reduced. The math is simple, especially as it concerns individual health insurance policies. Carriers with a decent block of business need 7-to-9 percent of premium for administrative costs. They would like to make (but don’t usually) 4-to-5 percent on this business. That leaves 6-to-9 percent for distribution costs. Given that in some states the first year commission on individual policies is 20 percent declining to 5-to-10 percent for renewals, we’re talking about a significant pay cut here.

Maybe. Because an argument can be made that commissions shouldn’t even be part of the medical loss ratio calculation. Here’s the theory:

The intent of the MLR requirement is to reduce non-medically-related costs in the health care system and to prevent carriers from reaping windfall profits when consumers are required to obtain health insurance coverage. Fine, but as applied to broker commissions, the minimum medical loss ratio requirements may actually increase overall administrative costs. Commissions are paid by consumers (whether individuals or employers). Today carriers collect these funds and pass 100 percent of them along to an independent third-party – producers. Health insurance companies don’t benefit from these dollars. They are providing an administrative convenience to their members and to their distribution partners – a convenience that reduces overall cost in the system.

Instead of consumers and business owners having to prepare, mail and track separate checks to brokers, carriers do the work. (Similar to how carriers aggregate claims owed to a hospital into a single payment as opposed to requiring each consumer to pay 100 percent of their hospital bill and then get reimbursed by the insurance company). And because of their infrastructure, carriers can accomplish this task more cost effectively. Brokers meanwhile receive one check for multiple clients, another administrative savings.

Given that the health plans are not benefiting from the commissions, but that having them collect the funds reduces overall costs, one could argue that commissions should not be part of the MLR calculation at all. As with some taxes, commissions should simply be outside the medical loss ratio calculation. And that argument is being made – and heard.

Several carriers found this idea intriguing, but it is the National Association of Health Underwriters that has spearheaded the effort to bring this concept to the attention of the NAIC. (The NAIC is responsible for establishing uniform definitions and methodologies for determining how medical loss ratios are calculated). And they have succeeded. As noted in the New York Times, “Some insurance commissioners seem sympathetic to the insurers’ arguments, including on the subject of how to treat broker commissions, which have historically been part of premiums. The insurers would exclude them from premium dollars, making it easier to meet the 80-cent minimum. The new standards ‘could potentially disrupt the availability of private health insurance, and do not take into account the integral role of health insurance agents,’ Kevin McCarty, the insurance commissioner for Florida, said last week in a letter sent to regulators.”

As noted in yesterday’s post, the NAIC has included broker commissions in the administrative cost section of the form they promulgated that will be used to capture the information used in calculating carriers’ spending on claims, health quality and administrative expenses. At first blush this would indicate that the NAIC has declined to exclude commissions from the medical loss ratio calculation. However, I’m told by people involved in the negotiations that the idea remains alive and could be included in future communications from the NAIC to the Secretary of Health and Human Services (who has to certify the NAIC’s medical loss ratio calculation proposal) when the NAIC provides the actual formula to be used.

Excluding commissions from the MLR calculation remains a long shot. That NAHU has pushed the idea as far along as it has is testimony to the respect with which the organization is held by Insurance Commissioners – and NAHU’s commitment to its membership. What’s significant, however, is that the idea has gained traction. As well it should. Because if commissions are cut too deeply, brokers will either abandon the market or negotiate separate compensation arrangements with their clients. Abandoning the market, as the NAIC resolution highlights, is not in the interest of consumers. And arranging for the payment of separate fees will result in greater administrative cost and more inconvenience for consumers. Far better, to simply remove producer compensation (which all the funds are paid to an entity completely independent from the carrier) from the MLR formula altogether.


26 Responses to “Medical Loss Ratios and Commissions”

  1. Quint said

    All I know is I’ve had medicare appointments with seniors who received a call from a telesales person and they signed up the client and the client didn’t even know it. Nice Job. I really take my work as a broker seriously and when my 75 year old client can’t get through the complicated 800#, they have me to help them… Good luck dealing with the insurer directly.

  2. Phine said

    There is too much loss in the medical field that the government will never be able to sustain that type of spending.

  3. Ann H. said

    I would like to thank Nicole for posting. She gave us insight into what insurance company executives may be planning. Nicole, thank-you for expressing yourself and for explaining the logic behind the insurer’s viewpoint. Those of us who plan to survive in this business need to persevere through that season. Insurers may cut out brokers (at least for a while). I’ve been an independent health insurance broker since July 1980 (yes, that’s 30 years!). It hasn’t happened often, but I’ve seen insurers cut out brokers before. Those insurers soon reversed course, because they soon realized how much business the broker drives. Most insurers will tell you that the broker brings in the lion share of the business, keeps it on the books, and lowers costs by professionally servicing the business.

    As for shopping on the exchanges, Alan is correct when he says it will still be complex. The array of PPO, HMO, and HSA plans will make many consumers request assistance from a professional. The ability to cross state lines, or enroll in an association plan would complicate matters. The subsidy rules complicate matters. The variety of supplemental products that will be marketed will muddy the field. Look at Canada’s situation. There are supplements being sold to supplement their national healthcare plans! Even now, our insurers are pushing brokers to sell all kinds of ancillary products. The government’s “minimum coverage” plans sound like “catastrophic plans” to some people, and they may be looking for supplements and ancillary products. All of these products, new rules, and new marketing will make the consumer’s head spin. Thankfully, your clients have a relationship with YOU for trusted advice.

    For my friends in the health insurance field, a warning is in order. Nicole is correct when she says that many people will want to shop direct. She’s also correct in stating that these would be lower-income individuals with a distrust of agents, using their new subsidy money to buy the cheapest possible plan. Those aren’t exactly the “clients made in heaven” now are they? The middle-income and higher income individuals value professional advice, service after the sale, and long-term relationships. Since most of those “lower income shoppers, with internet expertise, using subsidy money, and looking for cheap premium” clients are in fact YOUNG, they will someday grow up and become your middle-income or higher-income client who learned the lesson the hard way.

    As agent/brokers, we need to persevere. No doubt some insurers will try to cut us out. No doubt insurers (and the government) will use websites to market directly. But really… don’t they do that now? Who buys medicare supplements from researching on Have you tried to use that website??? It’s heinous. They may look at, but then they call you. Have you looked at the new website that HHS just set up for its new national high risk pool called the “Pre-Existing Condition Plan”? The website is pretty. Yes, it’s incredibly pretty. But it lacks substance. It says very little, but repeats itself often. Just recently, they finally loaded the premium rates, but the application process is still cumbersome. The premium is much higher than we were led to believe, and substantially higher than market premiums for a $2500 deductible 80% plan with a $5950 out-of-pocket max, limited copays and limited prescription coverage. It’s no wonder that todate only 2400 people have enrolled in the 22 states in which the Federal government is administering the high risk pool.

    My point is that we already have competition from the government and direct-market insurer websites. Has it diminished your sales? How many life insurance sales have you lost because it’s easier than pie to get a quote for term life insurance online, in true “apples-to-apples” simplicity? My clients still call me direct when they have a need for life insurance, and I’m sure yours do likewise. Perhaps a “low-income, cheap premium” shopper buys term insurance online, but my business clients call me about buy-sell and keyman policies, and I haven’t felt a dip in sales due to the online competition. Can you count the number of new clients who called you and said, “I was looking at e-health insurance, and I’m confused, so I thought I would call an agent”. Their confusion was BEFORE taking an application and going through medical underwriting. Will the simplification of the exchange change that? Yes, somewhat. But not enough to kill off insurance agents like travel agents. Buying insurance carries a heavy mental weight. It involves a family’s finances and their health care, tax subsidies, possible options under an employer-provided plan, etc. Most of all, it’s EXPENSIVE and very important to a family’s well-being. Comparing that to purchasing a round-trip ticket to Omaha is not comparing apples-to-apples. Even if you compare insurance agents to travel agents, think about this one point. People who buy expensive trips, cruises, European vacations still use travel agents. Businesses still use travel agents for business travel for employees, clients or those attending their business meetings. The businesses would be like your GROUP clients, and the others would be like your middle-income or higher-income clients who value your expertise as they make decisions that cost a lot of money.

    I’m not trying to lull you to sleep and comfort you to the point of complacency. This will be a roller-coaster ride, and you must survive the dip that comes before you rise again. We will see a dip in commissions. We will see direct competition. Some insurers will try to eliminate the broker-marketing model (for a while). We will suffer rebuke from those who think we are worthless. We will take a backlash from those who have pent-up anger over the prices of health insurance in the past, and now can unleash that anger. If you’ve been in this business long, you’ve withstood that anger before, and professionally responded courteously. Rather than becoming complacent, all brokers will have to decide – do I stay or do I leave this business? Either decision is a quality decision. The worst decision is the middle-road. You won’t survive that.

    If you stay in this business, reinforce your trust relationship with every single client, including the employee who works for your GROUP clients. Oh, and also the employee’s wife! She’s the one who buys the family insurance anyway. Establish yourself as the “go-to” person, on health insurance matters and tax subsidies. You’ll get referrals. Let the “lower-income, cheap-premium shoppers” do what Nicole said they would do. Lose that client with grace, and get past it. Accept all referrals, treat all inquiries with respect, and retain your middle-income and higher-income clients. You’ll be fine. Then, when insurance company executives, like Nicole, realize that cutting out the broker/agent was suicide, you can enjoy the resurgence of that business block again.

    Just one “clueless” opinion from a health insurance agent who has survived 30 years in this business.

  4. James Thornton said

    I am not a broker, and the several brokers I have consulted with in an attempt to find more affordable health insurance for my family have, to date, not been able to find anything better than what we already have. In fact, the alternatives they have presented, sadly, have had higher deductibles, higher premiums, and reduced coverage.

    I do not say this as a way of slamming brokers; I am certain that many do their clients enormous amounts of good. I just have not been able to find such a person yet.

    To a layman and consumer of individual health insurance, this is a very eye-opening thread. If I understand it correctly, during the first year, a broker might get up to 20 percent of my family’s annual premium? Since we are now paying $22,000 a year in premiums for a family of four, this would be over $4,000.

    Let us assume a broker’s expertise is so valuable that he or she can legitimately charge $100 an hour. How many of you–honestly–spend a full week working only on one client’s situation, eight hours a day, five days in this week?

    If I further understand that the annual “renewal” commission drops to as low as 5 percent (somewhat offset, perhaps, by the ever increasing total premiums we are charged), then eventually the broker would be earning only, say, 5 percent of $22,000 or $1100 a year. This would require you to work only 11 hours a year on my behalf, perhaps a bit more reasonable of an estimate (though after a dozen years, it is hard to imagine getting this much targeted work.)

    Several questions:

    A reasonably well established broker, specializing in the individual market, is likely to have what basic ballpark range of clients? More than a dozen, surely, but less than 100?

    How many of these clients, over time, get a kind of cruise-control service? The broker forwards them their annual bills, perhaps listens to them whine about premium increases, etc., but other than this, doesn’t devote huge amounts of time helping the client.

    When huge amounts of time helping, say, a seven-year renewal client are expended by the broker, what are the most typical things you do? Argue with the insurance company about a denied claim? Explain new products to the client that might benefit them more? If the latter, does selling them a new product restart the commission back to that first year 20 percent? How much is educating a client about new products and services in his interest, and how much is it in your interest?

    Finally, when the exchanges do mercifully come on line in 2014, what makes you so sure that investigative financial journalists working for well-regarded publications like Consumer Reports could not put together detailed, comprehensive, and well-written reports that outline the pros and cons of different offerings, reports that most people could understand without having to hire an interpreter (broker) who understands the jargon (and, let’s be honest, benefits from keeping what Nicole dubbed a “mysterious” process as unfathomable as possible).

    The old cliche goes, “It’s not rocket science.” I am sure that brokers would love to keep the vagaries of health insurance as close to rocket science as they can.

    But in whose interest, other than the broker’s, is this really?

    Nicole, I suspect my comment here will earn more thumbs down than all yours put together. But I must say, to an outsider, what you have said makes a lot of sense.

    • Thornton,

      First, let’s be honest, eh? You are not an outsider. In fact, you have “slammed” the Health Care insurance field, and particularly the Agents/Brokers, for a long time. Further, you have stated far more than a dozen times your belief that Brokers don’t earn the gasoline it takes them to drive to your home or office, assuming that you are now working.

      You earned many thumbs down because you exhibited no respect whatever for those of us who work many hours with each specific client. Considering the amount of education we must accumulate to understand, and then educate those clients who desire to be educated, and considering the vast number of hours we spend educating and developing specific plans to meet the needs of our specific clients, we aren’t paid nearly enough.

      You said that it is not your intent to Slam the Brokers, and then you said: “I just have not been able to find such a person (a broker who does his clients a lot of good) yet.” Slam #1.

      You said: “If I understand it correctly, during the first year, a broker might get up to 20 percent of my family’s annual premium? Since we are now paying $22,000 a year in premiums for a family of four…” You are paying over $22,000 per year for Health Insurance? How is that possible? Just less than a year ago you said you couldn’t afford any, so needed the ObamaCare freebies. Further, Thornton, in my entire career, stretching over 40 years, I have never, ever, not once heard of anyone paying $22,000 per year for Health Insurance. How did anyone sucker-punch such an astute and brilliant individual as yourself? Did you buy every Hospital Weekly Cash plan that exists? Wow. Sorry, I don’t believe that you pay that much just for Health Insurance. Slam #2.

      The number of clients we develop is none of your business. Slam #3.

      Then you said: “When huge amounts of time helping, say, a seven-year renewal client are expended by the broker, what are the most typical things you do? Argue with the insurance company about a denied claim? Explain new products to the client that might benefit them more? If the latter, does selling them a new product restart the commission back to that first year 20 percent? How much is educating a client about new products and services in his interest, and how much is it in your interest?”

      You have asked those questions many times in the past and had all of them answered. Another Slam, #4, that is insulting and calling our ethics into question.

      Slam #5: “The old cliche goes, “It’s not rocket science.” I am sure that brokers would love to keep the vagaries of health insurance as close to rocket science as they can.” Where do you get off, Thornton, talking down to, condescending and patronizing, and “Slamming us in the face with your insults, as you do?

      Slam #6: “But in whose interest, other than the broker’s, is this really?” I see, we have no right to expect to earn a living, only to be a slave to your desires; nice, Thornton.

      Slam #7: “Nicole, I suspect my comment here will earn more thumbs down than all yours put together. But I must say, to an outsider, what you have said makes a lot of sense.”

      Thornton, you are what is known as a “Mal-content”. Worse, you are a very poor “Winner”. You got what you wanted, ObamaCare. You spent months slamming every one of us on this blog telling us what scum we are for months.

      It is my fervent prayer that you will NOT be allowed to spend the next six months slamming us again, when it is clear that you have no appreciation for what God and humanity has given you, for being allowed to chew off the hand that feeds you and spit it out, and to continue to express your obvious vacuous statements demonstrating your complete lack of understanding these issues. We have had to put up with your mean-spirited comments for a long time already. Any, who may wonder to what comments I am referring, please look up all of the Topics where James Thornton posted his bilious comments, complaints about how he had lost his job, wasn’t working, couldn’t afford food let alone insurance, and took all of us to task for expressing our convictions that ObamaCare was an ill-conceived, poorly researched, and disingenuous Bill jammed down the throats of Americans, the vast majority of whom did not want it.

      Amazing. The first post I’ve seen from you in many months, and already you’re complaining, even though you got your HCR for which you hungered and took us to task, in Law. Has the word or concept of “Gratitude” ever entered your mind? I would have thought that you might have matured some, Thornton. I thought wrong.

      • An Addendum to my comments:

        Any of you who want to spend the time reading the past many months of posts in which James Thornton took the Agents/Brokers to task on this blog, never hesitating to insult us, will need to read the archived topics beginning I believe (any members who remember his litany of slams against us, please correct me if I’m wrong) with March 2009 and continuing up through HCR passage in 2010.

        Spencer A. Lehmann, RHU, Member of NAHU

        Yes, I am disgusted.

      • James Thornton said

        Ah, Professor Moriarty, we meet again!

        If you would like, send me your email address, and I will send you bank debits in the amount of $1865.50 per month, which have been siphoned out, like clockwork, by Blue Cross/Blue Shield of Minnesota, since April, my family’s new rate (up from $1783.37 in March).

        The current rate, which is guaranteed through next March, at which point if will almost certainly go up again, works out to $22,386 per year. For this, my family and I each have an individual $500 deductible; we then shoulder 20 percent of the next accumulated bills up to $5,000; at which point the insurer covers it all. The policy does allow us free choice in doctors, but it doesn’t occur vision or dental.

        As you may recall, my wife and I are both uninsurable should we hope to switch policies, not because we have any major health problems, but because we both have taken antidepressants and statin drugs, two of the most heavily prescribed drug classes in America.

        Until health reform kicks in circa 2014–provided the Tea Bag Dick Armey of Brother Kochs’ S*****s don’t manage to derail it–we will continue to have to supplement our income with home equity credit in order to afford to continue playing these premiums.

        Mr. Lehmann, you wrote:

        “Further, Thornton, in my entire career, stretching over 40 years, I have never, ever, not once heard of anyone paying $22,000 per year for Health Insurance. How did anyone sucker-punch such an astute and brilliant individual as yourself? Did you buy every Hospital Weekly Cash plan that exists? Wow. Sorry, I don’t believe that you pay that much just for Health Insurance. Slam #2.”

        I enjoy Alan’s very thoughtful blog and have avoided posting any comments since his return from sabbatical because I understand this is primarily a broker/producer site.

        I did, however, find the piling on attacks of Nicole, who seemed quite reasonable to me, unseemly; this prompted me to jump back into the fray with an alternative view.

        As far as my questions go, such as how many individual clients an established broker is likely to have, and how many hours is devoted, on average, to a typical person’s case–why is this “none of my business”?

        If you hire a lawyer, you are entitled to know his or her hourly rate and an accounting of how many hours are spent on your case.

        Why do such calculations not apply to brokers? Why, if a consumer is paying upwards of 20 percent of his entire annual premium to a broker, is it “none of his business” to know how much work he is getting out of said employee?

        Alan, if you would prefer I stop posting, I will gladly do so. But given my history with Professor Moriarty here, I am not sure I should cave based on a single case of individual apoplexy induced by a set of (to me, at least) reasonable questions about a broker’s job description.

        • James,

          No, I didn’t know that you and your wife are uninsurable and are thus, paying higher rates. And (I don’t know why) I thought you lived in CA which enjoys tighter Insurance Dept. regulations than some other states.

          We have indeed, tangled in the past, “Sherlock”, but I hope not in the future. I don’t want to see you not post. Your posts clearly generate passionate responses, and that is a good thing.

          No one here was piling on Nicole, she encouraged the responses she received when she held herself out as a professional in the same category as we who help the public, the Agent/Broker community. Instead, as we learned, Nicole represents the carrier community, the companies, and therefore has little understanding of the role we Agents/Brokers play. You wouldn’t know that as you are a “civilian”, for lack of a better term. There is a definitive line drawn between the companies and the Agent Community as we, in reality, represent our clients, who pay us, and we in turn “hire”, “pay”, the companies when we submit business to them.

          Nevermind all that, suffice it to say that I don’t walk in your shoes, can understand your frustration, and only wish that you could understand that you are preaching to the wrong choir. We, the Agent/Broker Community are on your side. That doesn’t mean that we agree with Obama’s approach to solving the problem, many of us do not. In any event, I would not like to see you leave this site. Sometimes, friction can cause others to really consider their responses, passionate though they may be.

          Actually enjoying seeing you again, Sherlock,

          “Professor Moriarty”, aka, “Spencer Lehmann”.

    • Rick said

      Jim, as you know from our previous communications I own a multi-line independent insurance agency that derives approx 25% of its revenue from group health. Our group health commission averages 6% first year and the same on renewals. I’m sure we’re more cost effective than greedy over-paid government employees with all those generous benefits. Insurance sales is based on commission payment. This means we only get paid if we make a sale and satisfy the customer to renew. I think even Jim Thornton would grasp this to be a more cost effective method for the public than fixed salary and benefits. Although I’m beginning to wonder, as this was explained many times to you. Maybe your talent is writing and not being quick to comprehend.

      Your message is timely since I have been notified by our present health carrier, Blue Cross a non-profit insurer, of a pending 46% rate increase. Now I realize anything can be asserted when posting, but the fact remains I have our rate summary with me now. The rate summary quotes 7 other companies, 2 non-profit and 5 for-profit, with various coverage options and deductibles. The best option we find is Aetna, a profit making company. Aetna rated up our group 16% for health issues, but even with that, our final cost will be somewhat lower than what Blue Cross charged last year. Having an option is great, is it not?

      I have a question for you Jim. I know your hatred for anything that makes a profit, so should I stay with non-profit Blue Cross and pay 46% more or let greedy Aetna, and its evil stockholders, have our business?

    • Mark Goodman said

      James I fail to understand your angst with brokers. The fact that none have been able to help you to date may be because your situation isn’t solvable under the current regs. I don’t no the Minnesota or Pennsylvania markets but you may be in the wrong place at this time. Guarantee issue in California offers a choice of plans but the rates regardless of plans are the same for the age bracket. It never made much sense but that’s the way it is. If you or your wife has started a business a broker should be able to create a group plan. One again I have to tell you I don’t know the regs in your state.

      As far as commissions let me explain how people are paid who work exclusively on commission. The broker may be paid 20% first year and 10% on renewal including the rate increase but that’s not because you purchased a policy from that person. That commission doesn’t represent the work the broker may or may not have performed on your behalf. The high rate of commission represents payment for all the presentations and preparation that broker has done where their time was wasted or more politely the prospect said no.

      When you get a bill from an attorney can you justify it? How about the CPA or even your MD? My guess is the answer is sometimes yes but sometimes no. It is what it is. Much of what the CPA or attorney does is on templates and most of the office visits a family doctor the treatment is Ibuprofen or more stretching.

      If you really want the cost of health care to come down in a meaningful way you’ll have to look in a different neighborhood. We pay 35-40% more for our pharmaceuticals than neighbors and Euro friends. Do you really think leveling the playing field would ruin R&D? Why do hospitals seemingly all buy the most expensive latest equipment even when only a few blocks from each other? Sharing seems to be a lost art however running people through this equipment at a huge cost to pay for it is OK.

      The system isn’t prefect by a long shot and it is changing but unfortunately health care will continue to eat more and more of our GDP under the new reform.

  5. FL said

    MA health care reform has been a disaster for my family. My wife and I are fined about $2400 each year by the state of Massachusetts for not buying health insurance. I’m almost 60, been layoff, and jobs are hard to find. We live basically off our savings and investments and always paid our own medical costs; but, since receiving the fines our family budget is now out of balance, I‘ve had to reduced my insulin shots to save money; this will eventually lead to organ failure. The state is literally killing me with there fine. I’m being fined for being responsible and paying my own medical bills. If the fines continue and get bigger we plan on moving out of the state when I retire to save money; my pension will follow me and the state will loose out on our income tax revenue. Being fined for living? Being fined for not buying a financial product? We can afford a catastrophic plan that’s about 60% of the cost of a full plan, but we’ll still be fined by the state for not meeting there requirements.

  6. Nicole said

    I am Clueless. I am retired from a long career as a project manager in the home office of a major insurance company. I worked on projects that included product design (much of which is actuarially based )and marketing plans for new insurance products. In this role I always had to look ahead at the future markets when the new product would be introduced, sold and administered. That is my clueless perspective.

    The individual health insurance market is currently quite small – less than 10% of all health insurance insureds. Many currently uninsureds will end up qualified for federal subsidies who will be buying health insurance as a commodity. They will be drawn to the insurance product that has the lowest premium and the product that will has the lowest estimated annual cost of health care (based on premiums plus copays and deductibles derived from the actuarial value calculations). In other words, they will be buying the best value/price commodity. They will not care about HMOs, PPOs etc. And they will not like HSAs once they have had one high health cost year (look at the research on this – it is proven by insurers’ experience). They will likely to be suspicious of the bells and whistles of value-add products. Generally these consumers will be Internet-savey buyers. They do not have favorable opinions about insurance agents and brokers and so they will tend to bypass complicated non-transparent products and agents and broker to save money. I would add that small group employers who have not previously provided health insurance for the employees will feel the same and probably even more so.

    There will always be a need for some agents and brokers, but I believe it will diminish once the exchanges are up and running. I also believe insurance companies will be smart enough to pick up on customer’s desire to “shop and buy” their medical insurance on the Internet. This will drive insurers to gradually switch from agent/broker marketing strategies to customer service call centers.

    I do not believe that the current time-honored truths about marketing health insurance well remain so beginning in 2014. In fact, I believe that there will be ever-increasing demand for a Public Option that cuts insurance companies out completely. The more complicated and the more non-transparent health insurance products are, the greater the demand will be for a Public Option type option.

    MLRs are a way insurance companies can become more transparent and seemingly more fair-dealing with their pricing. It is not intuitive for the average consumer to believe they should pay more so the agent/broker gets paid. This is a cost of doing business from their perspective. The more the industry fights face valid MLR controls, the more the activist groups will expose them, thus the public will be more and more cynical and there will be more demand for a Public Option.. To those who think I am clueless, go ahead place your bets keep fighting the consumer to pay more and keep on perpetuating your status quo – let’s see what the health insurance marketplace looks like in 2020.

    • Nicole, I for one, am pleased with your honesty.

      That said, by your own admission, you are retired from a long career in the home office of an insurance company and were a project manager.

      Many, both in the public arena and those who work for insurance companies, are unaware that Agents/Brokers do not represent the insurance companies, and in fact, have a more adversarial relationship with them than we do with the regulators. They really don’t have a clue. Insurance companies will cut off the Agent Community as fast as they can, if they think that they can get their product to market and cut the agents off. In my very long career (over 40 years) I fought far harder trying to make the companies do the right and ethical thing, than I ever did with the Regulators. We did not represent the companies, we represented our clients. The companies did not pay us, we paid them when we submitted business to them, and if they did a rotten job, then we submitted it elsewhere.

      Your thoughts about the Exchanges being understood well by the public in 2014 is simply wishful thinking. It isn’t going to happen, though the companies will do all they can to cut the agents off. Should the exchanges come to fruition in 2014, as the bureaucrats hope, the companies may well attempt to save money by cutting the agents off. They’ve done it before, often. And when it fails, and the public still doesn’t have a clue, they’ll come crawling back, as will the politicians, asking the agents for help, and, as the suckers we are, we will, but not without great cost in very tight contracts that will not allow the companies or the politicians to “screw” us as they so often attempt to do.

      Your comment that “I am Clueless”, in your opening sentence, is clearly designed to prove to us that you aren’t clueless, as demonstrated in your next sentence. Sadly, when it comes to understanding what the public understands, how they think they understand it, and the role that the Agent/Broker Community has played historically in educating them in the complexities of this market, it appears that if not “Clueless”, you do lack a basic understanding of just how little the public does understand, and how little they care to find out for themselves, due to the normal apathetic attitude the have, strengthened by thier naive belief in what the companies tell them and in the politicians in whom they believe, because they do not want to believe that politicians like Obama, Pelosi (“you will find out what’s in this law when it is passed…”), Dodd, Rangel and Reid.

      Instead of running away from these “Honest pols” knowing how that Koolaide might be spiked, they continue to want to believe, in large part because it is easier than really digging for the truth.

      As an example, Nicole, do you really believe that when Obama’s method of paying for this very expensive bill comes due, the taking of $500 billion from this country’s seniors, that the then sitting Congress will let that happen, knowing that not one of them who votes to nail the seniors will be reelected? And if you do believe that, then what is it that you know, that HHS, CMS, and the CBO don’t know (they have stated for the record that it will not happen)? That might prove to be fascinating information.

      Please forgive (or don’t) my cynicism, Nicole,, I am not slightest bit convinced that you understand the dynamics of this business.

    • Mark said

      Nicole spoken like a true home office person!

      I do believe that internet buyers will gravitate to the lowest cost premium. These people often refer to this as “research” then are bitterly disappointed when the policy didn’t perform to their liking. Generic drug only pharmacy benefits is a classic example.

      The Medicare Part D site is excellent in looking back. You put in your current drugs and it will tell you the best plan to buy using current data. It can’t predict what changes may occur in the new year. That’s why looking at a plan based on past circumstance won’t necessarily predict future changes.

      Insurance by definition is to protect the insured from a future unknown catastrophic risk. Catastrophic to one person may not be to another; thus we still have choice.

    • Stacey Merritt said

      I am amazed at this sort of thinking.

      First and foremost, in my opinion, the government has absolutely no business, nor should it have the right, to create an entity that directly competes with private enterprise. Period. The government’s role should be to facilitate private business, not compete against it. This public option idea is totally anti-American. When the big three auto makers were in the tank two years ago, how would you have felt if the government decided to start a car company to compete with Ford, GMC, and Chrysler?

      If the government really wants to get serious about controlling health care costs and leveling the playing field, it should eliminate the price disparity between what it pays health care providers and what the private sector pays for same. In other words, permit providers to charge whatever they want, on the condition that they charge all parties, both public and private, the same for their services. It would eliminate the built-in advantage that the government would have by introducing a public option, would eliminate all opportunity for the government to cost-shift to the private sector, would eliminate every provider network in America, and would cause the government to be acting on both the private sector’s and public sector’s behalf when it sits down with the provider community to negotiate pricing.

      This public option concept is pure poppycock fantasy!

    • Rick said

      “I would add that small group employers who have not previously provided health insurance for the employees will feel the same and probably even more so”

      Written like a typical employee with utterly no understanding of running a small business.

  7. Kevin said

    If broker commissions are not excluded from the MLR calculations, the number of brokers will severely diminish, which spells bad news for consumers. Who better to help navigate this more-difficult-by-the-day health care maze than a licensed broker?

    Brokers are good guys in this equation. Here’s hoping they’re not prohibited from providing their consumer-friendly services.

  8. Jeff M said

    Nicole could not be more incorrect. The need for health insurance professionals will be needed even more. In regard to group health insurance, the standard commission earned by an agent is 5%. I have never seen any carrier paying the 20% figure she mentions, which would be too high of a percentage.

    • Alan said

      Jeff: I think she was referring to the 20% first year commission on individual policies in some some states. You’re right about the small group market segment. Broker commissions there are more likely to be in the 5-to-7 percent range. In both cases, in some states the commissions are substantially lower.

      • Alan,

        I think that the point being made by the posters to this thread has been strongly validated by Nicole’s comments in her opening comments. Nicole truly has not got a clue! She is lecturing to a site that is primarily made up of the very Agents/Brokers who will be harmed by this law, whether by commission or omission, whether intentionally of unintentionally (I think intentionally), and there are components of HCR that are already harming the very public it was supposed to help.

        Nicole hasn’t got a clue because she sings to the companies’ song books, written by them to keep the public from examining the HCR Law in more depth to see just how badly thought out this plan is, and just how much harm it will do over time, as the lid to this “Pandora’s Box is lifted and all of the creepy crawlies crawl out to sting the public, felling the Agents/Brokers along the way who would, under different circumstances help the public to understand just what has been done to them and offer proper advice on how to survive upcoming actions. Little of any of this will receive media scrutiny and the Obama Administration, and it’s cohorts in this action will go along their merry way patting themselves on the back for the wonderful job they did.

        Do I think that we Agents should be letting the public know that the sky is already falling, little piece by little piece? No. I do believe that it is our responsibility to let them know what the damage is that’s been done and help them to find ways to counter the damage until the day that Obama & Company admit to their folly, if they ever do, and undo those areas that prove to cause the greatest harm.

        Posts such as Nicole’ssimply add gasoline to the flames as she really has no idea of the depth, or breadth, or absolute confusion in which the public has been left. Thus her comments: “…health insurance products are currently mysterious (due to medical underwriting)…they are not sure of total estimated medical costs for the policy year…and…in 2014 all of this mystery will be gone (Abracadabra! A wave of the Obama want…and poof, all mystery disappears)…the public can buy their coverage from an Exchange and there will be no need for those Agents/Brokers to impart their knowledge because they can buy it from those oh so knowledgeable “Exchange employees” who will stand behind the counter, tell them to pick from Plan a through Z, “just sign here, and there, and don’t worry about what for what you will be covered, you will find out when you need it”…just a little play off of Nancy Pelosi’s intelligent remark, “Just pass this bill and then we can find out what’s in it! (cheery smile as said those words, from the spider to the fly).

        You have asked Scott not to be so harsh on ,Nicole, yet a full reading of her posts makes clear that she is against the Agent/Broker Community and is in favor of a Single Payer System, I.e. Canada, the EU, etc, and would see the Agents and Brokers “Fall off the Earth”; with a wave of her hand, swoosh, we have no raison d’être. We won’t be needed. Nicole is wrong. Her comments posted thus far are wrong, and demonstrate a Pollyanna approach to this allowing no light in to make it possible to see the dangers that lay ahead. What we need now is not her cavalier “all will be easy” discarded sentence, we need blunt truth so that we may be enabled to move forward and best conform ourselves to the twisted roads that lay ahead so that we may be best able to serve the consumer.

        Oh, and should Nicole find the time to read, she should read the 2000+ page law in its entirety, find out what is likely to stick, what is likely to NOT stick, and then, perhaps, she can lecture her family with more than a passing understanding of what lays ahead.

  9. Nicole Keller said

    What you say about the value of agents and brokers in the sale of health insurance is probably true for now because health insurance products are currently mysterious. Consumers buy without not being sure of the premiums (due to the impact of medical underwriting), they are not sure of the benefits nor are they sure of their total overall estimated medical costs for the policy year.

    In 2014 all this mystery will be gone and thus the need for the agent/broker will be much diminished. Consumers will be able to go to their state’s exchange and make well informed independent consumer decisions about which product they want to buy (each product has the same essential benefits, each can be bought at a stated price that includes an estimated total annual cost for the year). They will be able to buy it from the exchange – no need for an agent/broker.

    Insurers have a choice of several different marketing and servicing model (agent/broker, direct mail, inhouse phone sales force, etc.). The most costly model is the agent/broker model. Why should we put an MLR calculation rule in place that perpetuates the most expensive approach to marketing adding approximately 20% on to every consumer’s premium? This makes no sense. Worse yet if agent/broker costs are excluded from the MLR calc and other marketing models are not excluded, all companies will shift to this most expensive marketing model.

    The agent/broker business model exports as much of the application and claims servicing to agents/brokers as they are willing to absorb. It costs the insurer nothing and reduces their home office overhead. I think NAIC should estimate the portion of the current cost of selling the current complicated mysteriousness of health insurance, let’s say 25% of commissions paid, and exclude it from the MLR calc until 2014. Beginning in 2014 include all commissions as an insurer expense. This will force insurers to implement the most cost effective marketing strategies and it will give agents and brokers time to prepare for loss of or reduced commissions for selling health insurance.

    Insurance Commissioners: Please do not cave to insurance insiders on this issue. It will have a huge impact on consumers premiums and thus on our nation’s economy.

    • Alan said

      Nicole: Thank you for your thoughtful comment, but I find myself disagreeing with several of your premises. I don’t think “all the mystery will be gone” in 2014. Far from it. The law requires plans to cover certain benefits and to have specified actuarial values. But there’ll be a lot of leeway within those parameters. We’ll have HSAs, HRAs, HMOs, PPOs, value-based plans, and a host of other flavors. There’ll be plans available through a state’s Exchange and in most, if not all states, plans available outside their Exchanges. While some consumers may not feel a need for an agent (as many who buy online today feel), I think they will be far fewer than you suggest.

      And I didn’t intend to suggest that even if broker commissions are considered to be outside the MLR calculation that a 20% first year commission would long endure. In a guarantee issue world market forces will result in lower commissions. And ideally, that’s what would determine commission levels: the market. If brokers continue to provide value they should receive fair compensation for that value. If they don’t, then they won’t. Personally, I believe brokers will continue to provide significant value under health care reform (and the Insurance Commissioners tend to agree).

      Regardless of your feeling about commission, the suggestion that dollars passed through to independent parties still makes sense. If carriers aren’t benefiting from the funds, but merely serving as a conduit, it seems to me that these dollars shouldn’t be included in either the denominator or the numerator of the formula determining a carriers’ MLR. Whether those dollars are for commissions or some other purpose (such as taxes) using them in the MLR calculation does not further the purpose of the MLR provision.

      Again, thank you for your comments.

    • Scott said


      You don’t have a clue. Many carriers have tried direct sales forces, telemarketing, etc. and they never work. Brokers are the least expensive way for a carrier to sell products. Not to mention the savings they get on the servicing of those products. You really have no clue! I would love to have you spend just one day in my office and see what we do for our over 300 small group clients with regard to getting claims paid, conference calls with the pharmacy and insurance company. Getting the doctors to file claims with the correct tax id, getting hospital bills who lumped $10,000 worth of bills under one SIC code and therefore the insurance comany only covered half, when they should have broken the chages down into 3 codes which resulted in a full 80% coverage. Nicole, you have no clue. I just hope the country doesn’t get a chance to see how much of a clue you don’t have!

      • Alan said

        Scott: I wouldn’t be so harsh on Nicole. If the public doesn’t understand the value of what brokers contribute to the system it’s because: 1) we’ve done an inadequate job of educating them; 2) they don’t have an open mind; or 3) their brokers are not providing the value you clearly provide. The tenor of Nicole’s comments lead me to believe her perceptions are the result of the first or third reason.

    • Nicole:

      Much of what you said was also said of Medicare, and Medicare Supplements, back in the late 1960s, the 1970s, ’80s, ’90s, early 2000s, and only very recently has not been heard, as Medicare’s rules keep changing, thanks to Obama & Company.

      Agents’ commissions in the Medicare Supplement field were “leveled”, meaning that the renewal commission could be no lower than 50% of first year, meaning that for most Agents their commission fell to a level 10%. That meant that the Agents, who had to spend at least an hour or two explaining how Medicare worked, how a Medicare Supplement worked (then Plan A through F), and for all of the work involved and time spent, the Agents were paid a whopping $5.00 per month, maybe $10.00. Would you be willing for that little? We, who specialized in Long Term Care insurance, were required by law to make Medicare Supplements available to all.

      Not once, not in all of the years that my partner and I specialized in Long Term Care insurance and Medicare and Medicare Supplements did those 65 and over understand how Medicare worked. They don’t today, unless an Agent takes valuable time to explain it to them, to educate the public. We gave thousands of seminars to senior Citizen Groups, pro-bono, to help spread the education. When the Medicare Catastrophic Act of 1988 passed into law, I was asked by the local Social Security Office in Seattle, Washington to explain it to them. They didn’t understand it. They still don’t.

      Yet you believe that Agents, being greedy and caring only if they make a lot of money, will not be necessary in the dissemination of proper education to the public in light of the most onerous, confusing (most of those who passed the HCR Bill into law do not understand it and many of its confusing sections are expected to change, often, as the “Political” years go by) and hugely financially burdening new HCR Law?

      It is a shame that you have no link to let us know in which field you specialize. It is apparent that you are not an Insurance Professional, whether an RHU, REBC, CLU, or any of the number of the other Professional Insurance designations that can be earned (through a lot of study) for those who are professional insurance agents.

      You are very quick to tell Insurance Commissioners not to be pressured by [implied, “Greedy” insurance Agents] insurance insiders, which also demonstrates your complete lack of understanding of this field, or how it is delivered to the public, and how little the public understands of this very important financial investment that they are making to protect their futures. The most valuable thing that you can bring to the insurance consumer is to say nothing whatever of how this new law will work, until you have first educated yourself, sufficiently and thoroughly, and can explain the details to others knowing that if you are wrong, your Errors and Omissions insurance may be paying for some very expensive malpractice claims.

      Alan, I appreciate your wanting to have Nicole not feel unwelcome here. She is certainly not unwelcome. That said, condemning the professional insurance agents who post here for what we do for a living is, IMO, unacceptable when coming from one who is uneducated in this very complex profession. Should she be coming here to become educated, “Bravo”; if to lecture about a subject in which she has no knowledge, thanks, but no thanks.

  10. Well said and could you please present this remarkable foresight to Kathleen Sebelius?

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