Health Care Reform: Unintended Consequences
July 20, 2010
Bits and pieces of Health Care Reform are beginning to fall into place, although of course the lion's share will not go into effect until 2014. As we agents figure out how to best help our current and future clients get and keep coverage, I'll be keeping you up to date on the latest and how it may impact your health insurance decisions. Decisions which, directly or indirectly, often affect life decisions
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There is one particularly crucial point of which you should be aware, particularly if you currently (or will soon) provide your own coverage.
Be extremely careful which carrier you choose. I foresee carriers - possibly many, if not most - leaving the individual market over the next couple of years. Carriers leaving the market have no obligation to see that you get comparable or affordable coverage.
And just what crystal ball does Sharon have? A valid question. Health Care Reform includes a requirement that insurance companies meet a "minimum loss ration." What this essentially means is that an insurance carrier must pay out at least 80% of incoming premiums in outgoing claims. The other 20% has to cover everything else - physical facilities, salaries, administration, dividends, and, yes, sales commissions.
Over the last couple of months, we contracted agents have received letters from many of our carriers. These letters (after telling us how much they loved us and appreciate all our efforts) advise us that our commissions will have to change (read "decrease") in August in order for them to meet the minimum loss ration. But the kicker is they won't be able to tell us what our new, lower (retroactive to August) commissions are until sometime around December!
So, why am I telling you this and what does it mean to you? The upshot of these communiques is essentially that most agents will stop putting business with these carriers. Think of it this way: You're offered Job A and Job B (yeah, I know, a pipe dream in this job market, but bear with me here). Job A tells you what your salary will be; Job B says, "Come work for us in August, and we'll tell you in December what we're going to pay you." Which job would you take?
When an insurance company stops bringing in new, healthy insureds (whose premium dollars help offset the claims for those already insured who have become less healthy), rates have to go UP. And as rates spiral upwards, the healthier insureds jump off that carrier over to another. This is called "adverse selection" and what happens very quickly is that the only insureds left on the plan are the less healthy ones. You can imagine what that does to rates.
Now that we have the state and/or federal risk pool plans, those with serious pre-existing conditions will be able to get coverage through one of those. In additon to being complicated to qualify and apply for, those plans are still too expensive for many budgets, causing many to drop coverage completely.
The end result of all this is that many carriers will no longer be able to maintain a viable presence in the individual marketplace. Worse, still, is that I predict many insureds will still be left (at least until 2014 - the outcome of which still remains very much an open question) without affordable health insurance.
The good news is that I think there are certain carriers who will definitely be "last-men-standing." Unless there's a compelling reason to do otherwise, that's where I'll be placing my own clients in the coming months unless or until I see evidence that I should do otherwise.
.
There is one particularly crucial point of which you should be aware, particularly if you currently (or will soon) provide your own coverage.
Be extremely careful which carrier you choose. I foresee carriers - possibly many, if not most - leaving the individual market over the next couple of years. Carriers leaving the market have no obligation to see that you get comparable or affordable coverage.
And just what crystal ball does Sharon have? A valid question. Health Care Reform includes a requirement that insurance companies meet a "minimum loss ration." What this essentially means is that an insurance carrier must pay out at least 80% of incoming premiums in outgoing claims. The other 20% has to cover everything else - physical facilities, salaries, administration, dividends, and, yes, sales commissions.
Over the last couple of months, we contracted agents have received letters from many of our carriers. These letters (after telling us how much they loved us and appreciate all our efforts) advise us that our commissions will have to change (read "decrease") in August in order for them to meet the minimum loss ration. But the kicker is they won't be able to tell us what our new, lower (retroactive to August) commissions are until sometime around December!
So, why am I telling you this and what does it mean to you? The upshot of these communiques is essentially that most agents will stop putting business with these carriers. Think of it this way: You're offered Job A and Job B (yeah, I know, a pipe dream in this job market, but bear with me here). Job A tells you what your salary will be; Job B says, "Come work for us in August, and we'll tell you in December what we're going to pay you." Which job would you take?
When an insurance company stops bringing in new, healthy insureds (whose premium dollars help offset the claims for those already insured who have become less healthy), rates have to go UP. And as rates spiral upwards, the healthier insureds jump off that carrier over to another. This is called "adverse selection" and what happens very quickly is that the only insureds left on the plan are the less healthy ones. You can imagine what that does to rates.
Now that we have the state and/or federal risk pool plans, those with serious pre-existing conditions will be able to get coverage through one of those. In additon to being complicated to qualify and apply for, those plans are still too expensive for many budgets, causing many to drop coverage completely.
The end result of all this is that many carriers will no longer be able to maintain a viable presence in the individual marketplace. Worse, still, is that I predict many insureds will still be left (at least until 2014 - the outcome of which still remains very much an open question) without affordable health insurance.
The good news is that I think there are certain carriers who will definitely be "last-men-standing." Unless there's a compelling reason to do otherwise, that's where I'll be placing my own clients in the coming months unless or until I see evidence that I should do otherwise.
Posted by Sharon Nuttall. Posted In : Health Care Reform
704-366-4977 / 877-261-2624
sharon(at)ehealthinsurancesolutions.com
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