In many cases, businesses here with fewer than 10 employees now are finding they must work directly with health-insurance providers or pay brokerage-service fees on top of their premiums as some insurers reduce dramatically - or cut completely - the commissions they pay to agents.
Insurers cite federal health care reform and rising health-care costs as reasons for the commission cutbacks.
The changes are significant because nearly 80 percent of Spokane County businesses fall into that size category.
Many Spokane-area agents who provide small-business employee health benefits advice are going to their clients to explain the changes and offering continued consulting on a fee-for-service basis. Other agents may quit or significantly reduce services to small businesses, say industry representatives.
"We have seen some carriers that are cutting out commissions completely or reducing them to minimal amounts that make it difficult for agents to provide services to that market, because you're not getting compensated for providing those services," says Angela Dowling, managing executive of employee benefits for Missoula, Mont.-based Payne Financial Group Inc., which has two offices here.
Dowling is referring specifically to businesses with fewer than 10 employees, a group she contends most needs the answers and services of an insurance agent who, in effect, acts as a quasi-human-resources consultant.
"Those employers look to agents for information on regulatory requirements, human-resource information, employee-enrollment consultations," among other services, she says. "Either we have to charge an additional, separate fee or scale back the services because we will not be paid."
In some cases, insurers also have reduced broker commissions for companies with 10 to 50 employees, though some brokerages say they are continuing to work for those clients at the reduced rate.
Premera Blue Cross reduced its small-group agent commissions within premiums earlier this year. For businesses with one or two employees, agents linking clients with a carrier had a 1 percent commission eliminated completely. For sales to groups with three to nine employees, agent commissions fell from 5 percent to 2 percent. For employers with 10 to 50 workers, commissions were halved, from 6 percent to 3 percent.
"Our small-group pool operated at a loss each of the last four years, with total losses over $10.5 million," says Eric Earling, a Premera Blue Cross spokesman. Premera made product portfolio changes in 2009 in response, including higher deductibles and additional member cost sharing, he adds.
Earling says that federal health care reform has injected an additional variable affecting the marketplace. For example, the Patient Protection and Affordable Care Act puts in place comprehensive health insurance reforms, including the requirement that insurance companies pay out 80 to 85 percent of premium dollarsoften referred to as the medical-loss ratioto medical care costs, and reduce the amount going to administrative costs, starting in 2011.
"It is even more important now, as everyone implements this law, that we closely weigh all nonmedical expenditures of the premium dollar," says Earling. "(Insurance) producers still have the ability to negotiate fee compensation directly with the clients, regardless of commission structure."
Dowling, however, contends it's premature to cut out commissions at this point under the medical-loss ratio provision of the Affordable Care Act. "A lot of carriers are using this as the reason. It's interesting they're using that when the medical-loss ratio is still being defined by the federal government," she says.
As of the beginning of April, another major insurance company, Asuris Northwest Health, shifted from a percentage-of-premium commission structure for small groups to a per-employee, per-month commission structure that also zeroes out brokerage compensation for companies with one or two employees. For other small groups, Asuris went to $5 per employee, per month for three to four employees; $15 in the five-to-nine employee groups; and $25 in groups with 10 to 50 employees. A monthly $25-per-employee commission is equivalent to a 5 percent premium commission, an Asuris press release says.
Mark Newbold, an employee benefits adviser with Moloney O'Neill Benefits LLC, of Spokane, says that company has started contacting small business owners with 10 or fewer employees to offer a separate fee-for-service arrangement. Moloney O'Neill serves about 350 smaller groups in this category, he estimates, and the company already has talked to about 30 of them as renewals come up, he says.
"(We're) offering them a choice of different levels of consulting service on a fee basis rather than having our compensation as part of the premium that's paid for the medical insurance," Newbold says. "For some of the smaller groups, it's a struggle to even provide medical insurance for their employees, so we're trying to be respectful and honor that."
"Most of our clients are saying they are willing to pay us a small fee outside of what they pay for premiums. We are anticipating there may be some small companies who choose to go it alone."
Newbold declines to give a range of fees Moloney O'Neill is seeking but says they are flat fees that depend on the level of service a client needs. He says that the company likely will go to a fee-for-service model for other small groups above 10 employees within the next two to three years.
Payne Financial's Dowling also says fees for small employers will vary based on the level of service, and because it's so new, the industry hasn't yet established standards. "It can be in the range of a few dollars to several thousand dollars. That depends on what the client is asking," she says.
Dan McMahon, a benefit planning producer for Western States Insurance Agency in Spokane, says most business people he works with understand the change, although a few have had to walk away because of costs. He estimates that about 20 percent of his clients fall into the category of groups with 10 or fewer employees. One of these, a husband-and-wife-owned business, took a look at an additional fee plus a premium increase and opted instead to buy health insurance and work directly with the insurer, he says.
"At the end of the day, if they called, I'd still help them," McMahon says, adding that overall, business owners understand that insurance professionals need to be compensated. "They understand that you can't work for free. At the same time, they can't always afford it either."
He says he will continue to find ways to help small business owners.
"They need our help more than anyone else," he says. "You're usually talking about sole proprietors who don't have staff around to do this. They're wearing all the hats in their company and they don't have the time to focus on employee health benefit needs, claims resolutions, reviewing multi-plan options. They lose someone who will stand up for them."
Payne Financial's Dowling adds that although small business owners' insurance costs will likely rise both in premiums and with the fees from agents, they should also consider how the agent can find cost savings for them.
"The agent can help them finds ways to reduce their insurance costs through appropriate consultations, so working with an agent, even if it involves a fee, should pay for itself," Dowling says.
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