"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness." So began Charles Dickens in "A Tale of Two Cities." Although the great novelist was writing about the French Revolution, he could also have been describing the health insurance industry after the passage of the Patient Protection and Affordable Care Act of 2010 (PPCA).
I'll leave it to others to debate the wisdom of this law. But one aspect–its effect on agent commissions–has clearly been catastrophic.
As you've probably heard, this is due to the minimum loss ratio provisions in the reform bill. According to the PPAC, health insurance companies must use at least 80 percent of individual premiums and 85 percent of group premiums to pay for care (or efforts to improve care). This means they can use only 15 percent to 20 percent of premiums for administrative purposes, including agent commissions.
Fallen off a cliff
Not surprisingly, since Jan. 1, commission rates have fallen off a cliff as carriers have attempted to reduce their costs. According to a NAIFA survey, about 75 percent of producers said their health commissions have declined since Jan. 1. Another 13 percent said they expect them to at some point this year. More than half (53 percent) of agents have seen commissions lowered by 25 percent or more; 17 percent have seen reductions of 50 percent or more.
With vanishing commissions like these, agents are being forced to ask hard questions about their futures. This is creating tremendous uncertainty and personal stress. If you're in this business, I urge you to take a deep breath and think carefully about the ethical dilemmas you face. Here are just three:
- How do you balance the duty to serve your clients against your duty to serve your family?
- How do you weigh your desire to provide high-quality customer service against the need to be compensated for your service?
- How do you stay true to your suitability guidelines, while potentially moving toward higher-commission products?
How to resolve these dilemmas? Consider these pointers:
- Cool your passions and consider your options objectively and carefully.
- Think outside the box (e.g.: consider consolidating your book with fewer carriers to get volume incentives).
- Consider all parties to your decision (clients, staff, your family and you).
- Keep your politics out of your decision-making. Try to focus solely on the economic and ethical impacts.
Most important, remember that in the grand scheme of things, the worst things often get better with time. I don't know if PPCA will ultimately prove beneficial for America. But I do know the very act of asking and answering hard questions about its implementation can only make you stronger. If you can survive the "worst of times," the "best of times" may be just ahead.
