Changing World of Commission Based Health Agents

In a recent meeting with brokers, Blue Cross Blue Shield of Texas predicted that 80% of small-group business would be gone within five years. Seventy-percent of group medical in under-50 life groups will disappear and 90% of that in under-10 life groups. These small groups will migrate to self-insured plans or, in most cases, defined contribution arrangements.

Anthem/Cigna deal: Not a big deal for benefit advisers

BY NELSON GRISWOLD

AUG 11, 2015

OK, I’m officially sick of all the speculation and hand-wringing about Anthem’s acquisition of Cigna and, before that, Aetna buying Humana. Stop the naval gazing. If I may be clichéd, get your eye back on the ball and your head back in the game.

Sure, the consolidations likely will have a negative impact on employers, reducing their plan design options and, by definition, their carrier choices. And as a benefit professional, you get to deal with this. It’s part of your job.

But, I wrote previously that, unless you own stock in one or more of these carriers, all this consolidation really doesn’t matter to you as a benefit producer or agency owner. “Are you serious?” you might ask in disbelief.

I am most serious. Here’s why it doesn’t matter to you. These transactions — which may or may not even be allowed by the regulatory cops, although my money is on “yes” — are just a continuation of industry trends that I have been predicting for more than five years.

Disintermediation

The key trend for you is “disintermediation.” A big word that just means you’re getting cut out of the group medical transaction. Oh, you can negotiate a fee for managing the renewal and the carrier will be nice enough to collect it. But, soon, the only group medical commission you’ll be seeing will be on old commission statements.

Aetna in 2011 began the move to fee-for-service, ending commission on large-group business wherever brokers could charge fees. Other carriers have followed suit. Beginning with July 1 renewals, Aetna just went to fee-for-service on small group business in every state that allows brokers to charge fees. And Aetna will soon own Humana. How good do you feel now about your Humana commissions? Do you doubt the other carriers will be close behind?

‘Buh bye’ to small-group medical

And soon there won’t even be much small-group medical to get paid on. In a recent meeting with brokers, Blue Cross Blue Shield of Texas predicted that 80% of small-group business would be gone within five years. Seventy-percent of group medical in under-50 life groups will disappear and 90% of that in under-10 life groups. These small groups will migrate to self-insured plans or, in most cases, defined contribution arrangements.

The BCBS official added that, in high-level conversations with two of the three largest national medical carriers, there was unanimous agreement on these points. In fact, all agreed that the movement was happening faster than anyone thought. I think five years is way too optimistic.

Now consider that the under-50 market represents 96.2% of all businesses in the U.S., according to the U.S. Small Business Administration. Yes, 96.2%. Can we now agree that most medical commission is going away, even if the carriers were to continue to pay commission, which they aren’t. Disintermediation.

How much more proof do you need?! Commission will be gone soon. Move to fee-for-service. Or start selling life insurance, if you can’t live without commission. My very smart friend, Joe Bucci of benefits advisory firm gbac Inc. in Connecticut, makes the point that, by still paying commissions, medical carriers are holding brokers back, keeping them from evolving into fee-based advisers and consultants. The commission yacht may have shrunk to a dinghy, but as long as there is a piece of flotsam to cling to, most brokers will hang on to their commissions and refuse to move to a fee-for-service business model. But very soon there will be nothing for brokers to hold, not even a lifesaver.

Also see: “Why the Aetna-Humana deal signals the need for a fee-based model.”

Soon, it will be sink or swim, and swimmers will have to move to a fee-for-service business model … but then there will be no commission cushion to ease the transition. They’ll be forced off commission cold turkey.

Commoditization

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