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Tuesday, August 25, 2009

The Highest Paid Healthcare Stakeholders that No One is Talking About

Every major stakeholder, think tank, blogger, and every congressional committee with the exception of an Agriculture Subcommittee on Agrarian Holidays and Pagan rituals has submitted their health reform proposal. We've blamed the insurance companies, pharmaceutical companies, and than spent August introducing "Death Panels" to our nation's vocabulary so we could find more people to blame. We even started blaming the Russians for bringing communism to our health care system.

Most thought that we've scrutinized the health care system more extensively than Mark Sandford scrutinized his Argentine mistress's tan lines. However, we missed one of the highest paid non-clinical intermediaries in the health care system. They wisely have kept out of the debate and kept a lower profile than Joe Biden until one of these organizations recently released their 4 page position paper.

This highly paid intermediary is health insurance agents or brokers. Selling health insurance can be as lucrative as selling real estate with a larger customer base. To become a health insurance agent in Oregon, it just takes 40 hour of class, $75 application fee, and 70% on the final exam. Barriers to entry are low and there are numerous options like selling health insurance to individuals only, small businesses, or joining one of the larger firms like Aon, Mercer, or Hewitt.

Health Insurance companies generally pay 10% of the premium to a broker. The group or person buying the insurance pays nothing and the broker gets paid as long as the person or group keep the insurance. If a broker helps 500 people buy a health insurance plan that costs $300 per person per month, their 10% would be $180,000 per year. There's a lot of money out there. Anyone who works in health insurance periodically asks themselves why they didn't become a broker given those numbers and we all see it as our post-retirement job. To be fair, you have to be good at selling insurance to be successful and sales is not easy. Deciding to sell health insurance to get rich is kind of like becoming a teacher for summer vacations. However, if you got your insurance license to help your 20 friends and family members buy insurance, that's $7,200 per year. That's a pretty lucrative potential side job. If I get laid off or dooced, I'm definitely getting an insurance license.

The broker industry does face some risk with health care reform, especially under the public plan scenario. The public plan would be sold through a health exchange, a site that provides information about the public and private health plans and allows someone to purchase insurance without a broker. Other reform efforts have introduced health exchanges so this is a consistent threat to the industry. Additionally, the public plan's administrative savings will come through not paying brokers their commission.

Brokers have stayed out of the public debate until recently when Mercer released their position paper (click on the July 13 US Health Reform: Our point of view pdf). Not surprisingly, brokers are against the public plan or any state mandates for benefits at all. They seen the employers as the source of innovation through as purchasers of health care. Additionally, there should be an individual mandate so more health insurance will be purchased. Mercer's view of employers as sources of health care innovation represents a skewed view. Clients who will retain Mercer, pay them a hefty price to issue proposals that rival government grant applications and push health plans to come up with new ways to demonstrate their value or cut their price. But these clients represent employers who are engaged in health care, join purchaser coalition, and see health plan purchasing as a competitive advantage or key part of attracting and retaining . They do not include small businesses, employers who just want a fairly priced plan, or anyone who would rather focus on their business instead of benefits administration. In summary, the level of change in Mercer's proposal is similar to the level of change when a guy wears a green shirt with khaki chinos as opposed to a blue shirt. It's not even at the pink shirt level of change.

The larger question is whether or not brokers provide a valuable service or just earn lucrative fees as a low value adding middlemen. Brokers have the done the best job that I have seen of keeping health insurance companies honest since they understand what is important to offer in an insurance plan, have enough historical knowledge to gauge a fair price, and what services are a good value. Brokers who serve smaller groups or individuals do a very good job of helping them understand their health insurance options and advocate for their clients when they are being treated unfairly. On the other hand, I've mentioned massive proposals and the low barriers to entry. That means anyone can call themselves an insurance broker and I haven't always worked with the most inspiring cast of characters.

Reform is causing every part of the health care system to be examined for quality and cost. The broker industry will face additional scrutiny and its margins will be squeezed. I do anticipate the dental industry getting a round of scrutiny shortly as it's days of 6%-8% margins may be numbered. And don't get me started with the reinsurance industry where brokers sell insurance to insurance companies.

1 comment:

Allen said...


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