Consumers may be the losers as insurers cut broker commissions for individual health plans

Pittsburgh Post-Gazette (PA)

Dec. 28--During this season of giving, Highmark is reaching into the pockets of its insurance brokers for a little help getting through a rough patch, reducing sales commissions to the people who sell the company's products.

And Highmark is not alone. UPMC Health Plan has also reduced some of its broker commissions, while UnitedHealthcare notified its sale force that it will end broker commissions starting Jan. 1 in the 34 states where the company sells insurance on the government exchange.

Here's why: many insurers are losing money selling individual health care coverage on the online marketplace, using lower commissions as a lever to reduce sales of plans where the medical costs exceed the amount collected in monthly premiums.

Lower broker commissions discourage sales of health plans that cost the carrier money, said Tom Tomczyk, principal at the Downtown offices of Buck Consultants.

"If nobody's selling it, you're not going to generate any losses," Mr. Tomczyk said. "They're all losing money, so I suspect they're trying to cut any corner they can."

Highmark offered among the lowest cost health insurance plans in the country during the first year of the government exchange coverage in 2014 and wound up losing $318 million by June 30 this year. The government promised to backstop those losses, but only ended up reimbursing insurers about 13 cents on the dollar while the losses have continued to mount, spokesman Aaron Billger said. Belt-tightening is needed to assure the financial viability of the plans.

UnitedHealthcare, the country's biggest insurer by membership, also sustained losses on the exchange and signaled that it may pull out of the individual market after 2016 because the premiums have not covered the claims' costs for many people who got health insurance for the first time under the program.

UnitedHealthcare eased into the government marketplace slowly, selling coverage in only four states when enrollment began in October 2013 for coverage starting Jan. 1, 2014. In addition, the Minnetonka, Minn.-based carrier said its third-quarter earnings in September suffered from exchange product claim costs and the company was considering dropping out of the market after 2016.

In a statement, UnitedHealthcare said its "current actions are consistent with our long-stated approach to continually evaluate the dynamics of exchanges as they evolve and adjust to the changes in the market accordingly."

UPMC Health Plan officials declined to comment directly on their one-third cut in broker commissions to $10 per-member-per-month for all individual plans in its premium network, saying in a statement that "commissions and pricing are determined by competition and market dynamics."

"Producers continue to be a very important distribution component for selling and marketing UPMC Health Plan products and services," the statement read.

Consumers may be the big losers because broker commissions are shrinking at a time when consumers need more help than ever navigating the government's website and sorting through the details of coverage. Even signing up for the same plan as last year could be tricky because insurers have tweaked benefits and made other changes that may not be readily apparent.

Insurance brokers are the middlemen for consumers and businesses buying health care coverage and they also walk consumers through the fine points of plans offered on the individual exchange, which can be a time-consuming process.

"You really need a broker to walk through that whole process," said Dave Scott, vice president at ARMS Insurance Group, a Bethel Park brokerage.

Brokers are paid by insurance companies, so a cut in commissions means a cut in their earnings.

While no broker was willing to openly criticize carriers for their commission policies, privately many grumbled about the practice, which they described as unprecedented, saying they were obligated to spend the same amount of time with consumers, while suddenly getting paid less or nothing for the work.

Highmark, which insures 378,995 people through the government exchange, including 258,381 members in Pennsylvania, has eliminated sales commissions in the northeast Pennsylvania market, and reduced commissions in other parts of the state to $6 from $15- to $25 per-member-per-month.

The insurer told brokers the reductions were temporary, promising to restore commissions in 2017.

Insurers could leave the government healthcare exchange to staunch the bleeding, but such a move comes with penalties and other consequences that carriers would like to avoid, according to Rick Galardini, chairman and CEO of Wexford-based JRG Advisors.

So instead, insurers have throttled back broker commissions, increased plan deductibles for consumers and made other changes to get a handle on losses resulting from claims by the newly insured.

Lowering or eliminating broker commissions on a particular line of health care coverage discourages sales by making the plans less attractive for the broker to sell, Mr. Galardini said, a practice by insurers that is intended to "make the plans ugly."

Kris B. Mamula:[email protected], 412-263-1699

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