The outlook has been bleak for ACA producers as more and more insurance carriers announce drastic cuts (or even eliminations) to their commissions. It’s a hard pill to swallow, especially with all the time and energy it takes for each ACA appointment from prospecting to binder-payment and all the training. While each carrier seems to be singing the same tune in regards to why they have reduced (eliminated?) commissions “With our goal to provide affordable health insurance options to our members, we regret to inform you…”, information on just why these cuts are happening hasn’t been fully disclosed.
When the ACA was in its infancy, policymakers scrambled on just how they would make coverage in the newly created Health Insurance Exchanges (HIX) truly ‘affordable’ for consumers. With the promise of offering financial assistance to those with limited income, they set off on a path of subsidized insurance premiums. One issue was, how was the government going to handle subsidizing individual and family insurance premiums? Bring in the IRS, who coordinates applicable subsidies based on income and household size that are delivered in one of two ways: 1. Subsidies are paid direct to the insurance carrier, thereby reducing premiums or 2. Subsidies are calculated during tax time and are given back to the individual/family in the form of a tax return.
The Exile of Underwriting: An Actuary’s Worst Nightmare
It takes two to tango, and the dance to provide affordable insurance to consumers is no exception. While the Government had concocted a method to subsidize premiums, just how affordable would those plans be to begin with? Insurance carriers battled with this during the first years of ACA, and still do to this day since they had never done business in an environment that didn’t allow them to underwrite a single person or rider someone’s policy for chronic conditions. So actuaries hunkered down and ran model after model after model to help determine just where the price point of their policies would be to make them truly affordable, but the outcome never changed; it’s nearly impossible. To combat this, the government created a program called “Risk Corridors” to act as a safety net for insurance carriers to provide financial assistance in situations where premium revenue wasn’t keeping up with utilization. With millions of Americans now insured and using their benefits, they soon realized that these risk corridors would be the difference between affordability and availability. Built on the promise of the Risk Corridors being there for carriers, insurance companies continued with their ACA plan offerings.
Consolidated Appropriations Act (CAA)
So, where are all those ACA commissions going? Passed in December of 2015, the Consolidated Appropriations Act revised provisions of the ACA that transfer taxpayer money to health insurance companies via the Risk Corridor. Essentially, it was shut down. The safety net that was once promised to carriers to continue offering guarantee issue health insurance policies was gone, and they soon realized just how far-reaching the effects would be. UnitedHealthcare, one of the nation’s largest insurers, along with many other carriers reported big losses on their ACA business due to non-payment from the Risk Corridors, and now the program does not exist.
Do More With Less
Carriers were forced to offer the same health plans that were filed for the calendar year with less protection from the ultra-risk they were seeing. One way to do more with less was to reduce or eliminate the amount of new clients singing up for coverage, and to help avoid new business they reduced or eliminated any incentive for insurance agents to sell their plans on the HIX. We’re also seeing the effects of guarantee issue for carriers that offer coverage outside the HIX’s who are now reducing commissions to agents. Some would say this is a comedy of errors.
Where do we go from here?
While some carriers are feeling the effects of the now extinct Risk Corridor program, some are faring better than others, but the future of these carriers is still unknown. What we do know is the livelihood of our agents is affected by all of this right now. Not tomorrow, not next month, right now. If you’ve been hit with a reduction in your commissions there is no better time to diversify your product offerings and focus on other avenues to generate commissions.
One area of the health insurance landscape that has shown no signs of slowing down is Medicare. It’s a simple fact, the Baby Boomers are aging into Medicare at a rate of one every 8 seconds. Since you started reading this article, approximately 22 individuals qualified for Medicare. Plus, we’re seeing more and more small to large businesses no longer offering insurance coverage to retirees and many Medicare beneficiaries are receiving Dear John letters from their former employers. If that didn’t paint enough of a picture, we’re also experiencing a reduction in the amount of agents who are focused on helping Senior Americans make decisions when it comes to their Medicare healthcare coverage.
When should you begin offering Medicare products? Right now.