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MLR and Agent Commission (and the future) California

As many of you may have heard, the health insurance carriers have begun announcing commission reductions to agents due to MLR (Medical Loss Ratio) requirements under PPACA. Blue Shield CA just left us all a nice voicemail this evening (after business hours BTW) about commission cuts. The average for an agent is approximately 50% pay cut in 2011 (starting in 3 weeks).

No doubt that is going to hurt and it is possible many agents (especially newer agents) will leave the health insurance business. Veteran agents may be able to withstand the slash on new business compensation because of a large client base of older business which will be, at least for now, uneffected by the cuts.

I have observed in the last few days an attempt by agents, insurance carriers and organizations that train, recruit or mentor agents, to justify this going forward. To the extent that reduced earnings on health insurance would allow fewer agents to achieve higher potential production at lower commission (the overall thought process), certainly there could be a place for those fewer agents to continue to succeed in this business. Except.............

What happens on 1/1/2014? Let's say a savvy agent sets up a staffed call center (the chosen model by the carriers, obviously), hires a bunch of service reps, sub-agents and telemarketers and garners a large volume of sales to achieve the highest commission payouts. That could be a lucrative business model right up to the point where the health insurance exchanges open in 2014. Then what?

Imagine an agent selling 300+ health insurance policies in 2011, 2012, and 2013 (over 900 total) and watching the 900+ clients disappear into an insurance exchange offering no compensation or virtually no compensation to the agent. All of that work for a couple of years of income at already-reduced commissions to see it all evaporate in the blink of an eye.

Now there are agents who are whistling past the graveyard saying "that's not going to happen", "repeal is on the way", "NAHU will protect our earning power." Now, they may be right.

I am inclined to believe what I see, not what I think/hope might happen. Sure changes could be made. Sure a panel could be set up to review agent compensation. Since this change has ALREADY happened (compensation and MLR), the pragmatist in me says to anticipate that the 2014 changes will occur basically unchanged and on schedule.

"Well", some might say, "there will still be a place for agents in the system". Don't be so sure. We are not specifically mentioned in PPACA. At best we are included with navigators like Dept of Fish & Game, Trade Unions, Civic Organizations and the like. It's us, community service organizations and someone spawning salmon in the pond.

The California Health Exchange is a fact. It was passed into law and signed by Gov Schwarzenegger a few months ago. It exists and regardless of what happens with PPACA (ObamaCare), the California exchanges would have to be repealed separately.

The architect of the future California Exchange is the same person who set up the Massachusetts Connector Exchange. I won't mention his name here but you can certainly Google it.

Agent compensation in Massachusetts for indivdiual & family health insurance, nothing , nada, bupkiss, the big 'goose egg' (insert your favorite phrase here).

So, the same guy who set up 'the big goose egg' in agent compensation in Massachusetts will be very heavily involved in setting up the California Exchange. Sure, it could be different out here, but are you really willing to bank on it.

Health insurance agents in California will have to make some hard decisions going forward. Some will bury their heads in the sand and hope it all goes away. Some will swear on all that is Holy that big brother NAHU (National Assn of Health Underwriters) and Janet Trautwein will ride in on a white horse to save the day. Some will move on to other things like life insurance. And some will stick it out and try to make the best of a lousy situation over which they have no control.

The bottom line is this for agents: "Am I willing to work twice as hard for half as much with the very real risk that it could all go away anyway in three years?" I wish I had the answer, for myself and for other agents. As of today, I just don't know.


  1. Very sad. Agents are badly needed. Does the government think they can pull this off? If so, they're dumber than I thought.

  2. Looks like the situation is even getting worst... Another group of people and assets lost their job due to this economic crisis we are facing. The government should act fast and effectively before thing will really fall apart.

  3. I don't think you can just blame the government. The agents were obviously thrown under the bus by the insurance companies. PPACA was written by the insurance companies with no agent representation.


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