What does the future of healthcare hold for insurance brokers, consultants, and agents?

When people and companies buy healthcare insurance, they usually go through a broker, a consultant, or an agent.

Agents sell insurance from one company, brokers from many companies; both make a commission—a percentage of the premium. Consultants take a fee from the client to help them set up their insurance situation, then typically turn around and hand the business to a broker or agent to handle the actual sale.

As premiums have skyrocketed, that’s been good for brokers and agents, since they get a percentage of that. As health insurance offerings have gotten both more expensive and complex, that’s been good for consultants; employers increasingly feel that they need a professional helping them sort out their choices.

How will their situation change under the looming reform—not to mention the deep reorganization that healthcare is going through at the same time? It’s a “Good News/Bad News” story.

There are five key factors here:

1. Market expansion: It’s got to be a good thing when your market gets tax credits for buying your product—let alone when everyone has to buy what you’re selling or get fined, right?
2. Less risk: One reason why people go to professionals for their insurance is that the consequences of making a mistake about what’s covered, can you get covered, or will you get kicked out “rescinded,” can be huge. If everyone can get covered for everything and you can’t get kicked out of the plan, signing up for healthcare insurance is less risky—so buyers may feel less need to involve a broker or consultant.
3. Simplification: Standardization and greater transparency (especially through the exchanges) make getting healthcare insurance easier—so once again, buyers feel less need for professional help.
4. The “Medical Loss Ratio:” Commissions are an administrative cost, not part of what the health plans pay out for medical care. With minimum “medical loss ratios” being defined under the new law, health plans inevitably will be looking for ways to pay out less in commissions, whether by reducing commissions or by selling more directly to the public. Yet health plans will continue to use brokers as de facto customer service reps.
5. Different question: For employers, the question, “How do I manage my employees’ health insurance?” has been the same as “How do I manage my company’s health costs?” As costs continue to rise and employers get more desperate to control them, increasingly they are finding alternative answers that will split the two questions apart—and so split commissioned brokers increasingly from fee-based consultants.

Market expansion: There will be lots of new customers, and for the foreseeable future premiums will continue to rise sharply. Put together, these factors may buffer any squeeze on brokers’ commissions.

Simplicity: Like many professionals, brokers and consultants make their living by “information arbitrage.” They know how to navigate a complex area. They get paid to help their clients cross an “information gap.”

The problem with information gaps as the basis of business models is that they are not permanent. New technologies or changes in laws or business structures can collapse them. That’s what happened to travel agents. Kayak and Orbitz took up most of the searching they used to do, the airlines got really squeezed economically, and suddenly most of their business model collapsed under them.

One of the main drives of healthcare reform—and of other changes in the private market—is to collapse the information gap. The Exchanges are only one method of doing that. Other methods include online brokers, such as eHealthInsurance.com; the increasing standardization of forms; and the elimination of medical underwriting and rescission. All of these things make it easier for the buyer to find what they need and feel confident that it will work for them, so the “information gap” gets smaller.

As the Exchanges (and private sites that grow up in imitation of them) simplify the process of getting covered, more individuals and employers will feel no need to go through a broker. This will be more true in states that follow the Massachusetts exchange model, in which the state narrows the number of companies allowed to participate, and more tightly defines the offerings, than in states that follow the Utah model, in which the state sets up the exchange and lets just about any company participate.

The “Medical Loss Ratio:” Health plans will almost certainly not drop commissions entirely, nor cut them drastically. They are still competing for customers, especially the fresh new ones, to bulk up the aging populations they already serve.

At the same time, without being as able to differentiate themselves with wildly different offerings, through “risk management,” or through complex premium structures, they need to get much better at keeping their customers satisfied. But they can’t afford to really beef up customer service—so they need to keep the brokers in the game to do that for them. Brokers spend most of their time acting as customer service representatives for the insurance companies. Yet, since the biggest causes of customer headaches (rescission, dropped coverage, medical underwriting) are being legislated out of existence, the amount of time brokers spend on customer complaints may actually drop, even with lots of new customers.

Different question: “How do I manage my company’s health costs?” is turning out to be a more complex question, with many more interesting answers than, “How do I manage my employees’ health insurance?” Brokers can help employers answer the more complex question, but only consultants are directly paid to answer it.

On this website, ImagineWhatIf.com, you can find “Frameworks For The Future of Healthcare,” free 60-page e-books that lay out exactly what hospitals and health systems, physicians and medical groups, employers (and soon, health plans) need to do to navigate the new healthcare. The “Framework For Employers” includes many elements (such as “putting a crew on it” to improve your employees’ health, paying directly for onsite or online clinics, and shopping for the most cost-efficient healthcare providers) that actually route around the traditional fee-for-service insurance-supported answer to healthcare costs.

As applying for health insurance gets simpler, employers are less likely they need to pay a consultant’s fee just to navigate the field and find the best insurance package. But the evolving landscape presents many more questions than which insurance company is the right one, questions of what’s the right benefit design, what are the best incentive structures, what is the information design that goes with the incentive structure, should you have an onsite clinic, and what are the customized programs that most directly drive toward value. As these other new practices are arising and being tested and proven, the consultant is in the unique position of being able to say, “Ms. Employer, I can show you how to actually drop your costs much more than the insurance you can get through these Exchanges will, while actually making the your employees’ health better. I can lay out the steps for you, find you the resources, and guide you through the whole process. Paying my fee will save you money big time.” Navigating that information gap will be a whole new income stream for the consultants. The information gap about insurance itself will lessen, but there is tremendous confusion about what to do about employee health—and that confusion is the consultants’ opportunity.

By Joe Flower