Health Care Reform Compromise: Unsolicited Advice Part II

Not only is this advice offered in this post unsolicited, it’s self-serving. While this blog is meant to be of interest to everyone interested in health care reform, its primary audience is health insurance agents. So what I’m about to suggest is clearly in their interest. And, as an insurance agent, in mine. Because it’s self-serving doesn’t mean it’s not good advice, it just means, it’s, well, self-serving. But hey, enough about me. <g>

One virtual certainty is that if a compromise emerges from the current negotiations between the staffs of the Governor and the Legislative Leadership it will include a cap on the percentage of premium carriers can spend on administrative costs and profits. The only thing still uncertain is what will be considered medical related expenses and what will be treated as administrative costs. The health plans are busily pushing to have such consumer-friendly items as disease management, wellness programs and the like treated as medical related. Hopefully they’re finding a receptive audience. These activities are a great benefit to consumers and help to lower overall health care spending. It would be a terrible consequence of a legislative compromise if they were to become too burdensome for health plans to continue with them.

The primary health care reform bill in Sacramento, Assembly Bill 8 (Nunez), explicitly defines distribution costs as administrative. This could mean that all agent commissions will be treated as applying toward the 15 percent cap on non-medical spending percentage. This would be bad news for agents as, especially in the individual and small group markets, their commission as a percentage of premium is not insignificant (neither is the services they provide, but we’ll get to that). Some carriers have gone so far as to suggest that if AB 8 passes with the administrative cost cap, agents would not be paid any commission for selling individual policies.

However, agents are paid a commission not just for selling a case, but for servicing it. Agents act as consumers’ advocates and counselors — at least the good ones do. Yes, they help consumers select the carrier and benefits package that best fits their unique needs and circumstances.  They help with the application process, often conducting numerous employee meetings even for smaller groups. And they help consumers navigate the underwriting process when that’s required. At renewal time, agents help consumers reevaluate their plan, compare it to others on the market and either re-up with their current coverage or enroll in a new plan. All of these are clearly sales related and should be treated as administrative expenses.

Agents also help their clients work through billing problems. It may be a snafu in accounting or the failure of the plan to acknowledge the arrival or departure of an employee from the group. Agents help families prepare when a child is no longer elgible to be insured as their dependent. When an insured is ready for Medicare an agent will help with that transition, too. These “customer service” type activities are also administrative in nature.

One of the most important service agents provide is helping their clients get the benefits they’ve paid for. When a claim is denied or the client feels they are getting the runaround from the carrier, agents step in and try to resolve the issue. This consumer claims advocacy role is critical. Clients are at a disadvantage to the carriers when claims problems arise. They’re dealing with the illness or accident that caused the problem in the first place. The terminology is new to them as are the standard operating procedures at the carrier and in the industry. They have jobs and family responsibilities, whereas the folks in carrier’s claims departments have little else to do eight hours a day other than deal with claims.

Often agents get involved in the claims process before a medical expense even occurs. They help their clients understand what treatments or medications are covered and which are not. They may assist with the pre-approval processtes (especially if the treatment is initially denied approval). In short, a significant portion of an agents value to their clients is help with claims. And these activities should not be counted as administrative, as they are part and parcel of consumers receiving the benefits they are entitled to — in other words, they are claims related.

So commissions should not be viewed as solely sales compensation. It’s also compensation for performing service, including claims related services. AB 8 should recognize this. The simplest method would be to include language that allows carriers to treat a percentage of agent commissions as claims related. What percentage?

Here’s a formula (for those too bored to follow it through, the result is “at least 35 percent of commissions should be treated as payment for client claims advocacy).

In the individual and small group market segment, commissions are not paid only at the time of sale (as it is for, say, a real estate agent). It’s paid out over time, usually on a monthly basis. And health insurance agent commissions continue to be paid out so long as the case remains in force.

The initial sale of an individual or small group medical plan takes, on average, two-to-three months in the individual and small group market segments. Renewals may require less time, but not always.  This means roughly 16-to-25 percent of agent compensation is sales related. Let’s use the higher number: 25 percent.

Talk to 10 agents about how much of their time is spent on “administrative-related” customer service and how much on “claims-related” customer service and you’ll get 10 answers — maybe 15. So let’s assume a 50/50 split. This means 37.5 percent of agents’ compensation is claims related, but let’s round down to 35 percent. 

So there you have it: if an administrative cap is going to be part of the compromise, well, so be it. I’ve written extensively about the unintended conseuquences such a cap will have, specifically, increasing the cost of coverage. If legislators are not intending to put the thousands (tens of thousands, actually) of agents out-of-business, then they should draft AB 8 to recognize the claims-related services provided by those agents. This means inserting language allowing carriers to allocate up to 35 percent of agent commissions to customer claims advocacy activities.

Of course, it could be negotiators and lawmakers want to eliminate agents from the system. In which case they could just say so. Or they could fail to recognize agents’ claim-related services. After all, actions do speak louder than words.