Agent Compensation Decline and Small Employer Health Insurance

One of the most contentious areas of rule making in the ACA was the definition of what was included in the MLR (medical loss ratio) target that health insurers have to meet. In the end, it was decided not to include agent commissions in the allowed claim or quality improvement expense category. This forced insurers to dial back the available level of compensation for the agent. While the independent agent working in the small employer health insurance market was probably an easy political target for the Administration, the down stream effect of this decision will be another reason for small employers to stop offering health insurance as part of their benefit packages.

As anyone who has had to purchase small employer health insurance knows, the agent often becomes an unofficial HR consultant to the employer. Coverage questions and claim problems that employees bring to the employer are facilitated through the agent. Without the assistance of the agent, the employer has to take time away from running their business and deal with employee benefit problems. With the cost of small employer health insurance continuing to rise, and now the non-premium expense increasing, when does the benefit become too expensive?

What evidence do we have that this will be the case? A recent survey by the National Association of Insurance and Financial Advisors (h/t John Goodman) indicates that this will exactly be the case. Most agents have reported a decrease in commission income. For those that are staying in the business, the primary area where they are cutting back is in client service activities.