The role that insurance sales professionals play in this country’s health insurance system
After reading this executive summary one should have a better understanding of...
- The role of the agent
- What agents do for their clients
- How both carriers and consumers benefit from the use of insurance agents
- How insurance agents get paid
NOTE: The term “agent” in this executive summary is intended to be synonymous with “broker” and “consultant” insomuch as these terms are often used interchangeably by consumer and business clients.
The role of the agent
Insurance agents are highly qualified professionals who are trained and experienced in guiding individuals and employers through the process of choosing appropriate, affordable health plans.
Insurance agents must be licensed by the states where they reside and practice. In Illinois agents are required to complete 30 hours of continuing education requirements biennially in order to maintain their licenses.
Further, many agents have completed a sequence of college level courses leading to a professional designation, such as Registered Health Underwriter (RHU), Health Insurance Associate (HIA), Registered Employee Benefits Consultant (REBC), Certified Employee Benefits Specialist (CEBS), or Chartered Life Underwriter (CLU).
Agents that specialize in health insurance products and services keep abreast of new developments and standards in the health insurance industry, learn about new options that may better serve their clients, and, because they typically represent a number of insurance companies, are generally able offer a wide range of options and alternatives for consumers.
Agents who practice in the individual and group health insurance markets build up clientele over a long period of time. They write new accounts and just as important renew their existing accounts. To this end, many agents and their clients develop relationships that last a lifetime.
What agents do for their clients
Professional agents work for the consumer and can offer and explain the differences between a variety of different health products from many different insurance carriers.
The independence of the agent is an important concept to understand. By being independent, the agent is able to better serve his/her clients by offering health insurance products and services that fit their clients’ financial and coverage needs and objectives. Also, since clients may end the relationship at any time, the agent is motivated to help the client decide on the best possible plan for his or her needs, and provide ongoing service after the sale.
As a representative to both individual consumers and business organizations, a health insurance agent generally will:
- Evaluate the health plan needs of the individual or business
- Explain the details of different health plans and compare costs
- Make specific recommendations and tailor plans to suit needs as well as budgets
- Review the plans periodically to update coverage and maintain affordability
- For businesses, communicate the facts about various benefits packages to employees
- Serve as the consumer's advocate and advisor in dealing with insurance companies, doctors, hospitals, and government agencies. This involves servicing claims, and providing advice about compliance with regulations.
More details concerning the consulting, brokerage, and administrative services that professional health insurance agents typically provide to their commercial business clients are found in the exhibit on pages 4-5 of this executive summary.
How both carriers and consumers benefit from the use of insurance agents
Agents are used extensively by the insurance industry to market health insurance and related products. There are several very good reasons for this which is beneficial to the consumer.
First, the use of agents is cost effective for insurance carriers. Agents are not employees of insurance carriers - but are instead independent contractors for the carriers. Carriers do not have the associated costs of an employee, costs such as benefits, expense reimbursement, employer FICA match, and so forth, when they use an agent. They simply have the fixed cost of the agent's commission. The commission is paid for as long as the policy is in force, and is usually either the same percentage or fixed fee each year.
Second, agents clearly fill a different role from the salaried employees of an insurance carrier. The agent first and foremost represents the interests of consumers and is able to offer and explain the differences between a variety of different health products from many different insurance carriers.
Third, whether one’s professional insurance advisor is an agent, broker, or consultant, professional insurance advisors are the critical link between consumers and the insurance companies and other third party payors. They provide and service insurance products while at the same time educating and advising clients on how to best manage risk and make informed purchasing decisions.
Finally, ongoing changes in the types of products and services that are offered in the private health insurance market make the agent’s role increasingly important to individuals and small businesses so that they clearly understand their options and make informed decisions.
How insurance agents get paid
Agents have strong financial and professional incentives to consistently provide their clients with quality products, advice, and service.
How agents get paid varies by the segment of the health insurance market:
- In the individual market agents are compensated on a commission basis that is typically based on a percentage of premiums. Agents in Illinois who assist clients with enrolling in CHIP (Sections 7 or 15) are paid a flat fee by the State of Illinois ($50 per policy).
- In the small group market (i.e., 2-50 employees) agents get paid either based on 1) a percentage of the premiums paid for coverage that is typically subject to a sliding scale, or 2) a flat fee/rate per member per month.
- In the large group market (50 + employees), commissions with carriers or fees paid by health plan sponsors are negotiated. And for employer groups that are subject to ERISA and have more than 100 insured employee lives there is a commission disclosure that is part of the annual 5500 report filing with the Department of Labor.
- The individual and small group market commission rates are published rates and therefore are not negotiable, and the trend over time has been toward a lowering of rates. The commission and fee arrangements in the large group market, as stated above, are negotiated, and competition among agents for clients is an effective market mechanism for keeping these costs in line for employers.
EXHIBIT – Consulting, Brokerage, and Administrative Support Services that agents/brokers/consultants typically provide for large group health plans
- Provide an annual written renewal report detailing experience analysis and projection of claims and fixed costs, reserve needs, and funding rates for the client’s experience-rated or selfinsured plans.
- Represent the client with carriers and other vendors in the negotiation of contract renewals with respect to all employee benefits lines of coverage sponsored by the client for its employees and their dependents.
- From time to time review the levels and types of employee benefit coverages offered by the client, and make recommendations for changes where deemed appropriate while keeping in mind any constraints with respect to such because of collective bargaining.
- Make recommendations relative to selfinsuring any lines of coverage currently provided by the client as insured lines.
- In the case of self-insured health plans, advise the client on specific and aggregate stop loss coverage, including appropriate deductible levels and competitive costs.
- Analyze claim experience, trends, and anomalies.
- Monitor claims experience for claims that exceed the stop loss deductible levels and work with the health plan carrier or third party administrator (TPA) to ensure accurate and timely reimbursement to the client.
- Assist in resolving claim disputes.
- Recommend cost containment strategies and techniques to the client on all employee benefit lines.
- Provide periodic updates on legal issues and regulations as such updates relate to the client’s operations and lines of coverage – e.g. COBRA, HIPAA, ADEA, Medicare Part D, etc..
- Recommend changes in benefit design and administrative arrangements when appropriate in light of changes in the health care and employee benefits industries.
- Provide advice with respect to maintaining overall financial and rate stability.
- Secure timely renewal quotations from all insurers and service providers contracted by the client.
- Negotiate with carriers and other third party claims administrators to secure the lowest possible fixed cost rates and to maximize discount levels with the provider network(s) that are under contract with the client.
- In the case of self-insured health plan clients, secure bids and make recommendations for the placement of stop loss coverage.
- Prepare specifications, take and analyze bids, and make recommendations for the replacement or addition of any employee benefit plans.
- Be responsible for the timely and successful transition of any coverage or administrative services due to a change in carrier or service provider for the client.
Administrative Support Services
- Provide training and support for the client’s administrative staff in the area of employee benefit administration.
- Provide assistance with employee or plan sponsor problems in the areas of claim payments, billing, eligibility, or enrollment.
- Provide assistance with employee communications. In some cases this entails authoring and ongoing maintenance of web-based HR/benefits portals and even enrollment systems.
- Provide assistance with compliance issues.
- Actively monitor the carriers’ and other service providers’ levels of performance.
- Provide other assistance and advice as requested or needed.