Many years ago there was an automobile dealer who pitched his cars on late night television. His commercials were presented in a near shout and with a staccato delivery.
“We lose money on every car we sell and do you know how we do it?” he would yell. “VOLUME!”
The illogic of losing money on every transaction and somehow compensating by losing even more didn’t seem to bother his customers, though, because he ran one of the largest and most successful dealerships in the area. When it comes to health insurance, however, selling policies below cost ultimately comes face to face with what is commonly known as the underwriting spiral.
Since an insurer can’t compensate for policies that lose money by selling even more of them, the carrier will attempt to discontinue the unprofitable policies instead.
But many states have affirmative marketing rules that require a carrier to offer certain types policies or leave the state. Rather than leave, many carriers simply make it more difficult to purchase their money losing plans.
Quote"When it comes to health insurance, however, selling policies below cost ultimately comes face to face with what is commonly known as the underwriting spiral."
In North Carolina, for example, carriers are losing money on plans offered under the ACA. To discourage sales of Special Enrollment Period (SEP) policies, in particular, three major carriers have eliminated broker commissions. Clients must now wade through the labyrinth of policy offerings by themselves. This hasn’t happened because the carriers fail to recognize the value of their brokers, but just the opposite: Carriers are cutting out their brokers because they don’t want to sell their policies.
Consumers need insurance brokers
It is consumers who are hurt the most by this, and one of the most troubling outcomes of doing away with professional advice to assist in the selection of a policy is that it leaves the least educated and the sickest of patients to fend for themselves.
Despite all the hype about government-run websites making the purchase of health insurance easier, many consumers still turn to an insurance agent for help. Covered California insurance agents, for instance, accounted for more than 40% of the exchange’s enrollment last year, compared to the roughly 30% of people who signed up online. A Kaiser Health News survey found that these brokers received a 92% approval rating from the consumers they helped navigate the marketplace.
The complexity of health insurance means that most consumers need the help of a professionally licensed broker to research the market, identify their best options and answer questions about plan costs and benefits.
And it doesn’t stop there. After the sale, brokers continue to help their clients file health claims, solve problems with provider access and by providing regulatory guidance for employer groups.
Recognizing the folly of cutting broker commissions, Covered California Executive Director Peter Lee has his organization working on a proposal that would force plans to pay commissions. It recognizes that broker commissions are, in fact, a consumer protection issue.
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