CMS' proposed rule for broker comp could harm consumers in unintended ways

Introduction

In my six years of being focused on health insurance distribution, I have not seen the market as rattled as this recently proposed new rule from the Centers for Medicare & Medicaid Services (CMS) related to broker compensation. I have spent my career focused on behavioral change, but for the last six years, I have been steeped in distribution, broker comp, and how Americans access health insurance. If it goes through as is, the effects of this new rule will have a more profound impact than is even being discussed, and it is being discussed a lot. In this article, I would like to review the psychological effect this will have on the broker community and what the downstream impact on consumers could be.

Background of Medicare Advantage and Broker Involvement

Medicare Advantage plans, an alternative to traditional Medicare, offer beneficiaries a variety of additional benefits. These plans, run by private insurance companies, have seen a surge in popularity, partly due to the pivotal role of brokers. Brokers, driven by commissions and market demands, have guided consumers through the complexities of Medicare Advantage choices. Their deep understanding of the market and personal touch have been crucial to their success. However, with the CMS's new proposal, the entire dynamics of this sector could shift, calling for a reassessment of what motivates these brokers.

For people who need to be made aware, there is a proposed new rule that will cap commission payments and administrative to brokers at $632. The rule also eliminates the ability for brokers to generate additional revenue by providing other services to the healthcare community, like filling out Health Risk Assessments or getting paid to refer members to specific primary care physician networks. Brokers are trusted advisors of tens of millions of Americans. Still, most have yet to be trained in anything beyond health insurance. There is a sense that allowing them to 'interfere' in activities that extend beyond plan choice could result in steering or beneficiaries feeling like their health status is being taken into account when they choose a plan. Essentially, what CMS is saying is to get rid of some of the middlemen (Field Marketing Organizations) that have been taking fees to pay for marketing, get rid of a broker's ability to overstep their job role, and ensure that members get information that is not being weighted by one plan offering more incentives to a broker than another plan.

Potential Impacts on Broker Motivation

This all sounds good. But (and this is a significant But), there are so many ways this will affect consumers negatively in ways that CMS is not thinking about...It is mainly because they are divorced from what happens in practice. In theory, what they suggest is directionally sound; in practice, it has all the potential to lead to precisely the opposite outcomes of what they hope to achieve.

To understand why, you must first understand how the industry is compensated. Brokers, as individuals, are responsible for selling insurance plans. They typically operate as small businesses or even as independent self-employed individuals. To sell a plan, you need a few things: to build up a client base, to know what to sell, to be contracted to sell a plan, and to have knowledge about the products and industry. So these sales agents, instead of operating independently, rely on organizations that aggregate brokers and help them get trained, provide them with technology, lead, and ensure they stay compliant. This may feel unnecessary. Why do we even need brokers at all? The alternative would be that individuals have to do all the research themselves. You would have to go to each health plan and find out what they offer. The average Medicare beneficiary would review dozens of plans without knowing what they are looking at.

Now, the average age of a broker in 2015 was 59. At that time, most brokers were independents who built up a book of business and had a relationship with their clients. I would have brokers tell me about that time; they knew everything there was to know about their client base. Since then, the average age has gone down to 45 as more and more call centers have opened up. Is this a good thing? If before you had an agent that had to look Mrs. Smith in the eyes every year, now you have call centers that have no personal relationship with their customer. So try to put yourselves in the shoes of the remaining, what they call field brokers: people who don't work out of a call center. You have had an organization managing all of this administrative work for you. It ensures that you get paid for the time you spend training, getting leads, and having an excellent quoting and enrollment system. Now, that is all potentially going to get stripped from you. What are the chances you are going to keep going with your business? The answers from the people I have surveyed are different. No chance.

Secondly, we were starting to realize that brokers could play a more integral part in the healthcare continuum. They touch members; why can't they do more to help people? Now, CMS is saying, know your place. You all don't, can't be trusted. "You individuals that are more trusted than the health insurer cannot be trusted." If they could be trusted, then CMS could require more training. Instead, they are just saying no more doing additional services. I think that is an unfortunate and classist way of looking at the role of brokers. From my experience, this way of relating to a working group is not the best way to extend a tent and say, let's leverage this touchpoint. Not only do I believe. This will disincentivize brokers; it is precisely the wrong message we want to send to people with some of the most intimate touchpoints with members.

I believe that CMS thinks this will make brokers more invested in retention. What I think will happen is the exact opposite. The traditional broker will retire, and what will be left will be call center agents who are motivated only by their hourly wage. The goal is more ethical selling practices when, in fact, we are disincentivizing brokers who will now need to handle a ton of admin that had been taken care of for them.

Case Studies or Real-world Examples

CMS likely looked at the financial industry, where similar regulations led to a notable shift towards more transparent fee structures and a focus on client-centric services. Brokers adapted by enhancing their advisory capabilities, which ultimately benefited consumers. What they need to take into account is that the commission amount is much lower than in other industries, and volume is what allows someone actually to make a living. If you are spending your time on admin rather than on client relations, this will have the exact opposite effect to what CMS thinks will happen. I would go so far as to say that if CMS had said that brokers have to get paid directly but would make twice as much, you likely would have incentivized a whole new cohort of young brokers, instead the old guard is going to retire leaving a vacuum filled by people less interested in each individual.

Industry experts speculate that the proposed rule could lead to a more balanced and consumer-friendly market. While some predict short-term disruptions, the long-term outlook is positive, with expectations of an environment where consumer needs precede sales quotas. They fail to realize that, like it or not, insurance agents are sales agents. They make their money through quotas, and if we want young people interested in this industry, they need to be compensated in a way that works for them.

Another unanticipated problem is that brokers will consolidate selling only national brands in an even more extreme way. Contracting is complicated, so why would you contract with regional health plans if you aren't getting help?

Conclusion and Future Outlook

In summary, while CMS believes this will benefit consumers, my intuition is that if this goes through as is, it will cause many problems for consumers. I sense that brokers that care will retire. Brokers that don't care will just be looking for hourly compensation. Companies that have become management companies for brokers have a strong chance of going out of business. Brokers will likely try to simplify their business by only selling the most straightforward products to contract with.

This is a classic case of creating a rule that, on paper, sounds great but, in practice, displays a fundamental lack of understanding of the market. Now, can this market be improved? Absolutely. There is a need for reform. Is this going to get us where we need to go? I highly doubt it. This will result in less choice for consumers, less trusted advisors, and a less qualified workforce.