Because of changes wrought by health reform legislation, the idea of health insurance brokers and agents collecting commissions for their work will soon be a thing of the past.
In a letter sent to its “valued brokers” nationwide on Nov. 22, Aetna Inc., a major for-profit health insurer serving the San Diego area, said it will no longer include commissions for midmarket premiums (companies with more than 51 employees) but will rather administer whatever amount its employer clients approve to pay their brokers.
In the past, brokers and agents have pocketed a portion of the health care dollar when they process new applications or renew policies.
“For new and renewal business effective on or after Feb. 1, 2011, Aetna will transition to a direct service fee model that will allow you to continue to negotiate your compensation directly with your clients,” wrote Regina Hunter, senior vice president of sales. “Base commissions will no longer be included in the premiums charged to our customers under this model.
“Billing statements will be updated to include both the medical premiums and any fees you have negotiated with your customers in the ‘total amount due (category),’ ” Hunter continued.
“The transition to a direct service fee compensation model responds to the changing regulatory environment, provides greater transparency and makes it easier for our broker partners to establish fees directly with their clients.
“Aetna is prepared to bill and collect these fees on your behalf and we anticipate that many producers and customers will want us to provide this service.”
Big Change in Policy
One local health insurance brokerage executive said Aetna’s action heralds a big change in the way insurers do business, and expects the rest of the big for-profit health insurance companies doing business locally to follow suit.
“This is the most significant change to compensation ever to the local broker community,” said Mike Barone, president and chief executive officer of Intercare Insurance Solutions, referring to the Aetna announcement.
“It’s a step in the right direction in terms of increasing the level of transparency regarding broker commissions,” said Barone, who estimated that there are probably 100 companies in San Diego County — from one-person shops to large employee benefits outfits — that will be affected.
“This means that brokers all over town are going to start having conversations with their clients regarding the question of payment that can continue to be built into the premium — or a separate flat fee that is transacted between the two,” said Barone, whose company is the second-largest employee benefits broker in San Diego.
Given the complexity of the insurance market, he said, customers might be willing to pay for advice when purchasing coverage, and for helping with other insurance-related matters.
Barone said Aetna wants this new business process in place for all plans that renew on Feb. 1 so the change literally gives brokers and companies less than two months to figure out “what is fair remuneration.”
Commissions typically run between 4 percent and 6 percent of a policy’s premium, said Barone.
“Not all clients want the same thing of their health plan,” said Barone, “but brokers still collect the same commission for dramatically different services. It doesn’t always make sense.”
But starting in 2011, health reform’s medical-loss provision rule lumps insurance agents and brokers in with the administrative costs.
The medical-loss provision requires health insurers to spend 80 percent to 85 percent of every premium dollar for medical services, explained Barone. That leaves 15 cents to 20 cents for administrative expenses, meaning brokers must find a different way to be paid if they want to survive.
With health care reform, insurers are also looking at possibly rebating some of the premium costs back to employers if employees aren’t utilizing the health care system as much as they did in the past.
In the Nov. 8 issue of Health Plan Week, Joel Wood, senior vice president of The Council of Insurance Agents & Brokers, says commissions — particularly for the small-group and individual markets — are going to be squeezed as a result of the reform law.
“I know there is more need for broker guidance than ever before,” said Wood. “There is tremendous anxiety about the implementation (of the reform law), but brokers are playing more, not less, of a role in helping corporations secure coverage that best suits the needs of their employees.”
“Many are absolutely overwhelmed right now,” said Shawn Pynes, principal and director of employee benefits for San Diego-based Barney & Barney LLC, of his clients, in a previous interview.
Not only are they navigating the demands of health care reform, but many are doing business in a challenging economic climate.
Even before health reform hit, “Brokers realized that they needed to bring additional value beyond just selling a health insurance product,” said Pynes. “Increasingly, we’re consulting on a number of different business issues” that impact bottom lines, he added.
“These days, you have to do more than just bid the business on an annual basis,” said Pynes. “Employers need trusted advisers to develop longer-term plans” to help mitigate rising health care costs and deal with the reality of reform.
“Employers have so much on their plates already that they’re looking at us to help them,” he said.