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The MLR, Broker Commissions and the “Stockholm Syndrome”

July 24, 2011

In 1996 when we first started Employease, the first online benefits administration and  enrollment platform, insurers were eager to meet with us. As it turned out they were not interested in the efficiencies and customer service value we could bring. In fact the main area of interest in every meeting was simply- “How can this help us get rid of brokers”.

The odd dynamic that exists between the product manufacturers – insurers  and healthplans – and their independent sales team, brokers and consultants, has been at work  for at the least the 35 years I have been in the industry.

They are symbiotic enemies like the Road Runner and Wily Coyote. Neither side likes the other at all, even though without agents, brokers and consultants  insurers would fail miserably and without insurers brokers would have nothing to sell. In fact the current system of employer delivered health insurance  would not exist if the insurers had to deal directly with the employer and consumer.

They are  not equipped to deliver their products or services in a way that does not need a 3rd party  guardian like a broker.

Fast forward to 2010/2011. Healthcare reform (PPACA) imposes expected Medical Loss Ratios on healthcare insurers to make sure that employer and consumer’s premium dollars go to care and reimbursement not wasted overhead and high executive salaries.

What do the insurers do first to meet their legally required goals? Either drastically reduce commissions to brokers or cut them entirely (Aetna), making the broker responsible for negotiating service fees that the insurer will then add to their monthly bills.

And of course they blame it all on the MLR rules of PPACA.

Meanwhile they try and ram through rate increases that are not justified again blaming PPACA and have the best year ever for profits.

The NAIC – the 50 state insurance commissioners-  have reviewed the MLR rules and unanimously supported them and refused to exclude commissions from them because sales costs are part of any insurance product’s overhead.  A working group had commended changing this but was not approved but has said working via HHS for a solution is the best option. SO stay tuned.They are dead right on this.

Instead of using their clout to fight the insurers industry groups like NAHU, CIAB, UBA, NAIFA, the Big I and others have inexplicably joined forces with the health insurers to try get commissions excluded from the MLR first via the NAIC (they failed) and now through Congress. Articles vilifying the new healthcare law rife with misrepresentations and hyperbole abound from these groups, especially NAHU who has bought the insurers line completely with lines like this:

“In fact, the health care law is not only causing many businesses to drop or scale back their insurance plans — it’s also preventing them from creating jobs.” “Unfortunately, there’s not much fat to trim from insurers’ budgets. The health insurance industry posted a slim 2.2 percent profit margin in 2008 — one-fifth the margin enjoyed by the securities industry, and one-tenth that of the pharmaceutical sector.”

Yet while CEO salaries have increased (UHC +$10MM) and stock option packages have been enriched (Humana,+73M, Aetna former CEO, $50M) those same insurers have eliminated (Aetna) or cut broker’s commissions (all others) at the same time convincing the brokers that Obama and the big bad government were to blame not them. You can see the details for the major insurers here for the last 5 years. 

The enemy here is not the healthcare reform law but the complacency and dependency that insurers have lulled brokers into with ever higher commissions based on ever higher rates.

Do they really believe the insurers should be able to remain fat dumb and happy, have record profits and CEO salaries and not tighten up their wasteful organizations as long as their commissions do not hurt the insurers MLR calculations?

The real question here is are these brokerage groups really that blind to the reality here or are they simply suffering from Stockholm Syndrome –  “… a term used to describe a paradoxical psychological phenomenon wherein hostages express adulation and have positive feelings towards their captors. These feelings are generally considered irrational in light of the danger or risk endured by the victims, who essentially mistake a lack of abuse from their captors as an act of kindness.”

After all the years of dealing with the insurer’s incompetence but still having their incomes go up every year as premiums have increased at double-digit rates this is the only answer I can come up with.

The real enemy are the insurers and their actions, not PPACA, and the sooner brokers realize that and use their collective leverage accordingly to force the insurers to get more efficient the better for them and their clients.

This change alone is estimated to cost consumers $1.4B in 2014 and with that large a number at stake the brokerage community and its lobbying groups need to look like whiners trying to get Federal help to bail them out and use their sollective efforts to prove the value they bring t their customers.

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