Health Insurance Exchanges: The Effect on Agents

Although the 2010 Patient Protection and Affordable Care Act (PPACA) is currently under scrutiny by the U.S. Supreme Court for possibly being unconstitutional, many states are still pressing ahead with setting up insurance exchanges.

As part of the Obama health-care reform law, one of the requirements is that all states establish health-insurance exchanges to provide a mechanism to funnel federal subsidies and make it easier for consumers to shop for insurance policies. 

These exchanges have significant impact to brokers and agents, especially those who primarily work on individual and small groups of less than 50 employees. 

States may set up separate exchanges for the individual and the small group market, or they may combine both markets in one exchange. The states will then approve which carriers will be certified to sell individual and small group plans through the exchange. Underwriting and pricing of these policies is subject to rules contained in the PPACA.

Initially, group insurance on the exchange will be available to employers up to 100 employees, but states have the option to limit groups to those with 50 employees or less. Many states are planning to limit employer participation to those with less than 50 employees. The PPACA permits states to extend exchange coverage to larger employers beginning in 2017.

The state or federal exchanges will also administer the premium tax credits available to certain qualifying individuals. Beginning in 2014, individuals with incomes less than 400 percent of the federal poverty level, who do not have affordable employer sponsored health insurance, may qualify for federal tax credits to be used toward the purchase of individual health insurance. 

For example, a family of four would be below 400 percent of the poverty level if the household income is less than $89,400. This could represent a sizable portion of the American population that is entitled to subsidies if affordable insurance is not available through their employer sponsored plans.

If the new law is struck down by the high court, federal money would not be available to run the exchanges or provide the subsidies to help lower-income workers buy coverage. Thus, this new state bureaucracy will be competing for scarce resources. 

Millions of taxpayer dollars will be spent to establish an insurance market that basically duplicates what is available today but may have no teeth since individuals won't be required to purchase insurance. The dilemma for states is that under the PPACA provisions they have to be able to demonstrate that they can operate an exchange by Jan. 1, 2013.

If the Supreme Court does not issue its ruling until sometime in June, this will make it very difficult to finalize the necessary structure of the exchange to show that it is operational unless the states continue to work on the structure now.

Colorado, New York, Rhode Island and California have supportive governors who plan to move ahead with their exchanges. 

If an individual currently chooses not to purchase health insurance, it seems unlikely they will purchase it in the future if there is no requirement to do so. This makes the exchange just another voluntary insurance option which is currently available through most of the national health insurance companies such as Aetna, Cigna, United Healthcare and Anthem Blue Cross Blue Shield.

Impact on agents and brokers

Although the exchange is providing for agents and brokers to be “navigators” to assist buyers through the exchange, many could just view the exchange as a replacement to their current agent or broker, which means a lot of potentially lost income. 

The argument lies with whether the exchange will provide a “fair” playing field against traditional insurance purchasing or whether it will, over time, become a convenient way to cut the broker out. 

It also remains to be seen “how” you become a navigator and whether you will be fairly compensated to be a navigator. Regardless of the exchange's ease of use, businesses will still need guidance on overall benefit design and what benefits will help attract and retain good employees. These are issues that the brokerage community at large is very concerned about. Will there be a place for them over time if the exchange becomes the primary buying source for health insurance?

Lessons Learned from Massachusetts

In considering a state mandated healthcare bill, it is always important to consider lessons learned from the Massachusetts model:

1. With the increase in subsidies and purchase of health insurance, there is a significant chance that there will be a swell in demand for healthcare which could put a strain on an already stretched healthcare provider network.
2. This increase in demand could actually cause a surge in fees charged by providers as the demand outpaces supply.
3. The result will be higher premiums by the insurance companies. If the state tries to regulate price increases, the carriers may exit the state.
4. Fines have not been sufficient to keep individuals in the market. Primarily due to guaranteed issue requirements, people will purchase insurance long enough to resolve their health issues and then drop the coverage and pay the fine instead. 
5. In Massachusetts, the exchange rewards people for working and earning less. This reduces tax revenues which are needed to pay the subsidies for low-income earners. 
6. The exchange provides for employers to drop their group health insurance.