Benefits brokers whose book of business goes beyond group benefits to include individual Medicare subscribers are keeping an eye on potential changes to the government health insurance planned for seniors. Why? Because the Biden administration appears ready to take action that could limit future broker payments.
The administration has already shown willingness to limit the amount of money brokers can make by enrolling Medicare subscribers in Medicare Advantage and Medigap plans. But it looks like regulators want to impose further restrictions against extra payments brokers receive from insurance carriers.
Reducing Total Compensation
Axios reports that roughly 33% of the nation’s Medicare subscribers rely on brokers to help them choose their Medicare Part B, C, and D options – all of which are provided through private insurance carriers. Carriers pay brokers to steer customers to their products over and above the $611 standard allowable fee under Medicare regulations.
They do so through add-on payments to ostensibly cover broker costs related to marketing, customer service, and recruiting. Axios contends that a typical benefits broker can earn up to $1,300 per new enrollee for the services they provide. What is the problem here?
Insurance carriers do not eat the cost of paying brokers to steer Medicare subscribers to their products. Everything they pay is added to the cost of their products. In the end, this means Medicare subscribers are paying more for policies than they otherwise would if insurers companies were not paying brokers so much.
Expanding the Book of Business
Benefits brokers have historically worked with insurance carriers and general agencies, like BenefitMall, to put together group benefits packages for employers. So why are they involved in the Medicare system? It is a matter of expanding a broker’s book of business. Like any other business, brokers are always looking to bring new customers into the fold. Medicare subscribers represented an untapped market when brokers first started approaching them.
Brokers make their living on a commission arrangement. They represent a variety of carriers. Whenever a broker enrolls a new subscriber to a product, they earn a commission paid by the carrier. The arrangement is pretty consistent whether a broker works directly with carriers or through a general agency.
As previously mentioned, carriers do not eat the commissions they pay. Commissions are a cost of doing business. It gets rolled into the total price they charge subscribers. So every penny carriers pay to brokers through commissions is added to the total cost consumers pay for their insurance.
What the Government Is Saying
One would expect private insurance carriers to offer higher payments for steering consumers to their products. That is the way private business works. Yet the government doesn’t think it is appropriate for Medicare. Although Medicare Parts B, C, and D are provided through private insurance carriers, those products are still part of a federally backed insurance system for seniors. Therefore, regulators believe profiting on the system should be limited.
The government says that redefining broker compensation for Medicare plans would level the playing field between larger carriers with the financial resources to woo insurance brokers and carriers who cannot afford to do so. They also say that limited compensation would ultimately benefit subscribers by helping to control premium costs.
I’m not sure that brokers and carriers would agree. I am not sure I agree. Every time the government flexes its muscles, costs seem to go up. Nonetheless, brokers will be keeping an eye on federal regulators to see where they go with this proposal. It could be that they will stand to earn less for helping seniors with their Medicare options.
