People in the insurance industry are now implementing their business plans for the current year. I like to think it’s part of what we call “proper planning.” After 43 years in the insurance business, I have seen markets come and go, and rely on experience to assess current marketing trends. So, here are some thoughts on how you can take advantage of Medicare products and markets that will affect your production, and add them to your portfolio of insurance offerings.
Medicare Supplements—Very, Very Stable
Initial sale compensation—$$$$ Renewal compensation—$$$$
As near as I know, there are about 120 companies throughout the United States that offer Medicare Supplements. Many of them are regional companies, but several are also national in nature. That allows for a sufficient mix in your portfolio without having so many that you just open up your vest and say, “See, I have this company and this company and so on—which won’t impress anybody other than yourself—and keep you from becoming an accomplished producer for any of them. Let me make the point—variety is available and abundant.
But, the biggest thing I see—as has been the case for several years—is stability in the companies who offer Medicare Supplements. That may not seem like a big deal, but it is. Few Medicare Supplement carriers go out of business, or withdraw their MS products. That is why, you, as an agent, can present your product and be satisfied that you and your client will have a company to rely on more than a year or two down the road. That, unfortunately, is not the case in much of the insurance market, for a variety of reasons—visualize what some major players in the Annuity and Long Term Care Insurance markets have done in the past few years.
As for the opportunity to sell to a huge group of prospects, never has any sector of the insurance industry had such great possibilities. The demographic of “Baby Boomers” will now be in its fourth year (2014) of supplying prospects at a rate of 10,000 per day. The boomers—those born between 1946 and 1964—are not really an “emerging” market, but one that has been going through its Medicare eligible growth for three years now, and offers you an incredible opportunity for new sales for the next fifteen years. What industry has that kind of possibility for you to work?
There will be changes, but commission structures have held steady with a large majority of the companies over several years. There was a threat in 2012, and it could possibly rear its head again. The threat came from what we called the Kerry/Stark bills—Kerry in the Senate and Stark in the House, when they realized that Medical Loss Ratio requirements for Medicare Supplement companies had been left out of PPACA (Obamacare). The move to include MS companies in the MLR mix was conjured up to create the same situation for MS companies that had happened to Individual Major Medical and Group Health companies— what in essence amounted to a ”halving” of commissions.
We, as an industry, struggled with that threat, and with the help of several large organizations, and lobbying groups, the National Association of Medicare Supplement Advisors, Inc. (NAMSA) played a role in notifying Congressional members that this was not good legislation. The bills failed, and both sponsors are no longer in Congress, but somebody will likely pick up the idea again, after being lobbied by some influential groups.
However, the main threat from Congress will probably be addressed in 2014, in a scheme known as “Cost Sharing,” will become a part of the Medicare “cost cutting” effort. It’s actual handle should be labeled “Cost Shifting,” as it involves a number of features to extract “more skin in the game”—read that more money—from the 10 million people who are Medicare Supplement policyholders. The plan structure—and its implications—are immense, requiring a complete change in how Medicare benefits are administered. And…it will surface as misguided lawmakers rely on outdated information to impose new taxes and benefit reductions on millions of Americans in order to achieve cost cutting measures for Medicare. Hold your breath on this one.
On the bright side, most companies have come to recognize agent satisfaction and simplicity requests and have created techniques that provide the agent with more tools. First among these was the “combo app” where more than one product policy could be issued with common underwriting. Secondly, the industry has employed “telephone” app capability, and some companies have introduced “internet” app techniques. Nearly all offer free lead systems based on production (even crediting monthly payments as annualized)—a measure that allows a producer to keep his or her prospect pipeline full. And, of course, for those who want it, advance commissions are available with many companies.
So, the overall picture for Medicare Supplement is very bright. A large variety of companies, company stability, marketing opportunities with new prospects, and ample commission structures (with very handsome “backside” commissions), indicate that producers are in a “catbird” position to add Medicare Supplement to their portfolios. There is ample room for more producers. The message that “now is the time to get in” should be heard by insurance producers in other arenas, and to ignore it is to shortchange yourself.
Medicare Advantage—Somewhat Stable, But a Mite “Touchy”
Initial Sale Compensation—$$$$ Renewal Compensation—$$
All the factors of success in Medicare Supplement are inherent in the Medicare Advantage field, with some differences. Stability of companies will be “touch-and-go” in 2014 as they deal with the legislation imposed on them by PPACA—the “Affordable Care Act,” or “Obamacare,” as it has come to be known.
Large companies will weather the storm, but smaller local or regional MA companies will struggle. The outcome for smaller companies will depend on their ability to achieve a “four star or better” rating (out of five stars), so that they will be able to participate in the bonus payments made to these companies.
However, there are two major factors that will affect all MA companies. In 2014, the companies will have to accustom themselves to Medical Loss Ratio requirements as discussed above. The companies will have to assure CMS/ DHHS that 85% of their income is distributed to enrollees. That is sure to have an impact on compensation (commissions), which to this point have been quite worthwhile to the producer.
Companies will also have to deal with myriad cuts to the Medicare Advantage program—estimated to be from $114 to $220 billion (depending on whose figures are used), over a period of ten years. Combined, both factors will create a serious hurdle to MA plans as they are now structured.
Likely changes will include benefit cuts, network affiliation reductions (this has already happened for the 2014 plan year with some companies), premium increases, and compensation adjustment—read that downward. In the area of premium increases, they will undoubtedly be used to offset the loss of MA money from CMS. No premium, or little premium plans, will probably disappear, and the cost of Special Need Plans, or plans for dual eligibles (enrollees qualified for both Medicare and Medicaid) will likely take a sizeable hit.
But, in spite of the negatives, many positives remain—free advertising from CMS and DHHS, which surface during the “Annual Enrollment Period”; company aggressiveness in company paid for advertising; the possibility of representing a “five star” company (whose products can be sold any time of the year); the abundance of 10,000 new prospects daily (which can be sold during the Initial Enrollment Period—any time of the year, during the “ageing in” process); Sufficient Medicare payments to companies which previously have kept premiums low or non-existent; simplicity in the sale of the product (no medical questions—with the exception of ESRD); and extensive industry and company training for new sales producers.
Part D—Prescription Drug Plans—Stable
Initial Sales Compensation—$ Renewal compensation—$
Again, the demographics of this market are huge, and represent opportunities during the “ageing in” period, as either Medicare Advantage Prescription Drug (MAPD) plans, or “stand alone” Prescription Drug Plans, either sold separately, or in combination with a Medicare Supplement plan can be utilized.
Although the compensation is low, many Medicare Supplement producers work with their clients to offer a plan which achieves their Prescription Drug needs. Medicare Advantage producers stand in a good position to offer MAPD throughout the year (ageing in), or during the Annual Enrollment Period.
Medicare has seemed to maintain some measure of control on the base cost of PDPs, with only slight variation on this cost (around $30 per month) for the past four years. Even though the compensation is small, many producers take satisfaction in helping their clients through the morass of PDP plans available.
