Part One: The Five Biggest Mistakes Brokers Are Making About Obamacare
One of the unintended consequences of the Affordable Care Act (ACA; also known as Obamacare) is decreased commissions for insurance brokers. Insurers subject to the medical loss ratio (MLR)* regulations must devote a minimum of 80 or 85 percent of premium dollars on medical care or activities that improve health care quality each year. Broker commissions are considered administrative costs and therefore have to be paid out of the 15 or 20 percent leftover after the MLR is calculated. The result is that most insurers have had to drastically reduce broker commissions so that they can still make their money
(*MLR rules do not apply to self-funded plans.)
Less money to go around means more competition among insurance brokers to capture as much of a shrinking market as possible. But is it really shrinking? While commissions may be shrinking, the number of employers who need to purchase insurance because of the ACA is growing.
The vast majority of employers I meet are still completely confused about the ACA and what it means to them. Most employers are looking to their insurance brokers as their first source for ACA information. It obviously follows that insurance brokers who differentiate themselves and offer real ACA solutions to employers are the ones who are going to come out ahead.
You will often hear me telling employers about the opportunities available to them because of the ACA. Obviously, the ACA is one of the most difficult and onerous laws employers have ever had to face. The ACA is not creating the opportunities. It is the need to find new ways to remain profitable in light of these challenges that is creating new ideas, new products, new ways of thinking and new opportunities. More millionaires were made during the Great Depression than any other time in our history because while some saw devastation, others saw opportunity.
Here are the top five things NOT to do if you want to be one of the brokers who finds the opportunities available because of the ACA:
1. “What Employer Mandate?” (Not Learning the Basics of the Law)
Even with all of the information available on the Employer Mandate, I meet brokers every day who still do not understand the very basics of the law. A year or two ago this was understandable. At this point, there is no excuse. The ACA is not as complicated as you think.
First of all, do not give up trying to learn it. If one webinar seemed overly complicated find another webinar. Even though the law is over a thousand pages and the regulations defining the law are too numerous to count, there are only a few provisions of the ACA that directly impact large employers. You don’t even need to understand everything about these few provisions, you just need to understand the overall concept and where to go to find answers.
I have created a very simplified approach to the ACA in my book, "The Employer's Guide to Obamacare" that I used to teach the ACA to my clients. Here are the threshold questions an employer needs to answer:
(a) Am I a “Large Employer?”
(b) Am I part of a “Controlled Group?”
(c) What method should I use to measure my employees (look-back/stability method)?
(d) How do my variable hour/seasonal workers impact my status as a Large Employer?
(e) What is my exposure if I just pay the penalties?
(f) What would it cost me/save me to offer insurance?
(g) How do I make sure the insurance I am offering is “Affordable” and “Minimum Value?”
(h) What is my penalty exposure and how can I protect myself against unexpected penalties?
As a broker, you need to be able to help your clients answer some of these questions or at least point them in the right direction to get them answered. No decision should be made about any insurance product until have a firm grip on this analysis.