How PPACA is Affecting the Health Insurance Market

By Chris Hidalgo

As you may know, the Patient Protection and Affordable Care Act (PPACA) was upheld by the Supreme Court on July 28, 2012, more than two years after being signed into law.  Assuming the law continues to be upheld through the election, a few of the 150,000 health producers will consider leaving the business while many will continue to move to diversify their product portfolio.  Commissions in many types of policies were slashed up to 50% by health insurance carriers to act in accordance with the medical loss ratio (MLR) provision of PPACA.

“The Affordable Care Act has greatly reduced commissions to health insurance agents.  These agents are making much less than they did in the past and can consider life insurance as a natural companion product,” says Daniel Mulheran, president of Retail Life Distribution at ING U.S. Insurance.

Under the MLR Rule, health insurers are required to spend at least 80 cents of every premium dollar on medical care and health care quality or else rebate the difference back to subscribers or their employers.  Large employer groups are required to spend 85 cents of every premium dollar. 

According to the Center for Consumer Information & Insurance Oversight, at least 18 states and territories have sought approval from the U.S. Department of Health and Human Services for their insurers to spend below the 80% threshold, with only six being approved.  Epstein Becker Green’s rate review scorecard reports that states such as Massachusetts (90%) and New York (82%) have imposed a higher MLR threshold without federal approval.

Depending on whom you ask, either the MLR requirement is necessary to force insurers to become more efficient or it may prove counterproductive in the fight to reduce actual health care costs. 

An article on BenefitMall’s website mentions that proponents of the health insurance premium tax that begins in 2014 argue that the tax will not directly increase premiums and would raise much needed revenue, and that insurers paying the tax will be benefiting from PPACA sections that should produce many more individuals and employers to start buying health coverage.  Those who argue against the tax say insurers that attempt to adjust entirely on the cost side will be unable to maintain their operations at a competitive level, and will lose market share or even depart the industry entirely.

In a recent survey of 500 health insurance brokers by the Henry J. Kaiser Family Foundation, 74% believe that PPACA will hurt the average broker.  An article by Employee Benefit News revealed that employers in the health care industry expect sharp cost increases, with 40% predicting at least a 3% rise.

In contrast, a few U.S. health insurance brokers feel that PPACA will actually help the United States as a whole, according to the Institute for HealthCare Consumerism.  About 20% of brokers said that they had a favorable opinion about PPACA.

Therefore, a lot of health insurance agents are switching over to selling life insurance.  The average age of an independent life insurance producer is 56 and a lot of producers are retiring at a fast rate.  The life insurance market has provided more opportunities for health agents to look to new products and expand their business.

While there are many who oppose PPACA, supporters have come out to voice their opinion.  Garth A. Garlock, senior vice president and chief marketing officer at North American Company for Life and Health Insurance, is encouraging health insurance producers to present cash value life insurance as a way to combat part of the income lost due to PPACA.

“Rather than focusing on how the PPACA negatively impacts commissions, health insurance agents and brokers must embrace this new opportunity to help clients, while keeping their careers on a forward track,” Garlock said in a press release.

Regardless of what argument you support, one thing is clear: the health insurance market is changing and there will be more to talk about moving forward.