Wednesday, March 12, 2014

Carriers Gaming the System

Insurance carriers aren't stupid. They run a business and their model is to make money. At the very least they work the business model to avoid losses when possible. 

Too bad government doesn't work that way.

But I digress.

Health insurance carriers withdrawing from the market is nothing new. It has happened before #Obamacare and will continue. 

But the number of carriers offering health insurance now vs. before 2010 has seen a significant drop off. 

For the most part the companies no longer playing in the health insurance pool had a small market share. Some only offered coverage in a handful of states while others were in 45+ states but never made an impact.

Carriers like World and Celtic are not exactly household names but in some areas they served a market with good products, decent pricing and above average customer service.

Moving toward 2014 we not only saw more carriers withdraw but some found ways to minimize the impact of new business by reducing or eliminating agent compensation.

Most carriers, Blue is the exception, get 80%+ of their business from the independent agent. Insurance agents are a low cost distribution model. Nothing is paid until business is written and approved. It's a simple system that has worked well for years.

At least until the government got involved.

The MLR (medical loss ratio) was an arbitrary figure used by the federal government in an attempt to make health insurance affordable. In their small minds, if a smaller piece of the premium dollar went to carriers prices would drop.

What they never understood was business economics 101. In a competitive environment the market, not the company, decides the ultimate price of goods and services.

By setting limits on the percentage of each premium dollar that can be used for overhead (including agent comp) they actually made things worse. 

Some carriers dropped out of the market which means LESS competition leading to a compressed market and higher prices. Without exception, carriers reduced home office staff which resulted in LESS customer service.

And several agents abandoned the health insurance market, often taking positions that meant lower income and lower tax revenues.

Since 2010 agents have seen a significant reduction in compensation. In most cases we earn half what we earned before for the same amount of work.

As if that wasn't enough, some carriers have decided to limit market share by paying $0 commission on business in certain areas. Several Medicare Advantage carriers do this in areas where they want to limit the number of policyholders that are almost guaranteed to lose money.

Last year Cigna fired a shot across the bow in a couple of states by announcing $0 commission on major medical plans written in certain states.

Now comes Coventry that issued the following memo.
2014 Individual Amendment 
You have been notified via an updated Amendment that Coventry Ohio commission will be 0% for all business submitted after 3/6/14. We will pay commission as indicated on amendment sent in December 2013 (8% / 4%) on any enrolled/active OH Coventry application for any plan that was effective 1/1/14 or later and received no later than 3/6/14.
There you go.

If a carrier wants to reduce their exposure they pay nothing for new business.

And you thought slavery was abolished long ago.

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