PPACA’s Effects on Insurance Agencies

The new health care reform act is affecting many different industries and businesses, from the amount of health care coverage provided for employees, to the way businesses report the costs associated in their employees’ compensation packages. With so many changes set to occur in the next several years, the industry that will perhaps be most impacted by the new legislature is the insurance agency industry.

PPACA's Effects on Insurance Agencies

So, the question is, when the Patient Protection and Affordable Care Act (PPACA) opens up buying pools to individuals, will insurance agencies lose out on this business and have to consolidate or downsize, or will they begin to offer different services? Will small business clients of insurance agencies give up their insurance plans and leave it to employees to manage their own health care plans, or will insurance agencies step up their efforts, in either marketing their product or providing new additional solutions within their industry space?

These are questions many insurance agencies are asking themselves. As insurance agencies rely on COMPackage Total Benefit Statements to prepare compensation reports for their clients, Joe Blattner, Founder and President of COMPackage, decided to ask some of his customers this very question. Here’s one very thoughtful response from one client worth sharing with you here:

Patrick Paule, Employee Benefits Advisor for OneSource Benefits Solutions and author of Benefits Guy Blog, how his company plans on altering its business in the face of healthcare reform. Below is Mr. Paule’s thoughtful and exemplary reply:

“PPACA is an evolving monstrosity filled with complexities beyond any health professional’s wildest dreams. Between now and 2014 we will undergo a change that is so big in scope that even those who wrote the bill can not comprehend.

It is very clear that the main focus of the legislation isn’t reforming our health care system, but rather reforming our health insurance delivery system. All of the changes that have been implemented to date have dealt with access to insurance products, enhancement of insurance benefits, and regulation of insurance markets.

Two major pieces of the legislation will have significant impact on compensation paid to agencies and independent agents. The Minimum Loss Ratio requirement is already in effect and has caused insurance companies to reduce commissions especially in the individual and small group markets. Under the requirements insurers must now spend 80% (85% for groups over 100 employees) of all premiums on medical claims. Anything below this number must be rebated to the clients. In the past our compensation had been viewed as a pass through. Now it is considered part of the administrative costs. The second piece is a work in progress and must be ready to operate on January 1, 2014. An online marketplace known as a Health Insurance Exchange must be created to allow people to purchase insurance. The key to this exchange is that the only way an individual can qualify for subsidized insurance is if they purchase through the exchange. The compensation that may be paid to agents for selling these products hasn’t been established, but based off of how the high risk pools are being run the amount is nominal.

Other items, such as the guaranteed issue of insurance regardless of medical conditions, in the legislation will make it easier for small employers to discontinue their plans and push employees into purchasing on their own. They will look to do this because they can avoid the added administrative expenses they will incur in order to keep a plan in compliance. Not to mention it will eliminate a costly expense.

Insurance agencies are going to have to adjust in order to survive. The way we are planning to survive is by leading the charge into a world where we can serve as a consultant. In our new role we will aid in human resource consulting, payroll services, third party administration, long term benefits planning, and compensation practices. We must provide more value and give clients tools such as COMPackage that enhance our position. As I tell my clients, as head coach you are important to the success of a team. As your point guard I will follow your lead and help create a program of championship caliber.”

How is your insurance agency thinking of handling the changes? What plans have you already set in place to combat the changes? Would love to hear your thoughts in the comments below!

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