In 2015, several national health insurers – including UnitedHealthcare, Aetna, Cigna, and Humana – reported losses of hundreds of millions of dollars on individual and family plans (IFP) offered through ACA-mandated marketplaces. State and regional insurers, including several large Blues plans, also reported major losses. Despite these losses, approximately 9.5 million people enrolled through the marketplaces in 2015, and 13 million are projected to be covered by end of 2016. Facing such significant deficits, several national payers have announced plans to stop paying broker commissions on new sales of IFP plans in 2016 in an effort to reduce marketing costs and limit new enrollments. The list of payers cutting back on commission payments includes UnitedHealthcare, Anthem, Cigna, Health Care Service Corporation (HCSC), BCBS of North Carolina and BCBS of Illinois. Oliver Wyman’s Nick Hartman and Greg Berger explain how cuts to commissions will impact consumers, web brokers, and payers themselves:
While some payers, such as United, are cutting commissions completely, others are limiting their cuts to specific populations – likely those that led to the most significant losses. In February 2016, for example, Anthem, Aetna, and Cigna each announced they would cut commissions for plans sold during special enrollment periods (SEP), which allow people to sign-up outside of open enrollment if they experience a qualifying event, including loss of coverage or birth of a child.
Cigna and Humana also announced cuts to commissions on higher-benefit “gold” plans, while maintaining commissions on more-profitable bronze plans. Some legal experts have criticized these cuts as discriminatory, pointing out that gold plan and SEP enrollees tend to be sicker or have higher utilization rates than the average consumer. Federal regulations ban carriers from marketing practices that “have the effect of discouraging the enrollment of individuals with significant health needs.” While there is yet to be regulatory backlash against these commission cuts, it remains to be seen whether further legal action is possible.
Impact on consumers
With fewer brokers actively selling IFP plans due to reduced commissions, individuals may find it more difficult to navigate the enrollment process and choose the right plan for them. Today, insurance agents help enroll about 50 percent of individuals who sign up for a marketplace plan, and payers openly acknowledge brokers’ role as advisors.
Without private brokers, consumers may become increasingly reliant on publicly-funded Navigator programs for assistance. Unfortunately, these programs may be unable to fill the void left by brokers due to a lack of financial resources. CMS grant funding for these programs has been flat overall since 2014, despite CMS’s own projections that enrollment in marketplace plans will surge by nearly 40% to 13 million by end of 2016.
Facing decreased broker and Navigator-led support, consumers will increasingly be left to rely on the online-only support tools available on the public marketplace websites. Given the complexity of shopping for health insurance – especially for those with limited experience using health insurance – consumers may now be at greater risk for choosing plans poorly-suited to their unique health and financial needs.
Market meaning: The volatile nature of the individual health insurance market means that web brokers and payers need to constantly re-evaluate how they are managing their relationships with consumers.
Impact on web brokers
In addition to field-based agents, commission cuts are also expected to hurt revenues for online-only brokers selling marketplace plans. These so-called “web-based entities” (WBE) are permitted by CMS to enroll individuals in IFP plans via a third-party website.
How else can web brokers thrive in spite of shrinking IFP commissions?
Some WBEs are already shifting their focus to the fast-growing private Medicare market, including Advantage, Medigap, and Part D, in anticipation of shrinking opportunities in the IFP market. The largest player in the web broker space, eHealth Insurance, reported in February of this year that it processed 22 percent fewer applications during the most recent open enrollment period compared to one year ago. However, it processed 49 percent more Medicare Advantage applications in 2015, fueling a 63 percent increase in Medicare commission revenue over the prior year.
Other web brokers may choose to use IFP enrollment as a “loss leader” – enrolling consumers without receiving a commission – while marketing other categories of insurance and financial products such as life, property and casualty, disability, financial planning services, and even pet insurance. This “total risk protection” approach to attracting and retaining consumers by offering comprehensive coverage options can help web brokers buffer themselves from the current instability in the individual health insurance space.
Market meaning: Web brokers should consider continuing to sell IFP plans as a way to capture a consumer’s loyalty and use that opportunity to offer other insurance and financial products.
Impact on payers
While it is clear what payers have to gain from reducing or eliminating commissions on IFP plans – reduced costs resulting from less financial exposure to higher cost enrollees – what do they have to lose?
Active participation in the IFP market is a crucial avenue for building a brand presence among a group of consumers who may obtain coverage through the marketplaces for years, perhaps decades, to come. By actively discouraging enrollment by cutting commissions, carriers are forgoing an opportunity to forge a relationship with those lifelong customers.
Despite the difficult nature of the IFP market at present, analysts have noted there is a reasonable likelihood that the IFP markets will stabilize in the coming years, both from a pricing and morbidity risk perspective – although it may require significant regulatory reforms to allow carriers a higher rate of return through changes such as more flexible benefit requirements or inclusion of ancillary product bundles. At that point, predictions suggest IFP enrollees will become margin-positive on average, and those carriers with the highest number of enrollees will gain a market advantage. By absorbing near-term losses for the sake of building a relationship with these consumers, carriers can engender brand loyalty and maximize longer-term returns. Some carriers, therefore, may be better served to reinstate commission payments for the sake of winning a consumer’s loyalty.
Brand loyalty can extend beyond the IFP market into the commercial and Medicare segments as well. For those carriers that play in all three segments, the opportunity to stay with a consumer throughout their life represents a significant opportunity. When an individual transitions out of a marketplace plan, carriers can position themselves to “recapture” their business when they switch to an employer-sponsored plan or, upon retirement, a private Medicare plan.