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Health Reform and Brokers

So now that health reform has passed and has been written about and reported on so extensively, the only topic left to cover is what will happen to health insurance brokers after health reform begins to change health insurance in roughly six months, and to their individual health insurance market.  I am about to give a scenario which is based on the current law (yes health reform is now a law), and what has happened in states like New York and Massachusetts where this model originates.

Health Insurance Quote

By the way the quote button above is a reminder that you can still buy health insurance as an individual, which means that this massive website that I built can still be used to find affordable health insurance, until such time as it is replaced by the state health insurance exchange should this actually end up happening.

In my opinion (which is based on the General Accounting Office numbers which probably also qualifies as an opinion), individual health insurance will eventually end, at least in terms of agents, just like it has in Massachusetts. where everyone buys insurance from the exchange.  So again, individual health insurance will still be available, but only in health insurance exchanges where each state is responsible for their own exchange and which companies offer plans through it.

For our current jobs in individual health insurance to stay viable, everyone would need to do as the law intends, which means buying health insurance or getting it through their employer.  The rest of course will either qualify for premium assistance to make up the difference or Medicaid which is slated to expand to cover 35 million more Americans.  In and of itself, this is a fallacy, as the state budgets are already so bankrupt and deficit ridden that they have been cutting benefits and coverage to people that really need it since the recession began.  In fact Arizona just got rid of their CHIP program (health insurance for children) and would have cut even more, had this law not passed which specifically demands that the states not cut any programs nor make it more difficult to qualify for government health insurance programs.

Further, this new health care law is based on the absurd notion that younger and healthier people will  buy health insurance through the health insurance exchange.  This will inevitably not happen because premiums for younger Americans are going to surely become, at least in the short term even more expensive.

This is because the health care legislation will leave insurance companies with no other choice but to raise premiums even higher because for one, this law has provisions that keep premiums for the young and old within a certain ratio.  Secondly, and more importantly, because the young and healthy simply will not ever think about health insurance much less buy it no matter what the law.  Not to mention that health care costs have risen wildly on their own accord just in the time it took you to read this article.

And finally and most importantly, young people and most of the uninsured right now for that matter, will not buy health insurance because the law only penalizes them $695 which is not even significant when compared to what premiums are and what they will become under this law.

“..younger, healthy Americans likely will shoulder premium hikes, at least initially,” said industry lobbyist Kelly Atkinson, executive director of the Utah Health Insurance Association.

Most Americans, probably don’t realize this, but in New York for example if you shop individual plans right now, the cost for an 18 year old male is the same as a 64 year old with diabetes and any other condition you can think of.  And this premium is currently about $1000 per month for both the 18 and 65 year old to get only average benefits.

Under this new law, the only people buying health insurance will be people that have insurance now (though many of them will elect instead to pay the penalty, I know I probably would) and everyone that has been declined.  The rest will head towards Medicaid and to their employer.

The other nail in the proverbial coffin for health insurance brokers is the 80% rule, which simply states that 80% of premium must go to health care costs.  This will eliminate most of the room to pay us even a reasonable commission as brokers after factoring in administrative costs.

Sadly for us this law takes effect as soon as 2011, which will in effect either put us out of business right away or dramatically hurt our bottom line.  What is strange is that the health insurance exchange doesn’t become law until much later, which means that most  health insurance brokers will be forced out due this 80% rule  in the very near term. East Coast Health Insurance as well as some of our competition might be able to stay afloat longer because of the fact that we are larger producers and thus have bargaining strength.

Still, the 80% rule is reasonable and will help stop some of the waste that has polluted our industry, but unfortunately the bulk of the health care cost drivers will still remain, and will eventually poison the entire system with or without health reform.  As one looks at the final bill that passed, I am not only amazed at the new problems that it will cause,  but also and more importantly, it might be very well be the financial death blow to this economy.

A recent study found that administrative expenditures in the United States were four times higher than reported by NHE in 1999, or 31 percent of total health care spending, compared with only 17 percent in the predominantly government-run Canadian system. But this includes Medicare as well, so administrative expenses associated with private insurance could even be higher then 31%!  You do the math.

This article is about the future of individual health insurance brokers, but still I will share my solution.  My solution has no basis in the near term reality of the situation however, and will do nothing to stop the quickening demise of the individual health insurance agency.

But the best bet for our economy is to replace the 2400 page document with a 10 page document that sets up a single payer system while at the same time, leaving people the option to purchase private health insurance much like Europe.  Everybody wins here, and more importantly it makes our health care system become a significantly less important piece of our gdp.  In the end though however maybe in 10 years, that is what this new law will cause because health insurance companies will be unable to make enough money to rationally survive.  I am quite certain that the people who wrote this bill know that as it seems like this bill will cause enough pain to force us into a single payer system.

Jeremy Ehrenthal

Jeremy Ehrenthal is a partner at East Coast Health Insurance, a national brokerage for individual, group, and Medicare health insurance plans. East Coast Health Insurance is committed to providing honest opinions of the insurance industry, giving the consumer as much information as we can. From underwriting guidelines to public health plans, our agency pushes the limits of tradition in order to give people more access to care. As an internet company, our site provides every possible resource on health insurance imaginable so that any reader can understand a health plan, the industry, and their rights. With the individual in mind, our Health Insurance News blog maintains the transparency of our agency, giving accurate updates on the nation's health care and insurance systems. The blog is also a great place to find local Florida health insurance news, as the agency is headquartered in Broward County and dedicated to providing the state with current events and industry happenings.

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