Insurance brokers in California and other states have struggled financially since the passage of the Affordable Care Act, KPCC’S “KPCC News” reports.
Background
Dede Kennedy-Simington, president of the Los Angeles Association of Health Underwriters, said there are about 500,000 insurance brokers nationally who play an “integral” role in the industry (O’Neill, “KPCC News,” KPCC, 4/29).
In California, more than 12,600 insurance agents are certified to sell health plans through Covered California. Agents assisted 43% of individuals and families who signed up for coverage during the exchange’s second open enrollment period (California Healthline, 4/13).
Details of Hardships
Susie Fabrocini — an insurance broker and owner of Reseda-based Great Life Financials — said selling health insurance is becoming a less sustainable business under the ACA, in part because customers seek significantly more assistance.
However, under industry regulations, brokers are barred from being paid for post-enrollment advice. Meanwhile, their commissions — the source of an insurance broker’s income — have been shrinking, according to “KPCC News” (“KPCC News,” KPCC, 4/29).
While commission amounts vary, agents typically earn:
-1% to 4% of the first annual premium and a smaller percentage for each renewal for private coverage through the exchange;
-About 6.5% of the first annual premium for enrollees in the Small Business Health Options Program, or SHOP; and
-A one-time $58 fee for Medi-Cal enrollments (California Healthline, 4/13).
According to “KPCC News,” declining commissions can be linked to an ACA provision that requires insurers to spend at least 80% of their income from premiums on medical care instead of on administrative expenses. Under the ACA, insurance brokers are now considered to be part of an insurer’s overhead.
As a result, insurers have cut commissions to stay within their overhead budgets, according to UCLA health policy expert Dylan Roby. In some cases, commissions have decreased by half, according to “KPCC News.”
Roby said that “it stands to reason that a health insurance agent would find selling individual insurance less lucrative than they used to,” considering the cuts.
According to a 2014 Aflac workforce report:
-49% of respondents had considered or were considering leaving the business; and
-67% said “many of their peers” had left the industry in the last year.
Meanwhile, larger brokerage firms have started laying off employees because of commission cuts, according to “KPCC News.”
Implications
Experts say that a drop in the number of insurance brokers could adversely affect enrollment efforts.
Roby said, “I think a decrease in health insurance agents could actually undermine Covered California’s ability to target certain populations that have been hard to reach” (“KPCC News,” KPCC, 4/29).