Health Insurance Broker: Friend or Foe?

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If you own a small business and provide health insurance to your employees, good for you! Many of your peers do not. But if you do, chances are good that you use an insurance broker or agent. This licensed professional helps you sort through your options year to year, explaining the differences between plans and helping you purchase a policy. The best agents and brokers also provide lots of assistance to you after the fact, helping nudge insurers who don’t pay claims promptly and answering questions about your policy. A story in the New York Times on Friday spent a good amount of space explaining how helpful brokers and agents can be to self-employed folks as well.

Indeed, the services provided by brokers and agents are extremely valuable and they don’t come cheap. Even if an insurance company pays the agent or broker directly, that cost is passed along to customers in the form of higher premiums.

One major goal of the new Affordable Care Act is to make buying small group and individual insurance policies more transparent and simpler, and maybe even eliminate the need for agents and brokers altogether. Not surprisingly, agents and brokers are not exactly on board.

By January, the law will require insurers to spend 80 or 85% of the premiums they collect on medical care, leaving just 15 or 20% for overhead. (The percentage limits depend on whether the plans are for large groups, small groups or individuals.) Insurance agents and brokers are fighting hard for their commissions to be excluded from the overhead category. But they face an uphill battle for another reason.

Beginning in 2014, every state will have what’s called a health insurance exchange. This will essentially be a website portal where people can review and compare plans and get quality ratings and quotes. To the chagrin of those worried about government intervention in the health care market, the new law will also require every plan sold in the exchanges to have a federally designed “minimum benefit package,” a baseline of standard medical needs every plan must cover. This will result in far less variation in the types of health insurance plans available, furthering decreasing the need for an agent or broker.

I said in a recent story that insurance agents and brokers could be one of the first “victims of health care reform.” The head of the lobbying group that represents agents and brokers didn’t really like this too much.

But the pushback raises an interesting point. How much are health insurance consumers willing to pay for customer service? Would you rather buy cheaper insurance through a website and be dependent on your insurers’ 800 number if you have questions or complaints? Or would you rather pay more and know you have someone besides your insurance company to call if you need help?

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