Inside the Beltway—Why Health Care Reform Matters to P/C Agents

P/C Agents Join Fight Against Competing Government Health Plan


Property/casualty insurance agents have elevated health care reform to the top of their political agenda; the matter is now just a notch below the perennial battle against federal regulation of insurance on their Washington priority list.

P/C agents have addressed health insurance legislation in the past but the issue has taken on new urgency this year for several reasons. First, after years of talk in Washington, the Obama Administration and a Congress run by Democrats appear on track to adopt major reforms. Second, many P/C agencies that write commercial accounts also sell group health insurance. The third, and the biggest concern, is that the proposals under consideration include a possible government-sponsored health insurance plan that would compete with private health insurance plans — a competitor that agents fear could eat into their slice of the health insurance pie.

The issue of a government-sponsored plan has emerged as one of the major differences in the health care reform debate between Republicans, who oppose it, and Democrats, who generally support the idea. Conservative and liberal advocacy groups are raising funds and have already begun airing ads.

Last month, insurance agents joined the fray publicly. The Independent Insurance Agents & Brokers of America (Big “I”) and the Council of Insurance Agents & Brokers (CIAB) — two property/casualty agent groups — joined health insurance agents from the National Association of Health Underwriters (NAHU) and the National Association of Insurance and Financial Advisors (NAIFA) in a letter urging congressional leaders to exclude health care reform budget reconciliation instructions that would require only 51 votes to pass a measure, rather than the usual 60 votes under normal Senate operating procedures.

The groups said they were worried that “the spirit of bipartisan cooperation will be lost if regular order is put aside and the reconciliation process is utilized to fast track health care reform legislation.”

But agents fear more than bipartisanship; they fear a loss of business. A procedural move by Democrats, called reconciliation in Beltway language, removes the fillibuster and means only 51 votes will be needed to pass health care legisaltion in the Senate. That “means that pretty much health care reform is going to follow what the Obama administration wants,” said Bob Rusbuldt, president and CEO of the Big “I,” in an interview with Insurance Journal.

“I am not giving up hope and nor should independent agents or insurance companies, but we have a lot of work to do between now and September,” he said.

Agents fear that they would be at a disadvantage competing with a public plan in a market that is important to them and their customers.

More Agencies

More and more P/C agencies are offering employee benefits including group health insurance. According to Rusbuldt, “almost all” of the small and mid-sized group insurance market is written through independent agents. “It’s one of the fastest growing parts of their book of business, employee benefits in general,” Rusbuldt said.

Among some of the largest independent agencies, the percentage of their business that is employee benefits related can be 25 percent or more, according to a survey of Insurance Journal’s Top 100 agencies.

For Missouri-based big broker Lockton, employee benefits is about 20 percent of revenues globally and 28 percent in the U.S. Lockton President Mike Brewer thinks Congress should let the 160 million Americans who now get health coverage through their employers stay as they are.

“While we support broad health care reform that expands coverage and reduces cost, a large ‘public plan’ as envisioned by some will undermine and potentially destroy the employer-sponsored health benefits system as we know it. Today, 160 million Americans receive health insurance through this system. It is effective. It is competitive. It works well for a majority of Americans,” Brewer said.

Rusbuldt’s goal is to make sure Congress doesn’t do anything to remove agents from the system. “If that is taken off the table, and independent agents are no longer the distribution force for health insurance, that will be a huge hit for independent insurance agents,” he said.

P/C agents are not alone in that concern, of course. Health insurance brokers have also ramped up their lobbying against a government plan.

The Association of Health Insurance Advisors (AHIA), the health insurance division of the National Association of Insurance and Financial Advisors (NAIFA), says it is especially concerned with the public plan as a major step down the road toward a single-payer, government-run health care system.

“Promoters of the government-run plan option always state or imply that a government-run plan that eliminates the role of the agent will lower administrative costs. But administrative costs are not reduced simply by switching administrators — a government plan will not be less expensive unless services are reduced in some as yet ill-defined way,” according to AHIA President Robelynn H. Abadie.

“Experience of agents has shown that most consumers benefit from access to professional assistance.”

Reducing Agent Involvement

The argument that reducing agent and broker involvement could save money was addressed in an analysis released in December by the Congressional Budget Office (CBO) that looked at various health care reform options. The CBO report concluded that achieving “substantial reductions” in administrative costs would “probably require the role of insurance agents and brokers in marketing and selling policies to be sharply curtailed and the services they provide to be rendered unnecessary.”

The CBO report found that certain administrative costs such as for claims and customer service vary, while others are fixed and are similar whether a policy covers 100 enrollees or 100,000. The average share of the premium that covers administrative costs varies considerably — from about 7 percent for employment-based plans with 1,000 or more enrollees to nearly 30 percent for policies purchased by very small firms (those with fewer than 25 employees) and by individuals, according to the CBO report.

The CBO also noted that some administrative costs would be incurred under any system of health insurance, but proposals that shift enrollment away from the small group and individual markets could avoid at least a portion of the added administrative costs.

While agents and brokers are concerned, their cries and those of others opposed to a public plan appear to be having some effect. Some Democrats, including Sen. Charles Schumer, D.-N.Y., who serves on the influential Senate Finance Committee, have indicated that they are open to rethinking the role of a government option, if there is to even be one. One idea is to make it abide by all the same rules that private plans must follow — a “level playing field” requirement.

“The bottom line is you need somebody who is not a private insurance company to be in the mix, and there are many of us who feel very strongly about that. I don’t think the public plan should have an unfair advantage, but it would be giving all of you in the insurance industry an unfair advantage not to have a public plan,” Schumer said at a committee meeting.

But insurance interests, including Scott Serota, president of the Blue Cross and Blue Shield Association, held firm in their opposition, maintaining that it’s impossible to structure a system with a government plan without an unfair advantage that would eventually force out the private market.

“Creating a government-run plan — in any form — to compete alongside the private sector for non-Medicare/Medicaid eligible individuals is unnecessary to achieve comprehensive reform and would have devastating consequences,” Serota told lawmakers.