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The Conservative View Of Exchanges and Brokers

July 17, 2011

There has been a lot of talk about the new Exchanges being created at the state level under PPACA. In fact this week HHS released the draft regulations for review  “by putting States in the driver’s seat when it comes to establishing Exchanges” and providing some real insight into how they will work and be managed and regulated.

The most interesting thing about the Exchange concept is that it is a favorite of conservatives and Republicans in favor of market based, consumer oriented solutions

Both Michael Leavitt and Tommy Thompson, HHS secretaries under W strongly support them and support states taking Federal funds from PPACA to get them setup.

Meeting with the National Governor’s conference this weekend Leavitt, a Mitt Romney advisor called them “a very practical solution to a problem that needs to be solved.”

Tommy Thompson noted in a recent article:

“Exchanges are a market-place, let us make them a state market-place. Exchanges are a vehicle for future innovation in health care delivery — and if there is one thing we know we all need here, it is a platform for better ideas. States that take charge of the exchange will be in the driver’s seat; those that don’t will take a back-seat to the federal government.”

Even more interesting to me is the Heritage Foundation’s white paper on Exchanges. If you read the substance of it and ignore its misrepresentations and anti-PPACA bias you will find a very compelling story for the value of Exchanges:

“Health insurance exchanges are a good idea— if they are used to implement patient-centered and market basedhealth reforms that enhance choices and value for customers.”

Also how they view the role of the broker/agent and how they should be compensated speaks to the new world of health reform regardless of PPACA:

Role of agents and brokers. 

For businesses that decide to offer health benefits on a defined-contribution basis, insurance agents could not only help the business make the necessary arrangements, but could also counsel individual employees on making coverage choices that best suit their particular needs and preferences, and “service” their policies—such as by helping them should they experience a problem or seek to appeal a claim or coverage decision by their insurer.

The availability of such advice from a trained and knowledgeable professional benefits the employer as well as its workers, since business owners generally feel uncomfortable giving their employees personal advice and are naturally wary of any possible legal ramifications.

The key change for insurance brokers is that in a defined-contribution market, they will act as “buyer’s agents,” instead of their more traditional role of “seller’s agents.” This is similar to the business model shift that has occurred in recent years with many real estate agents.

State lawmakers can facilitate such a shift by providing for a per-enrollee, feebased compensation structure for agents in which the broker is paid the same amount regardless of which plan the worker (client) chooses. While some brokers welcome such a change, seeing it as a way to expand their client base and establish relationships with new customers who might also be interested in other products the brokers offer—such as life, disability, or property insurance—others have so far been resistant.

 In a defined-contribution market, however, agent compensation can take the form of a fee paid by the buyer, which is therefore separate from any minimum loss ratio calculation applied to insurer premium income.

This also means that agents can offer their clients all the plan options available in the defined-contribution market, not just those from insurers with whom they currently have contracts.

State insurance regulators can help facilitate this transition by providing licensed brokers with additional training, information, and comparison tools for the state’s new defined-contribution market.

So it seems that at least in concept we have some broad agreement that Exchanges are a good idea and the way to help the small business and individual health markets and that agents/brokers are an important part of their success.

PWC says this about Exchanges in a recent report:

“Millions of Americans will soon gain what they have long waited for in healthcare:  Purchasing power that will make health insurers want to work harder to win their business and loyalty.”

The devil will be in the details and states actually doing their job versus pouting about “Obamacare” and leaving their exchanges to HHS to setup and run for them, thus abrogating their opportunity to serve it citizens with a local “laboratory” attuned to their state, its population and their healthcare infrastructure.

Their “Obamacare” myopia should not get in the way but for many, sadly it will.

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