Covered California supports a uniform agent commission structure

Over the course of two different letters to U.S. Department of Health and Human Services (HHS) Secretary Burwell, the Executive Director of Covered California, Peter Lee, outlined the benefit of Certified Insurance Agents to their enrollment activities and suggested there should a uniform commission structure for health insurance agents. Mr. Lee’s comments come at a critical time when many health insurance companies are reducing and even eliminating agent commissions.

Peter Lee encourages uniform agent commission structure

The statements supporting agents were included in letters Mr. Lee sent to HHS addressing a variety issues with the implementation of the Affordable Care Act. The letters were making recommendations to HHS on User Fees, Standard Benefit Designs, and direct enrollment by Web Based Entities. Mr. Lee was making the case for potentially higher user fees placed on participating health plans in order to support marketing and education programs.

Both Covered California and agents need minimum compensation

An integral, yet often overlooked, marketing tool for Covered California and other Marketplace exchanges are Certified Insurance Agents. And just as the Obamacare exchanges need sufficient revenue generated for their outreach and education, health insurance agents also need a reliable revenue source in the form of commissions for their marketing efforts to premium tax credit eligible consumers. From the outside, it may appear that between increased user fees placed by the Marketplace and agent commissions there may be upward pressure on the health insurance companies to increase premiums to cover the costs.

As detailed on my blog and recently on Kaiser Health News, health plans are slashing agent commissions to reduce costs and limit enrollments.

• United Heatlhcare euthanizes agent commissions
• Cigna strips commissions from agents
• How much does a health insurance agent earn?
• Kaiser Health News: Licking Wounds, Insurers Accelerate Moves To Limit Health-Law Enrollment

Health insurance marketing costs decreased with Obamacare

However, Mr. Lee cites Covered California’s own research that shows health insurance companies have experienced a decrease in overall marketing expenses since the Marketplace exchange went online.

Covered California has done a review based on industry information and its experience with some of the nation’s largest carriers and estimates that before paying an assessment [user fees], health plans are on average spending about 6.5% LESS of premium on member acquisition than they were post-MLRs [Medical Loss Ratio] being in-place but before the advent of state and federal marketplaces. (See Table A linked here for detailed analysis. The major factors in that reduction in costs are:

• Decrease on the amounts paid to agents and an increase in sales not subject to agent commissions
• Elimination of underwriting costs.

While we also estimate that on average carriers may be marginally increased health plan service center and data-related costs, these increases are likely very small compared to the other areas of savings. The fact that with Covered California a smaller portion of health care premiums are being spent on enrollment and promotion is an important and relevant frame of reference, but the far more important fact is the positive impact on premiums by having a better risk mix as discussed above.” – December 21, 2015, CMS-9937-P User Fee Comments

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Covered California Agent Commission Analysis

While Mr. Lee doesn’t pinpoint where the data came from for determining the declining marketing expenses for the health insurance companies in Table A, Agent Commission Analysis, every agent has a unique consumer market. Some agents have enrolled a larger percentage of their clients in flat fee health plans such as Kaiser. Kaiser in California pays $100 per person for the initial enrollment year. Year two and beyond the flat fee is $50 person. That is a 50% drop in commission between year 1 and 2. The Covered California Agent Analysis reports commissions drop from 4.5% in the first year to 3% for renewals. That is a 33% decrease which is much less than the Kaiser commission structure. The Kaiser flat fee commission can always equate to a far smaller percentage of the overall health insurance premium. The $100 commission amount is only 2.8% of a $3,600 annual premium and under 1.8% upon renewal – that’s assuming that the premium didn’t increase either for inflation or age.

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Download (PDF, 114KB)

No commission cost for Covered California enrollments

A much understated figure in the Agent Commission Analysis is the fact that 54% of the consumer did not use an agent. There is no commission paid by a health plan on 54% of the enrolled consumers. In terms of dollars this is a huge number. This effectively cuts the expense of agent commissions in half for many health insurance companies for enrollments going through Covered California. As noted in the analysis, Covered California assesses the health plans $13.95 per person per month for each enrolled consumer or approximately 3.88% on an average $360 monthly premium.

Health agent enrollment channel

Mr. Lee goes on to describe the key roles agents play in marketing and support of Covered California.

A number of other key facts are important in understanding the relative costs promoting enrollment in the individual market supported directly by health plans. First, we assume that on average health plans are spending about 2% of premium directly on marketing and acquisition of individual-market insureds (both on and off exchanges). The biggest portion of this – about 1.6% of premium is in the form of payments to agents. Agents have been a vitally important sales channel used in California and having fair and adequate compensation for agents is needed given the importance of having in-person or moderated support for consumers.

In the case of Covered California, while the payments to Certified Insurance Agents are made directly by health plans – we actively work with agents in terms of branding, promotion and coordination. The fact that across California there are now more than 600 “storefronts,” the vast majority of which are owned, operated and entirely supported by Certified Insurance Agents — but all using common branding and promotion rules developed by Covered California. Covered California is literally on hundreds of “Main Street’s” across California because of these efforts. The benefits of this effort are reflected both by the fact that 40% of Covered California’s enrollment is through Certified Insurance Agents, and by the fact the even sales by agents in off-exchange insurance products benefits the overall risk mix. – December 21, 2015, CMS-9937-P User Fee Comments

Uniform commission structure

Covered California’s Executive Director offered specific rules to stabilize the eroding health insurance agent commission structure in another letter dated January 15, 2016, that addressed the Draft 2017 Letter to Issuers in the Federally-facilitated Marketplaces.

Agent Compensation – Chapter 5, Section 4:

In California agents and brokers are a significant enrollment channel for exchange members, comprising as much as 45% of the new membership enrolled during the 2016 open enrollment period and they play an equally important role during the special enrollment period. To prevent potential discrimination by an issuer seeking to avoid adverse risk of a membership population, as well as to ensure all issuers fairly and affirmatively offer and promote enrollment, it is suggested that consideration be made to:

• disallow an issuer to have different agent compensation between special enrollment and open enrollment periods;
• prohibit issuers from not paying agents for enrollment; and
• research the value of potentially setting a minimum commission amount so issuers are contributing at least a similar portion of premium to this important enrollment channel.

These policy considerations are particularly important given the policy requirement that agents inform consumers of all available plans and not just those issuers who pay commissions. – Draft 2017 Letter to Issuers in the Federally-facilitated Marketplaces

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Mr. Lee’s suggestions are all good. I would add a few of my own.

Health plans should recognize Covered California’s agent delegation as Broker of Record. Currently, some health plans such as Anthem Blue Cross refuse to automatically change the Broker of Record for the enrolled member if that individual initially signed up with a different agent or no agent at all.

• Commission structures should be the same for on and off exchange enrollment.
• There shouldn’t be different commission rates between metal tier plans.
• Commission rates should be relatively similar between competing health plans in a region.

Agents are Covered California support staff without the expense

The comments by Mr. Lee allude to the service that agents provide to consumers and, by extension, to Covered California. For every consumer an agent is able to help enroll through Covered California online translates into one less phone call that the Covered California service center doesn’t receive. Agents spend hours and hours a week explaining the enrollment process, immigration and residency requirements, how the APTC works, and how to use the 1095-A. Agents are the virtual Covered California call center. Covered California doesn’t pay agents for individual and family enrollments. But they do receive a very real benefit because their operating costs are lowered with agents handling so many enrollments and answering questions.

Commissions subsidize consumer assistance

Agents are not asking to be paid an hourly wage with benefits. Agents need a stable, reliable and sustainable commission structure. The commissions agents earn from Covered California enrollments help subsidize the tasks they receive no compensation for such as assisting people with Medi-Cal enrollment. Either way, it’s nice to know that Mr. Lee is concerned about some of the very issues I raised at an October 2015 board meeting. Of course, the larger question is if Mr. Lee’s suggestions for uniform agent commissions structures for the Federally-facilitated Marketplace exchanges will be proposed and adopted here in California?

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