Agents that are certified to sell Covered California health insurance sign an agreement which in part states that the agent will fairly represent all the different plans. I have faith that all the agents will accurately represent all the plans, but they are under various incentives and realities that may distort some agent’s presentations to clients.
Different puzzle pieces of impartiality
One of the very first pressures many agents encountered is their appointment to various carriers. Before an agent can realize a commission from the sale of a health insurance policy the agent must be appointed with the carrier. It is relatively easy to become appointed with the major insurance companies in California: Anthem Blue Cross, Blue Shield, Health Net, and Kaiser. Some agents may not feel a need to be appointed with some of the regional carriers like WHA, Community Chinese or Sharp if they rarely work in their respective areas.
Will agents earn a commission from the sale?
A real pot hole for agents to make full accurate presentations is that some of the health plans in the Covered California are just not appointing agents. Health plans like Molina, Alameda Alliance for Health and L.A. Care have virtually ignored agents. It is hard to make a fair comparison between plans if the agent doesn’t even have access to marketing materials with carriers he or she isn’t even appointed with.
Not all agents independent
Some agents are captive with a general agency. They are limited to receiving commissions only the health plans their general agency contracts with. Even though an agent can enroll a member in a health plan offered through Covered California, if the general agency doesn’t have a contract with that particular carrier the agent won’t receive any compensation.
Medi-Cal compensation
Regulations prohibit Medi-Cal from reimbursing anyone for the enrollment of eligible individuals in their health plan. I have heard, but can’t confirm, that Covered California will compensate agents $25 for each Medi-Cal enrollment. Because of the new income and rules for Medi-Cal eligibility it should be straight forward to enroll someone. However, there is a lack of information about the various county-level Medi-Cal health plans being distributed to agents.
Flat fee compensation versus commissions
Another dimension to the impartiality puzzle is the commission structures and incentives the carriers offer. Commissions on health insurance were drastically slashed back in 2010 in order to help insurance carriers meet the new Medical Loss Ratios that state they must spend 80% to 85% of their premium revenue on health care services and quality improvement. While the new commission structures haven’t change too much, there are some carriers that are switching from a percentage to a flat fee per person per month. In some instances, depending on the actual premium, the flat fee may be higher or lower than the industry standard commission rate.
Incentives and Bonuses for health plan sales
Even with the advent of the reduced commissions, carriers haven’t dropped their incentive programs for either individual and family or small group health plans. Some carriers are offering new incentives with the new ACA compliant plans that pay bonuses for enrolling a certain number of new members or an additional cash payment for each new member based on age. This is just another reason why agents, who may have hated Obamacare last month, are suddenly preaching the “good news” of affordable health insurance through the ACA this month.
Who does the agent really work for?
The consumer doesn’t know if the agent they are working with is appointed with all the potential health plans being offered and has no idea of possible incentive the agent may have to sell one health plan over the other. In a perfect world all agents would be appointed with all carriers and the commission structure would be the same between health plans. Unfortunately, both the agent and insurance company lobbies are strong enough to prevent such uniform regulations. All consumers can do are ask questions about agent’s allegiance, appointments and incentives with the particular plans.
Agent’s biggest competition: Insurance Companies
Insurance agents have become marginalized as a marketing force as the large nationwide insurance companies deploy Internet, direct mail, print and TV advertising to solicit new business. Each direct sale an insurance company makes reduces the aggregate commission expense associated with their total business. With the general perception of the populace being that insurance agents are not necessarily be to trusted, many people prefer to purchase a health plan directly from the carrier.
Marginal Cost equals Marginal Revenue
The health insurance exchanges further reduce the agent’s role and create an easier route for direct sales for the insurance companies. So why haven’t insurance companies dropped agents all together? Part of the answer is found in the economic theory of marginal cost should equal marginal revenue. While the marginal cost equals marginal revenue model (MC = MR) is best suited for manufacturing, it can be loosely applied to sales. (Insurance agents or brokers are referred to as Producers in the insurance industry) To generate or produce sales costs money. The least expensive method of producing sales is if the insurance company can generate direct sales thereby avoiding the payment of commissions or flat fees to agents.
Marginal business
If a health insurance company has reached its maximum direct sales, but still has the capacity to sell and service more business, the agent represents additional or marginal business they can’t realize. The payment of commissions and incentives is the marginal cost to increase their revenue. The insurance company will continue to pay commissions and bonuses when the cost to acquire the marginal business equals the marginal revenue that each new member brings into the company.
The future of agents
Will there be a future role for the insurance agent after the initial enrollment period of the new ACA health plans? The agent or broker brings a far greater level of value to the small group line of business because of the quagmire of rules concerning those plans and the assistance necessary to enroll new employees. In terms of individual and family plans, the agent can be of value especially for households receiving premium assistance.
The cost of customer service
Agents can be of great service when it comes to helping individuals and families add new dependents, adjust income levels within the member’s exchange account, and help if someone qualifies for a special enrollment because of qualifying life event. The larger question will be if the compensation from the insurance companies is high enough to compensate an agent for their time of performing “customer service” duties for the members. I suppose that question will be answered in 2014.