Democrats often shoot themselves in the foot. The recent healthcare changes were supposed to reduce the cost of healthcare; instead they are cutting spending for the consumer advocates of healthcare—the broker.
This is real money. I spoke with Trent Sutton in Pocatello who’s seen a 60-65 percent decrease of revenue for individual coverage. Mr. Leavitt and his firm Scott Leavitt Insurance and Financial Services had to lay off his assistant because of their losses.
According to Leavitt, former president of the National and Idaho Association of Health Underwriters, Idaho insurance brokers have seen a 25 percent loss in revenue since the first of January when health insurance companies enacted new medical-loss ratios (MLR) as mandated by the recent healthcare laws.
The medical-loss ratio represents the percent of a premium paid toward a claim or toward administrative expenses. Broker commissions fall under the administrative costs of the MLR. Before the changes at the beginning of the year, the MLR averaged about 75/25; now it is fixed at 80/20. To meet these new cost constrictions, health insurance companies are cutting commissions to brokers.
Colleen Thompson, the marketing director with PacificSource Health Plans in Eugene, Ore., informed me that everything is on the chopping block to stay within the new MLR mandate. Similarly, at Regence BlueShield of Idaho, Scott Kreiling sent a note to agents informing them that “…agent/producer commissions also represent a part of our operating expense and those needed to be addressed in order to align our total cost structure with the appropriate total cost to service each segment of business.”
As for the brokers, most people don’t think about them. We often view the insurance salesman as the Willy Lomanesque figure going door to door asking for money. It’s an outdated archetype. Brokers matter. A good broker functions as a consumer advocate finding the best product for you.
Some consumer advocates argue that insurance brokers are nothing more than travel agents. With the advent of technology, their role will become obsolete. Leavitt disagrees. “Booking a flight is transaction-based. The interaction ends after the purchase of a flight or hotel room, but buying insurance is ongoing. We service our clients and become advocates for them after they purchase insurance.”
There are many ways to adapt to the situation. In general, brokers are retiring early, diversifying their products, closing their offices and working from home, selling and merging with larger firms, or shutting their doors completely. Mr. Sutton and Mr. Leavitt are offering more products hoping to offset their lost revenue, but both worry that significantly increasing clients will mean less time servicing each client’s personal needs.
What happened? The new laws were supposed to cut costs, but instead they have cut the revenue of an industry that views itself as an advocate for consumers. Capping administrative costs doesn’t actually lower healthcare costs, it just shifts who pays for healthcare.
No one doubts that healthcare costs too much. No one doubts that spending must decline, but shifting the cost to the health companies and by proxy the brokers offers no incentive to change the way we practice medicine.
According to Sutton: “We need a fundamental change in the way we practice medicine. We go to the doctor too much. In other industries we utilize technology and it brings costs down, but not in medicine. Why?”
Generally we need to change a lot of things and it isn’t the commission, but rather our perspective.
Another broker put it this way: people get increases on their premium on home and auto insurance every year—and most people just take it— because if they file a claim they’ll get declined or end up with a major mark-up. Whereas with healthcare, which gets people back to work—if they don’t use it in a year, they feel like they’re getting ripped-off.
Representative Michael Rogers, a Republican from Michigan, is sponsoring H.R. 1206, “Access to Professional Health Insurance Advisors Act of 2011.” According to the summary, the bill “Amends the Public Health Service Act to exclude remuneration paid for licensed independent insurance producers from administrative cost calculations for purposes of calculating the medical-loss ratio of a health insurance plan.”
While the H.R. 1206 should pass, it fails to reduce the cost of healthcare. Until people use pre-emptive care, until people eat healthy, until we can implement technology to reduce costs, until we fundamentally change our behavior, costs will continue to rise. Only now we’re destroying the livelihood of the very people who can match us with the best care.
You can reach Tucker at firstname.lastname@example.org or follow him @Tucker849