Greg Scandlen has long been regarded as one of the nation’s most outspoken experts on health care financing, insurance regulation, and employee benefits. He is the founder of Consumers for Health Care Choices and former senior fellow of The Heartland Institute, and an accomplished writer, researcher and public speaker. Over the course of his career, Scandlen has worked for several Washington-based think tanks, including the Cato Institute, National Center for Policy Analysis, and the Galen Institute.

As part of a phased-in retirement, Scandlen is carving back his activity to consulting and blogging (gregscandlen.wordpress.com). EBA caught up with Scandlen to get his take on implementation of the Patient Protection and Affordable Care Act and its impact on brokers and advisers.

 

About a year a go, speaking to an annual gathering of benefits brokers, you offered some pretty blunt advice to a broker who asked you about what the post-reform future holds. I’ll summarize your response as, “Find something else to sell.” Do you still feel that way?

Yes, in fact I think it’s more clear than ever. When you combine the medical loss ratio standards and the state exchanges, the whole thing was designed to get rid of the broker. It was purposefully designed to make brokers unnecessary.

This is kind of part and parcel of a way of viewing the world that says that intermediaries are unnecessary — that they’re an added cost that provides no value.

This goes back a long way. In fact, it’s fundamental socialism. In the old Soviet Union, for example, they grew lots and lots of wheat. But they had lots and lots of hungry consumers. What they didn’t have were middlemen who would take the wheat from the farm and turn it into something that consumers wanted to eat, like bread. There was this longstanding sense back then that salesmen are of no value.

I think we’re seeing something similar play out here today — that salesmen provide no value and the world would be a better place without them.

 

In February, Susan Voss, the NAIC president told NAHU’s Capitol Conference that she believes the regulators at HHS have had an epiphany when it comes to the role of brokers, and now have a realistic view of the value added by brokers. What’s your reaction to her comment?

I guess I’d like to know who she’s been talking to. Kathleen Sebelius herself used to be an insurance commissioner; she hired Jay Angoff, who used to be an insurance commissioner. I mean, it’s not like these people are new to the insurance industry and are surprised by what they’re finding. I think they know perfectly well what the situation is, and I doubt epiphanies are possible for them.

If you look at the legislation, I just don’t think there is room for brokers. There are navigators, which I think are meant to be some sort of community organizers that go out and make sure everyone is enrolled in the exchanges. After all, if you have a website and a bunch of navigators running around helping everyone enroll, what do you need brokers for?

 

Let’s talk about the changeover from commissions to fee-based revenue.

Well, first, there simply is no room for traditional commissions under the MLR. You might get employers paying a fee to advisers to help them figure out what to do, but it’s certainly not going to be commission-based. Fee-based revenue is something I’ve advocated for a long time. I think having brokers work on commission is a conflict of interest. They should be representing their clients and not their carriers.

Marsh & McLennan got into trouble with that not long ago. In the P&C industry it’s been a prominent issue for a long time.

I’ve been advising brokers forever to start thinking of themselves as professionals — like CPAs, for example — delivering a service to their client that the client is willing to pay for.

I understand it’s extremely difficult to change your business model, but I do think it’s overdue. Nevertheless, to come in with a national law essentially requiring it is a very clumsy and thoughtless way of going about it.

 

What advice do you have for a broker seeking a way to make that transformation?

One thing I’ve suggested for a long time is for brokers to become certified financial planners, and see themselves more in that niche. In the individual market, and the small group market as well, insurance should be a financial planning tool more than anything else, in my opinion.

When you get into the mid-market, you’re talking about a different set of talents and skills that are required, but if you’re talking to a guy who runs a 15-person print shop, I don’t think his needs or options are very different than the needs of an individual.

 

Do you see any virtue in the state exchange concept?

Yes, of course. But it should be just a marketplace and not another level of regulation, as it is under PPACA. I think Utah’s exchange is more interesting in that way. But I’m not sure there’s any value added by having government do this at all.

I was a big fan of e-HealthInsurance. I thought they were doing a great job. My understanding is that they have become the contractor for the federal exchanges, which is too bad. They had some advantages that other similar models didn’t have.

There have been a number of websites on which you inquire about coverage and they connect you with an agent, for example. E-HealthInsurance had the advantage of allowing you to do some browsing before you connect with an agent. For my money, that was a lot more comfortable — you could see what’s out there, what the ballpark costs were, and then the final application is done by an agent — sometimes an in-house agent, but it could be an independent agent too.

I was with the Blues for a long, long time, with the national association. My area of responsibility was state regulation and legislation, part of which was working very closely with the NAIC.

A good friend of mine was heading up the NAIC’s small-group reform group back in the late ’80s and early ’90s. They were very clear that they thought the small-group market was too complicated for most business owners to manage — that there was too much competition.

Something similar is going on today. What we’re doing today is not going to lower costs, and it’s not going to increase availability. What it will do is rationalize the market. Their intention back then was to have four, or five, or six, companies providing similar kinds of coverage, to enable small business owner to compare options more easily. I think that kind of consolidation was very purposeful and very successful.

The NAIC did a bang-up job at reducing the number of competitors in the small group market. I think that’s part of what the federal insurance exchange is about also. They’d be delighted if there were only four or five companies allowed to compete.

 

How do you explain the adoption in PPACA of concepts that have proven to be unworkable, such as combining community rating and guaranteed issue?

Well, we saw the same thing happen in New Jersey. Every economist — liberal, conservative, across the board — told New Jersey that having community rating and guaranteed issue in a voluntary market cannot happen. And they went ahead and did it anyway, despite being warned that doing so would destroy the market.

I can only conclude that they wanted to destroy the market. Ignorance is not a possibility, because they were told about it.

Now, with PPACA you’ve got added administrative burdens, added taxes and a cap on allowable premiums. Sebelius has declared that anything in excess of a 10% increase in premiums would be considered unreasonable. Where did 10% come from? Whenever you see a nice round number like that you can be pretty sure it was just picked out of the air.

She is creating an impossible situation for private carriers. And of course she knows what she’s doing. She’s no fool.

 

How do you expect the efforts to defund or repeal the law will unfold?

Well, so far I’m pretty impressed with the Republican leadership in the House. They seem to be very determined, and I wasn’t sure that was going to be the case. So I take what they say very seriously. 

I’m not so sure that repeal is off the table. Everyone says that the Senate will not pass it and Obama will veto it. That may be true — unless there is something that he wants even more. It’s just amazing how these things can be orchestrated in Washington.

Moreover, passing a law is one thing, but implementing it is something else entirely. And I just don’t think the law was written well enough to be implemented. There are so many glitches in it that we come across every day. I do think there’s an epiphany going on regarding that. They’re coming to the realization that they have an impossible task.

 

What’s your take on the lawsuits challenging PPACA’s constitutionality?

I keep reading that the lawsuits that have been decided so far were decided on a partisan political basis — that two Democrat judges ruled in favor of the law and two Republican judges ruled against it. That is not a good analysis at all.

Here’s what really happened: It’s not so much a matter of who the judges are as who the plaintiffs are. The two cases in which the judge upheld the law were brought by terrible plaintiffs. They simply didn’t make their case.

The Liberty University suit was just awful. They threw everything in but the kitchen sink — a dozen or more arguments, starting with abortion. Just one thing after another. And they didn’t support any of those arguments very well. The judge’s decision in that case was entirely appropriate. He was right to throw that out, because they gave him no reason to rule any other way. The Michigan suit was even worse.

But the two cases that were brought by the state attorneys general were very different. State AGs are not fools. They know what they’re doing; they know how to do the research; they know how to do the support, and provide the proper citations. In both of those cases, the decision went in favor of the plaintiffs, and I don’t think it mattered who the judge was, because the cases the plaintiffs made were so strong.

In Florida, you have a federal judge who’s been around for 30 years. He knows what he’s doing. His decision was thoughtful and very well written. It could not have been better. It was a very serious opinion that the Supreme Court will take very seriously.

It  was also cagey. One of the things I noticed in Vinson’s decision was that he kept quoting past decisions by [Supreme Court Justice Anthony] Kennedy as precedents. He wasn’t quoting [Justice] Scalia, he was quoting Kennedy. Why was he quoting Kennedy? Because Kennedy will be the swing vote.

The Supremes may not go along with his severability argument, although that was very strong as well. We’ll see.

 

Do you think the Court will grant accelerated review of the Vinson decision, and hear it in their next term?

I think the possibility of that is greater than 50-50 — maybe 65-35.

So much money and so much effort is being put into implementing the law. If they’re going to say something about it, the sooner the better. There’s just so much at stake – I mean, we’re talking about one-sixth of the national economy. I don’t think they will ever look at a more important issue.

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