How Health-Insurance Exchanges Could Affect Agents, Brokers

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.

A requirement of President Obama's health-care reform law 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 could have  significant impact on agents and brokers—especially those who facilitate policies primarily for individual and small groups of fewer than 50 employees.

States can set up separate exchanges for the individual and small-group markets or combine both markets into 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.

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 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.

The governors of Colorado, New York, Rhode Island and California currently plan to move ahead with their exchanges.

Although the exchange  provides opportunity for agents and brokers to be “navigators” to assist buyers, many buyers 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 an agent or broker becomes a navigator and whether they will be fairly compensated.

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.