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What the NFIB Small Business Survey Says About Brokers

July 27, 2011

The NFIB has put out a very interesting survey of small businesses, defined as those with fewer than 50 employees, and PPACA. They surveyed 750 businesses:

  •  42% or 314 offer health insurance to their employees.
  • Only 78% purchased through brokers/agents and most of thes only had health insurance with their agent
  • 30% could qualify for full or partial small business tax credits.

Let’s do a quick summary. One year after enactment of PPACA, 42 percent of small businesses (<50 lives) offer employee health insurance.

This group fall into 3 distinct sub categories of size and often life cycle of a business:

              • <1o employee – 35 % provide health insurance
              • 10-19 employees- 56 % provide it
              • 20-49 – 80 % provide it

Small employers currently receive a substantial share of their information on health insurance from insurance agents and brokers.

Information is a cost that few small-business owners pay directly.  Instead, they pay that information cost through their insurance premiums. PPACA’s cap on insurer administrative expenses may change that. The cap requires curbs on administrative expenses with agent/broker commissions a likely target of insurer expense reductions.

One practical, down-stream consequence is that current small-business customers of agents/brokers likely will  lose (or partially lose) the advice and assistance these suppliers now provide when customers evaluate insurance options,  procure health insurance, explain benefits to employees, etc.  That loss may not occur if agents/brokers now selling health insurance can shift their source of income to other  forms of business insurance sold to smaller firms. In other words, falling commissions on health insurance may be offset  by added commissions on other forms of insurance. A direct offset (cost-shift) assumes that small employers purchase health insurance from the same agent or broker that they purchase their other types of business insurance, such as property and casualty. For the most part, they do not.

Two-thirds (66%) who purchase their health insurance through an agent or broker claim to purchase no other business insurance from that agent/broker . The remainder do. But just 4 percent purchase all other business insurance from that person while 13 percent purchase “most” and 17 percent purchase “some”. The ability of agents/brokers to directly transfer lost revenue from health insurance sales to sales  of other insurance products therefore appears severely constrained. The implication is that what heretofore has been largely indirect costs for health insurance information will now become direct costs.

The larger issues are where small-business owners will obtain the knowledge about health insurance that they will need to be intelligent consumers if agents and brokers no longer have an incentive to provide it, and how will small-business owners pay for that information. These are questions that should be of general concern. The exchanges authorized in PPACA presumably will provide information. Yet, the exchanges almost assuredly cannot provide the personalized assistance now offered by the industry. The market response is likely to be creation of information substitutes, such as professional “navigators”.

One of the challenges with this, and nearly every opinion survey like this on PPACA is the level of knowledge the participants have of this complex subject. 18% feel very familiar with the law and 30% somewhat familiar.

“Few owners have a detailed understanding of these substantive topics, putting them in difficult straits when making costly decisions about such matters.”
  • Just 12 percent of small employers say that they are “very confident” they are obtaining adequate information about employee health care, health insurance,and the most recent legislative developments about them
  • Another 28 percent say they are “somewhat confident”.
  • 30 percent are “not too confident” and
  • 29 percent are “not at all confident”.

So of the 78% of employers relying on agents/brokers 12% feel really confident they are getting good information to help them deal with health care reform. Why is there this disconnect? Are their agents/brokers doing their jobs? Looks like they aren’t.

All the whining about the changes to commissions due to the MLR changes look pretty weak when customers do not seem to be getting what they need from their agent/brokers. Why wouldn’t they rely on tools from an Exchange and save money at the same time?

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2 Comments leave one →
  1. Susan Maley Rash permalink
    August 1, 2011 7:21 pm

    Could it be possible that the disconnect is the lack of certainty regarding PPACA guidance and the many unanswered questions still outstanding? Such as — What are essential benefits? How is the actuarial equivalent defined? How will exchanges look in each of the 50 States? What will the federal fallback exchange look like? Will SHOP Exchanges save employers money? Regarding subsidies, is 9.5% of household income tied to single premium only or employee’s share of family premiums? How do you count employees with fluctuating hours? When will there be more guidance on the non discrimination rules under 105(h)? When is the CLASS act going to be implemented? When does auto enrollment begin? And I could go on. I wish I could give more clarity and information to my clients. But how do I answer my client’s questions and give adequate information with so many items unresolved?

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