The First Victims of Health Care Reform

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As Democrats on the campaign trail do their best to drum up support for health care reform by touting the benefits that take effect this year, it's easy to forget that the full thrust of the Patient Protection and Affordable Care Act doesn't kick in until 2014. But by then, a few major players in the health care industry might have already experienced a real downside of the massive overhaul, so much so that they may no longer exist.

Insurance agents and brokers and small insurance companies are among those who may have to scramble to stay afloat over the next few years. This is partly by design and partly an unintended consequence of a new law that is so sweeping, it will affect nearly every corner of an industry that accounts for one-sixth of the U.S. economy.

Agents and brokers are so concerned they will be viewed as redundant under the new law that they successfully lobbied to get state insurance commissioners to publicly acknowledge their importance. At a meeting of the powerful National Association of Insurance Commissioners (NAIC) last week in Seattle, 25 commissioners sponsored a resolution stating that implementation of health reform should "recognize and protect the indispensable role that licensed insurance professionals play in serving consumers."

The resolution was passed just as the NAIC was debating a much-anticipated set of recommendations on how insurance companies should calculate their medical and administrative expenses, known as medical loss ratios. Under the Affordable Care Act, beginning in January, plans sold to individuals and small groups must spend 80% of premiums on actual medical care (as opposed to administrative costs); the figure is 85% for large group plans. Plans that spend less will be required to send rebates to customers. The NAIC counted agent and broker commissions, which can make up 5% to 20% of premiums, in the administrative category. Most experts, therefore, predict these commissions will be on the chopping block as insurers scale back administrative expenses to comply with the new rules.

Agents and brokers are also worried about the future for another reason: a vital part of their current role, sales and marketing, could be made redundant thanks to the new state insurance exchanges that will go online by 2014. These Web-accessible marketplaces will be where individuals and small groups go to purchase insurance. In addition to listing plans available by location, the exchanges will post quality and price information and administer federal subsidies for those who qualify, making it easier for individuals and small-business owners to compare plans and choose the options that best suit their needs.

Brokers and agents have to hope there will still be demand for their help in navigating the maze of health insurance. "More of the upfront stuff will be done online, but it won't replace the service," says Janet Trautwein, CEO of the National Association of Health Underwriters, which represents agents and brokers. She says the advice and counseling that state-licensed brokers and agents provide will still be needed. But the Affordable Care Act partially covers this base as well, providing funding to pay exchange "navigators" who will educate consumers about how to use the state exchanges. The precise training requirements and pay structure for these navigators is not yet clear, but Trautwein says insurance commissioners are worried this provision "could invite sham operators or those who may not have the same expertise that those of us in the weeds of insurance every day do."

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