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Tuesday, November 30, 2010

Another Victim of ObamaCare

Most people in the United States are unaware of the many effects of ObamaCare is having on one of the most important cogs in the insurance business. The agent who explains the product, helps you apply for the coverage and assists you with claims is soon going to be a thing of the past.

Last week while listening to Bill Bennett's Morning in America radio program, he received a call from a gentleman who does business in South Carolina by selling health insurance. The agent explained that Blue Cross had recently reduced his commissions by 75%. Although very informed on many issues, Mr. Bennett was surprised this was happenning. It is also occurring in Michigan by the same percentage!

The rationale is that now the insurance companies have to pay out 80% (on small groups or 85% on large groups)of the premiums received in claims. For example, if an insurance company received $100 in premiums, $80 (or $85) must be paid to the policyholders in the form of benefits. If the company pays out less than the $80 (or $85), it is forced to refund the difference to the insureds. The balance of the premium payment can be used for claims administration, underwriting expenses, management expenses AND commissions. It is obvious most companies believe their margins were larger than the allowable percentage, therefore they must cut where they can. Commissions are one way of doing that.

On top of the mandatory payout percentage, should an insurance company have a bad year (major flu outbreak, natural disaster, or other event which causes a higher than average usage of the health care system) the company is NOT allowed to recapture the dollars over the 80% (or 85%)cap. An example would be that claims were 120% of collected premiums, the company would be required to eat the difference between the cap and 120%. It would not be allowed to make up the loss.

In Michigan, an agent selling a small group Blue Cross policy was paid 2%, now he receives .5%. In dollars and cents, an agent who sells a $1000 per monthly premium was receiving $20 or $240 per year. Now for doing the same work, the pay will be $5 per month or $60 per year. Would you work for that type of pay? On top of that, most agents are independent contrators and have to pay for office space, staff, technology and their own health insurance. A cut of 75% will decimate most businesses including the health insurance agent.

Not only are the Blues the only companies who are cutting commissions but we have heard from several who are reducing commission payouts from 25-50%. Additionally, one company, Aetna,has decided to exit the 2 to 50 life group business. Principal will no longer write any health insurance business after January 1st, 2011. They are going out of the health insurance business.

With commissions plummeting and companies exiting the business well ahead of the major changes in health care which become effective in 2014, one can only wonder what health care will look like when we get there. One thing is for sure--it will not be what we have had in the past. But maybe that was the plan all along!