How will the health care overhaul affect your agency’s health insurance sales?

On the Hill

Health Care Reform: An Agent Overview

How will the health care overhaul affect your agency’s health insurance sales?

In the wake of Congress passing and President Barack Obama signing into law the largest health care reform legislation since the 1960’s, the Big “I” is working overtime to analyze its impact on agencies that sell health insurance. Unfortunately, many of the specifics affecting agents’ ability to sell health insurance will be somewhat of a question mark as the law’s implementation occurs over the next four years. Many of the details of how coverage will be placed will be determined by regulations issued by the Department of Health and Human Services (HHS) and individual states in the years to come. More detailed analysis will be ongoing, but at this time, the Big “I” can provide some generalities about what the bill may mean for insurance agents that are selling health insurance policies. This article discusses the bill from the insurance salesman perspective and not that of a small business owner, which of course is another important vantage point of Big “I” members. Next week’s article will review the legislation from this small business perspective.

One of the most important provisions of the new law that will impact agents is the creation of state “Health Insurance Exchanges” for individuals and small groups. The law requires each state to create exchanges by 2014 that individuals and employers can go to for insurance that is provided by participating private insurers. The exchanges will include four tiers of private plans, co-op plans and at least two multi-state qualified health plans contracted out to private carriers by the Office of Personnel Management (OPM). The legislation leaves much of the details of the operation of these exchanges to each state. While agents will be able to place coverage for clients through the exchanges, the marketing or commission regulations are not yet clear. Additionally, consumers will be able to go directly to the exchanges without the assistance of an agent, and some consumers may end up choosing to do so.

Companies, meanwhile, will have to abide by new “medical loss ratios” (MLR) where the insurance plans must spend a certain percentage of premiums on health care delivery costs only. The MLR will be 80% for individual policies and small group plans while for large group plans (>100 individuals), it will be 85%. This means that, starting in 2011, companies will only be able to spend 20% of individual/small group plan premiums and 15% of large group premiums on things such as marketing, administrative costs and agent commissions. Companies would be required to provide rebates to consumers if they fail to comply with the MLRs.

Additionally, insurance companies will be required to abide by new federal requirements such as not discriminating against preexisting conditions, eliminating lifetime benefits caps, restrictions on annual caps and abiding by new individual and small group rating bands. Finally, the law also imposes a direct $2 billion annual tax on health insurance companies. The tax will increase each year until reaching $14.3 billion in 2018. For subsequent years, the fee will increase based on the previous year’s premium growth. These taxes are expected to strain insurance company profitability and their available capital for marketing-type activities.

The law is also estimated to bring approximately 32 million new Americans on to the health insurance rolls. About half of these would be the result of expanded government entitlement programs such as Medicaid and SCHIP. Nonetheless, that still means an estimated 16 million new consumers will be accessing the private insurance market. Although this means agents may potentially lose some customers because of direct competition from the Exchanges and insurance companies may face significant downward pressure on their bottom line that could translate to similar downward pressure on agent profitability, there is at least the opportunity for new customers.

Finally, the Big “I” anticipates that, for the next few years, many customers (especially small businesses) will find this new, complicated law and the resulting regulations very challenging. As a result, they will need an experienced agent to guide them through the process of obtaining health insurance more than ever. The Big “I” is committed to providing its members with the necessary tools to serve as that trusted health insurance advisor.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.