Bye, bye Brokers?

In general I oppose the minimum Medical Loss Ratio (MLR) provision of the Affordable Care Act. If an insurer can help keep me healthy and out of the hospital and doctor’s office I’m happy to pay them to do so. But I have to admit I’m pleased that the new MLR rules are putting the squeeze on brokers. See Will health care law be a job-killer for insurance brokers?

Brokers usually serve smaller companies and individuals; they often receive 10 or 15 or even 30 percent of the premium as commission. The commissions are paid by health plans, which have relied on brokers to deliver the business and have been scared to alienate them. But those commissions are part of a plan’s administrative expense. When the going gets tough –for example as the total administrative cost is capped at 15 to 20 percent of premiums– plans decide they’d rather use those precious dollars to pay their employees, cover overhead costs and make profits rather than seeing cash flow out the door to brokers. Already commissions are being cut and brokers are starting to be forced to try to collect revenues from the companies that purchase health insurance rather than the health plans.

Although brokers claim to add a lot of value, in practice most have mainly just driven costs up. For example, it’s in most companies’ interests to stay with one health plan over a long period of time. It keeps transition costs low and makes longer-term interventions such as disease management pay off. But brokers tend to churn through plans. Switching plans frequently lets brokers earn more money: they can shop around for the plan that pays them the highest commission, and take advantage of the fact that commissions can be higher for new business than renewals. Switching plans also makes it look like they’re working hard, rather than being lazy by just recommending a renewal. Many small business owners have no clue how brokers operate and get taken advantage of as a result.

The coming health insurance exchanges and greater ability for small businesses and individuals to compare plans head to head will make it harder and harder for brokers to stay in business. Some really good brokers –and let me say clearly that there are some out there– can find a way to add value. But plans and purchasers are likely to be tougher customers in the future. That’s as it should be.

Repeal proponents have said the Affordable Care Act is “job-killing.” When it comes to brokers’ jobs they are likely right. I say Amen!