ACA Negatively Impacts Broker Commissions

A less healthy financial outlook may be an unintended consequence of the Patient Protection and Affordable Care Act for some insurance brokers.

"The medical-loss ratio requirements [that require insurance carriers to spend 80 percent or 85 percent of premium dollars on medical care] will impact broker commissions," according to Patrick J. Haraden, principal at Longfellow Benefits in Boston.

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"Because these requirements limit what an insurance company can spend for 'non-medical care' to either 15 percent or 20 percent including broker commissions, insurance companies may lower broker commissions to meet these requirements," Haraden said in an email.

Maria Harshbarger, senior vice president in the health and benefits practice at Aon Consulting in Chicago, said many carriers now itemize the commissions they pay so "it will require all brokers to be transparent because you can't bury commissions in that 'administration' component anymore because of the requirements of the medical-loss ratio."

While Harshbarger said such disclosures are not an issue for Aon "because we have been transparent for many years," such a shift in reporting could be a surprise to employer clients of some insurance carriers -- and they might balk at the cost. That "could have a negative impact on a broker's bottom line."

"I think the employer community is probably getting smarter because of this and I think it goes back to the, 'Am I getting the value from my broker partners ... that I am paying them for?' " she said. "When you know what that amount truly is, you have a different take."

The tussle over broker compensation has been going on for some time, "way before the healthcare reform was passed and the minimum-loss ratio cap was imposed," said Mark Kessler, director of strategic initiatives at HealthPass, New York, a health care exchange that offers 15 plans through four carriers and insures about 3,000 businesses.

He said the cap offers "a handy excuse and maybe has sped [carriers] up a bit but I think a reduction in compensation was coming anyway. ... It appears to me that they are going to go to flat rates."

Michael Owens, senior vice president of Chicago-based GoHealth, a health insurance distribution and technology company that acts as an intermediary between the agent and carrier, said broker commissions have been getting squeezed by as much as 40 percent to 50 percent since the ACA was signed into law.

"I believe that broker commissions will continue to see further compression as we approach and get to Jan. 1, 2014," when more elements of the law go into effect, Owens said.

--By Anne Freedman

October 1, 2012

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