Governor Schwarzenegger’s Health Care Reform Proposal and the Fate of Agents

Governor Arnold Schwarzenegger kicked off California’s health care reform debate today with a call to provide health coverage for all Californians. The Governors Health Care Proposal has three essential elements:

  • Prevention, health promotion, and wellness
  • Coverage for all Californians
  • Affordability and cost containment

Schwarzenegger’s proposal is more mainstream than the health care reform proposals put forward by the Clinton Administration in the early-90’s. Schwarzenegger’s plan increases the state’s oversight and engagement in health care, but doesn’t go nearly as far in this direction as Clinton sought.

Ironically, the governor’s proposal does contain elements of SB 2, the legislation requiring employers of a certain size to purchase coverage for their employees or pay a tax. SB 2 was signed into law by Governor Gray Davis during the buildup to his recall, but was later overturned by California voters in a 2004 Referendum.

The Governor and his team clearly kept a close eye on the politics of their reform plan as it took shape. For nearly every stakeholder (insurers, physicians, hospitals, consumers) there’s a “gain” to offset their share of the “pain.” Unfortunately for the target audience of this blog, the stakeholder which seems to incur the most pain with the least gain are insurance agents. 

The reason is that the Schwarzenegger health care reform proposal calls for insurers and HMOs to spend 85 percent of every premium dollar they receive on patient care. Yes, every Californian will need to purchase health coverage and every carrier will need to accept all comers. Schwarzenegger’s team estimates this would bring 1.3 million Californians into the private market with 410,000 of them buying employer-sponsored coverage and 890,000 purchasing individual coverage. This is a nice and substantial boost to any agents’ potential client base.

But let’s face it, if carriers only have 15 percent of the premium dollar to spend on all administrative and marketing expenses there isn’t going to be a lot set aside for distribution costs. Many carriers will continue to try to work with agents, but they’ll be forced to pay lower commissions or low, fixed fees. And some will simply bring all sales in-house. Considering that currently, the income from any particular sale averages only a bit more than a typical agent’s phone bill, this isn’t good news.

Let me be clear, I’m not suggesting agents give up on this market segment – far from it. The proposal just came out today. Maybe I’m missing something important. And there’s still a lot of questions to be answered. Just two examples:

  1. Does the 85 percent patient care target apply to each health plan, each market segment, or to all medical plans offered by a carrier to all of their customers? and
  2. Can a portion of agent commissions be attributed to claims by classifying it as a service fee?

Also, there’s a lot of debate yet to come. There will be changes to the governor’s proposal. Advocates on the left and the right have strong opinions and meaningful leverage. The governor has defined the starting point of this debate, not the finishing line. And this will be marathon, not a sprint. For those who read my 2007 predictions, I’m pretty confident we’re at least two years away from anything definitive emerging from Sacramento. And then there’ll be the initiatives and the law suites and the 2008 campaign and … well you get the idea.

What I am suggesting is that agents get involved – very involved – in the reform debate. The California Association of Health Underwriters provided substantial input to the governor’s advisors as they developed the plan. CAHU is well positioned to influence the final outcome as the proposals morph into legislation. If you’re not a member of CAHU, I strongly urge you to join – today. You can even join online (please tell them I sent you). Not since the debate over small group health reform (AB 1672) has a strong agent voice been more important.

While a critical first step, joining CAHU is only the beginning. Health insurance agents need to get personally involved in the upcoming health care reform debate. We provide a key perspective. We know first hand what works in today’s system and what’s broken. We also need to explain – clearly and forcefully – what we add to the system. After all, if decision makers don’t understand and value our role in the system, why should they make any effort to preserve that role?Personal involvement in the debate means following political and legislative developments (CAHU can help here and so will this blog). It means educating legislators, clients and the media. It means writing letters to Sacramento and to your local paper. It means volunteering, or recruiting someone from CAHU, to speak to organizations in your community on the health care reform issue.

As independent agents we have a unique and critical perspective on health care coverage reform. The Governor has placed this issue front-and-center. Change is coming. For the sake of our clients and our profession, it’s up to us to make sure it’s change for the better.