Thursday, February 17, 2011

Not so fast, David...

My good blog friend David Williams, proprietor of the usually well-informed and always interesting Health Business blog, takes a rare misstep in his post "Bye, bye brokers?" David's thesis is that, due to new Medical Loss Ratio rules, agents will be forced from the market and further, that that's no great loss.

As one might imagine, I disagree on both counts.

Let's start with his first point, that agents "often receive 10 or 15 or even 30 percent of the premium as commission."

I wish.

I can recall a time years ago when individual medical paid up to 20%, and group perhaps 15%. Those days are long gone. Today, individual business is in the 7-10% range (or less), and most small group plans are compensated on a flat fee (per member per month) which is much, much less than even the individual market pays [ed: let me guess, you make up for it on the volume]. If one does a good job, then one builds a "book" of such business, which then helps pay the bills. Remember though, that we can't raise your rates to pay for our expenses, which include office overhead, errors and omissions insurance, professional and license fees and the like.

David then points out that "When the going gets tough ... plans decide they’d rather use those precious dollars to pay their employees, cover overhead costs and make profits rather than seeing cash flow out the door to brokers." The problem, of course, is that insurance doesn't sell itself, so they're going to pay someone to market their products. Of course, those folks work for the carrier, not the client (employer), so don't look for any help on sticky claims problems. And, of course, the carriers want to make a profit, so good luck talking to a real person; remember, Customer Service is an expense, not a profit-center.

Which brings us to the next issue: "brokers claim to add a lot of value ... most have mainly just driven costs up. For example, it’s in most companies’ interests to stay with one health plan over a long period of time. It keeps transition costs low and makes longer-term interventions such as disease management pay off." There are a number of problems with this vision: for one, brokers are the best interface an employer has with a carrier. They know whom to call, what questions to ask (and which ones to avoid asking), and understand carrier processes. In other words, for most small businesses, the agent is the HR department, at a fraction of the cost of a dedicated employee (or several employees).

And it is most definitely not in an employer's best interest to stay with a carrier for long periods of time: to understand why, simply Google "death spiral." It's a fitting rebuttal to a seriously deficient claim.

David then casts aspersions on our intentions by stating that "[s]witching plans frequently lets brokers earn more money: they can shop around for the plan that pays them the highest commission." This is so wrong, on so many levels, that it could well be its own post. In the interest of brevity, though, I'll let David in on a little secret: every carrier pays pretty much the same, level commission on small group business, and it's actually counter-productive for an agent to "churn." It's in the employer's best interests, however, for the agent to shop the group every few years (cf: "death spiral").

This one's particularly specious: "Switching plans also makes it look like they’re working hard, rather than being lazy by just recommending a renewal." As previously noted, it's in our best interest to leave the group as-is, although selling renewals in this market is a chore unto itself. The simple truth is that, if we don't actively review rates from other carriers, another agent's coming in the door behind us asking the employer why his agent isn't doing his job.

Finally, David believes that "health insurance exchanges and greater ability for small businesses and individuals to compare plans head to head will make it harder and harder for brokers to stay in business." There are (at least) two problems with this: first, that's exactly what a good agent does now, at no additional cost to the employer. And there's one such exchange which not only acknowledges the role of the broker, but actively seeks it.

But that's another post.

Nice try, my friend, but no cigar for you.
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