Commission Cuts Effective January 2010?

[moonlightandmargaritas]

My point was, I knew commissions would be affected.

Here's the deal: whether MLR affects it or not, companies will use any opportunity available to cut comp - even if it's a smokescreen.

Of course, they'll do this while telling you how "agent-centric", and "committed to their agent partners" they are...

Bend over and grab your ankles...it's coming!

 

[nolaagent]

Here's the deal: whether MLR affects it or not, companies will use any opportunity available to cut comp - even if it's a smokescreen.

Of course, they'll do this while telling you how "agent-centric", and "committed to their agent partners" they are...

Bend over and grab your ankles...it's coming!

I agree m&m...

I hope TX is right because obviously we'd all prefer that, but the carrier contacts I have says they are leaning towards flat fee pmpm (which I think is still workable).
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I don't see that happening. I see massive cuts in the 4 to 8% range on future and in some cases existing business 10/1/10 and beyond. A lot depends on the HHS and MLR formula - see my other thread.

Agree some carriers will cut-down/off agent's existing book of business. Read your contracts and most likely they can term an agent for no reason and stop paying commission.
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What is the basis for your argument? Obviously I disagree, so I would be curious how you will justify your statement. Just a hunch, or are you tapped in to the actuaries minds?

As to your second comment, only a handful of carriers have the ability to pull off DTC solicitation. Certainly Blue is one of them, but even with their presence they still get 60%+ of production from brokers in GA. It may be different in your state.

Humana probably does a better job of writing business direct than most of the other carriers but roughly 80 - 85% of their business is broker directed.

Everyone else get's less than 10% direct.

Even with "standardized" plans and a TBA Exchange, most buyers will purchase through an agent.

I'm not making an argument, I'm just providing information on conversations I've had with many colleagues that are leaders/actuaries at some of the major individual carriers (UHC, HUM, WLP). Of course each state could be different with their HHS/DOI formula for calculating MLR.

I hope your right and nothing changes till 2014!

 

[nolaagent]

Agent compensation will have to change. There's no way carriers can pay the current comp to agents (15% - 30% of premium) and maintain an 80% MLR. They will need to move away from percent of premium model and likely go towards a flat fee per month per member .

WSJ Online
Health Overhaul Hits Sales Commissions

By MARK SCHOOFS And AVERY JOHNSON

Among the first to feel the effects of the nation's health-care system overhaul are insurance salespeople, whose commissions for selling policies to individuals and small groupsare themselves getting overhauled.

The new law requires that insurers use at least 80% of the premiums to pay for medical care for patients rather than administrative costs and profit-taking. But many companies that sell health insurance to individuals and small businesses maintain a lower "medical loss ratio" because they use more of the premium to cover administrative expenses, including sales commissions.

The commissions typically run between 4% and 6% of a policy's premium, but can be as high as 30% for the first year.

A recent Senate report found that companies targeting the market for individual policies paid only 74% of their premiums for medical expenses in 2009, while firms that target large employers generally met the law's required ratio.

Companies are already starting to change how they pay salespeople. Starting on May 1, Independence Blue Cross of Philadelphia, Pa., stopped paying small-group agents a percentage commission and instead switched to a monthly flat fee for each contract sold.

The company's small-group medical loss ratio is 85%, which is comfortably in line with the new regulations. But it wants to keep agent outlays flat amid rising medical costs, said Jim O'Connor, director of small group sales at the insurer, which covers about 380,000 small-group members.

Janet Trautwein, CEO of the National Association of Health Underwriters, which represents insurance agents and brokers, predicted that "eventually there won't be any more percentage commissions." Commissions come in a dizzying variety of structures; a common flat fee is $15 per person.

"We do anticipate that agent and broker compensation will go down," said Jeff Smedsrud, co-president of health insurance operations for Independence Holding Co., which takes in about $600 million annually in premiums sold through three subsidiaries, Standard Security Life Insurance Co. of New York, Madison National, and Independence American Insurance Co.

Insurers that target individuals and small businesses rely more heavily on agents than those that target large employers. What's more, commissions per policy tend to be lower for large-group sales than for individual and small-group sales.

This June, American Family Insurance Co., a property and casualty insurer based in Madison, Wis., will hand over the administration of its individual insurance policies to American Enterprise Group Inc., because American Family decided it can't shoulder the administrative costs, said a spokesman.
American Enterprise, based in Des Moines, Iowa, currently has 60,000 major medical policyholders and sells through 29,000 agents. That company is also re-evaluating its future. "Subject to pending regulations, American Enterprise likely will need to reduce sales-related costs, such as commission percentages," said spokeswoman Mary Durand.

Humana Inc., a large insurer with one million individual and small-group policyholders, also sees change coming. In a first-quarter earnings report to Wall Street on April 26, its chief executive, Michael McCallister, said that "there is going to be pressure on commissions; there is just no question about it."

In Idaho, major insurers instituted flat fees between three and four years ago, according to Scott Leavitt, who runs the a three-agent firm in Boise. Initially, he suffered about a 20% drop in income on individual policies, he said, but he has been able to make that up.

The main reason: Mr. Leavitt had many older customers whose premiums—and therefore his percentage commission—were high because of their age. The flat fee on those customers was less than the old commission. But for young customers, the flat fee was higher, especially if they had children, on whom agents also earn a fee. Selling to such young families is the main way Mr. Leavitt said he has made up the initial loss.

In the small-group market, however, Mr. Leavitt now gets paid a flat fee per employee, regardless of how many dependents that employee has. He estimated that he has suffered a 25% loss in that market, which he hasn't made up. Overall, he said, income on his health-insurance book of business is down about 15%.

Mr. Smedsrud, of Independence Holding, said another option would be for insurance companies to stop paying commissions altogether, and to have agents and brokers charge their customers instead. The model, he said, would be "fee for service as a consultant, much in the same way that your financial adviser might charge 1% of each transaction for his advice."

Given the complexity of the insurance market, he said, consumers might be willing to pay for advice when purchasing, and for help when filing or appealing claims.

 

[DS4]

Back in the early 80's, as an agent for Blue Cross of California, on small group, I was paid $3 per employee per month. Looks like I've now come full circle.

 

[somarco]

The carriers are going to have real problems if they are going to stay in the game. The direct marketing gig doesn't produce as much business as agent generated, has a higher COA and a lower persistency. If they don't include agents, and compensate them fairly, they might as well get out.

 

[TXINSURANCE]

The carriers are going to have real problems if they are going to stay in the game. The direct marketing gig doesn't produce as much business as agent generated, has a higher COA and a lower persistency. If they don't include agents, and compensate them fairly, they might as well get out.

If carriers could achieve a lower COA with direct marketing then paying us a small commission, they would have done so a long time ago. This is really a problem for carriers to cut agents out of the picture as the MLR makes it even harder to do affordable direct marketing.

 

[ABC]

As we speak the industry is developing products to work outside the exchange.

Anyone who knows anything about this industry knows the exchange is going to cost a lot. The only way anyone will be able to afford those policies is if Uncle Sam is subsidizing the premium but you still have to have the money to pay the premium.

Right no with the MLR most carriers are operating with those % on the individual side. UHC is operating at less than 70%.

The big thing with the MLR is the premium re bate checks if there are any will go back to the insured and not the group.

As far a Comp:
There is going to be huge opportunity to sell outside the exchange. Those are going to be cherry picked cases but thats where its at.

The small group market is going to be huge.
The large group market 50-250 will drop off of the books. It will be cheaper that market to take the penalty in 2014.
The indy market you will have to write a lot of business to make the same. If I don't have to deal with underwriting I would double my approval rate each month.
Remember the Carriers are no longer going to have to pay underwriters.

If you think for one second the health insurance industry is not going to make money you are clueless!

 

[The Mole]

From my conversations with my reps, it sounds like the Individual market may look a lot like the small (2-99) group market. And I too have heard that commissions is heading towards a per member flat fee, and it's going to be here sooner than later (4Q10).

 

[Justin Bilyj]

I heard from the grapevine that a certain Golden company will be instituting 5% commissions, at the 4Q

 

[Crabcake Johnny]

Yes, but what's E.F. Hutton saying?