Short Takes On News & Events

Brokers Associated With More, Cheaper Health Coverage, Study Says

By Jay Hancock

August 22nd, 2013, 6:07 AM

Health insurance agents, feeling threatened by the Affordable Care Act, will welcome research from the University of Minnesota that supports their longstanding argument that agents and brokers make insurance shopping easier and cheaper.

A new paper by economist Pinar Karaca-Mandic and colleagues finds that small employers were more likely to offer medical coverage in markets with many brokers competing for business and offering health plans. “We also find that increased agent/broker competition is associated with lower premiums,” they wrote.

Like middlemen everywhere, health insurance brokers argue that their ability to steer customers through the market thicket makes them worth their commissions. (For medical policies, commissions are usually paid by insurers.) Often they act as virtual benefits departments for small employers that can’t afford their own human resources staff. Others say broker fees add to administrative expenses and drive up overall health costs.

Karaca-Mandic found that small firms were about 20 percent more likely to offer health coverage in counties with the most brokers serving small firms than in counties with the least. The data are from 2008. In counties with the fewest brokers, the average annual premium for a single employee was $5,173. In counties with the most brokers, the annual premium was $4,495 — 13 percent less.

The report, posted as a working paper by the National Bureau of Economic Research, was funded by a grant from the federal Agency for Healthcare Research and Quality.

The findings raise a chicken-and-egg question. Did employers in the broker-rich counties offer more coverage because they had access to better information? Or were there more brokers in those places because of higher employer demand for health insurance?

Karaca-Mandic and colleagues tested the data for clues. For example, if higher overall demand for health insurance was the cause of wider coverage in some markets, they reasoned, large employers would show the same variability in premiums and coverage patterns from county to county as small firms. But they didn’t, suggesting something else was influencing small firms to offer insurance. Large employers don’t usually use brokers, they figured, so maybe brokers were the X factor for greater coverage among small firms.

“Greater availability of brokers and more competitive broker market structure play an important role in reducing search costs and improving offer rates in small firms,” they concluded.

The Affordable Care Act was supposed to make insurance shopping easier for small firms and individuals by offering comparable products through online marketplaces due to open in October. The Obama administration is financing the training of “navigators” to help individuals enroll, giving taxpayer subsidized competition to brokers.

Brokers also lost out when regulators declined to count commissions as part of the minimum medical claims and quality-improvement spending insurers must achieve. Bipartisan legislation is pending in the Senate that would reverse that.

Given the lack of awareness about many aspects of the Affordable Care Act, “I would say there will still be a lot of demand for brokers, at least in the short term,” Karaca-Mandic said in an interview.

26 Responses to “Brokers Associated With More, Cheaper Health Coverage, Study Says”

  1. Rosemary says:

    With any luck, brokers will go the way of the dinosaur. Hopefully, the day of the high deductable health insurance policy will be a thing of the past. Whether they believe it or not, there’s nothing like a life threatening accident or a the threat of a terminal illness to convince you that you need comprehensive health insurance. It does not matter that you are young or old, at the peak of health or not, we all need comprehensive healthcare. Just because you are twenty-something does not mean that you can’t get cancer. With the health exchanges and without the confusion of brokers, we will all be buying virtually the same comprehensive product. Broker don’t function well in simplicity. Brokers need confusion to justify their existence. Most of us hate the “I know better than you” attitude. Most of us hate that we must always subservient to a so-called expert. The health exchanges eliminate that! For the first time, consumers will be in charge of their healthcare choice. Not the shyster brokers that are skimming off a profit for themselves.

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  3. jerry says:

    Insurance brokers, that sell any type of insurance, have personal motives. They get paid when you buy the products they sell. They don’t get paid if you don’t buy products from them. Whether the product is good, bad or otherwise, a broker could not care less. All they care about is whether you by their product. Just like a used car salesman. Once you drive away in the car that they sold to you, they could not care less about your experience with that car. At least with a new car, you get a factory warranty that makes the dealer and the sales team accountable. With a used car, unless you buy an after-market warranty, you are screwed. Same is true with health insurance brokers. If I have a choice between two evils, an insurance broker or a health exchange navigator, I’ll take the health exchange navigator. Navigators will get paid regardless of whether you buy health insurance or not. Navigators have one motive. To show you the process of shopping for health insurance on the health exchange. Which product you buy on the health exchange is your choice alone. As I see it, if we have four levels of insurance (bronze, silver, gold or platinum) on the exchange to choose from and all of them are comprehensive choices with robust benefits as required by the rules of the exchange, I can’t see how the consumer can purchase a bad product. Not to mention, changing their mind. If the consumer buys something that doesn’t fit, they can easily go back to the exchange and get something that does! They aren’t locked into a policy long term like brokers will do outside of the exchange. For the very first time, buying health insurance will not be confusing and complicated. Consumers are protected from making bad choices on the exchange. Brokers have traditionally liked making things confusing and complicated just to prove that they are necessary. Fact is, they aren’t!

  4. Johnny Dee says:

    Brokers stealing our money feel threatened? They should. Their time is ended.

  5. jerry says:

    Not only do we need a health insurance exchange to eliminate the private health insurance brokers, we also need an auto insurance exchange, a homeowners insurance exchange, an umbrella insurance exchange, a life insurance exchanges, a long term healthcare insurance exchange, and or and on and on and on. I see a time when the consumer avoids the “experts” that have been bilking them for and decades and decades and decades. Private insurance brokers are nothing but a bunch of corrupt shysters!

  6. Harry says:

    Shysters? I’ve got a better term. Try cockroaches!