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Clients Clamor for 'Mediclarity'

Optimistic trends in the Medicare sales environment continue to attract advisors who are dedicated to this ever-changing marketplace.

With more than 10,000 people aging into Medicare every day, insurance carriers competing for market share and consumers practically begging for help to understand it all, advisors committed to the senior market are in demand. While competitive products and compliance are critical to anyone selling in the Medicare milieu, trends that can affect current clients, prospects and advisors themselves are also vital to the success of every salesperson in this complex and exciting industry.

Growth of the Medicare market will continue to attract and retain many advisors to the business. Sales growth continued to increase in 2013 and into this year for Medicare Advantage (MA) and prescription drug plans (PDPs), with an 8 percent and 3 percent gain respectively. However, the biggest sales spike was in the employer group plans, which experienced a whopping 26.6 percent increase.

The largest factor in the employer plan growth was caused by the Affordable Care Act (ACA), which made the tax benefits to employers much less attractive if they continued to sponsor their own prescription drug plans for their retirees. So from 2013 to 2014, we saw a huge migration away from employers self-funding their own prescription drug plans and into a group PDP.

The reason behind this is that when the Part D benefit began with the Medicare Modernization Act of 2003, subsidies were provided to employers in order to prevent a massive migration of Medicare beneficiaries from self-funded groups to group Medicare Part D. Initially, these subsidies were not considered taxable. In order to fund the ACA, the tax-free status of these subsidies was phased out. This resulted in employers moving from self-funded to group Medicare Part D plans.

The health insurance market as we know it today is largely a government-controlled environment, as is evident by the 100 million lives the Centers for Medicare & Medicaid Services (CMS) covers through Medicare, Medicaid, Children’s Health Insurance Program (CHIP) and federally subsidized public health care exchanges. We expect to see this number of covered lives to grow rapidly in 2014, 2015 and beyond. Contributing to this gargantuan growth are baby boomers aging into the Medicare program as well as more people qualifying for Medicaid and CHIP.

Another 40 million individuals are covered by small group employers, those that employ fewer than 100 workers. The individual health care market covers approximately 19 million lives, according to America’s Health Insurance Plans (AHIP). While there are 47 million nonelderly uninsured Americans, another 72 million people are covered by large group health insurance plans, which are designed for employers that employ 100 or more workers.

The impact of the small group market is significant. A Washington Post article from Jan. 11 stated, “When millions of health-insurance plans were canceled last fall, the Obama administration tried to be reassuring, saying the terminations affected only the small minority of Americans who bought individual policies. But according to industry analysts, insurers and state regulators, the disruption will be far greater, potentially affecting millions of people who receive insurance through small employers by the end of 2014.”

There are also significant shifts in the large group segment, and these, too, impact the health care landscape. Some of these companies are eliminating or significantly changing spousal and dependent coverage. Others have shifted workers to a part-time status where health benefits coverage is not mandatory.

While it may not be the best news for the employees and their families, this movement creates huge opportunities for others in the health care arena. The biggest winners are private health exchanges and companies that provide the technology to make them work.

Arguably the most talked about player in today’s health insurance domain, the ACA health care exchanges continue to provide intrigue to both consumers and the business community.

So what is driving this movement to exchanges? Historically, employer group plans were constructed based on the one-on-one interactions of the business owner and the group health insurance broker. Individual policies were historically sold on a one-on-one basis between an individual health insurance broker and the client or prospect. The broker could analyze many insurance products and present a preferred product to a single consumer. But what happens when the relationship is “many to many” (many consumers evaluating many insurance products)? If advisors are not able to fill the void, the exchange can assist a large number of consumers with the evaluation of a large number of insurance products. Effectively, this is another form of the trend toward “mass customization.”

Advisors in the MA and PDP markets must be aware of how each carrier is handling the new commission regulations set by CMS in the fall of 2013. While new policies for coverage that took effect Jan. 1, 2014, will see no impact from the new regulations, new policies will have advancing commissions limited to the current calendar year.

Here is an example of how the replacement commissions will be paid based on the new CMS guideline:


If an agent writes an MA or PDP (true-up or replacement), the first commission payment made will be for the months remaining in the calendar year. If the plan is effective Feb. 1, 2014, the first payment will be eleven-twelfths of the commission. If the plan is effective for Dec. 1, 2014, the first payment will be one-twelfth of the commission.


In cases where the enrollment is a “like for like” replacement, the agent would not receive any additional commission payment. However, cases where the enrollment will be a true-up and is not a like-for-like situation, insurance carriers will pay either the agent’s true-up commission in full or pro rata.

Situations in which the enrollment is not a like-for-like situation include:


» New to Medicare Advantage or new to Medicare.


» Moving from original Medicare to Medicare Advantage.


» Moving from Medicare Advantage to a prescription drug plan.


If carrier pays true-up in full:


If the policy is effective Dec. 1 and the full commission is $400 and the carrier paid the agent $16.67 (one-twelfth of the $200 replacement commission) in the first payment, the company will then true-up the remaining amount to the agent. In this case, the true-up payment would be $383.33.

If an agent writes a Dec. 1, 2014, effective application and the company pays in full, the agent is paid $400 for that one month. If the beneficiary stays in the plan, the agent will continue to receive monthly renewal payments from the carrier, starting in January 2015.

If carrier pays true-up pro rata:

(Pro rata means that the carrier pays the agent for the months that the Medicare beneficiary was in the plan.)


If the policy is effective Dec. 1, the full commission is $400 and the carrier paid the agent $16.67 (one-twelfth of the $200 replacement commission) in the first payment, the company will pay the agent only one-twelfth of the $400, or $33.33. So the agent would receive an additional payment of only $16.66 ($33.33 minus the first payment of $16.67).


Advisors should understand how each of their contracted carriers will pay out commissions under the new CMS guidance. Advisors will likely see the biggest impact of these changes for effective dates that occur later in the calendar year.

Additional changes to agent commissions were proposed by CMS in a 678-page document released on Jan. 6. Key points that were suggested by CMS include:


[1] Renewal compensation limited to 35 percent (versus 50 percent) of initial year.


[2] Lifetime renewals.


[3] Renewal payments moved up to current fair market value (FMV) for that year.


[4] Carriers cannot pay commissions to agents for annual election period (AEP) business until Jan. 1 of the following year.


To summarize the proposed changes, CMS proposes limiting renewal and replacement commissions to 35 percent of the initial commission rate (currently, most companies pay 50 percent of the initial rate). However, CMS proposes making these renewal rates paid for the lifetime of the enrollment and to have the insurance companies pay all renewals (regardless of year of entry) at the current year’s rate. The commissions generally increase by a small inflationary factor each year, so all renewals would move up (or possibly down) based on the most recent rate published by CMS.

In keeping up with the trends and complexities of the marketplace, it is paramount for advisors to focus on each of their core strengths.

Transactional selling is the strong suit of the exchanges. Advisors should focus on areas in which exchanges can’t do well. These areas include relationship building, working as a trusted advisor for clients, cross selling, needs analysis and obtaining referrals.

Andrea Koretz is senior marketer for Ritter Insurance Marketing, Harrisburg, Pa., and an active health insurance agent. She formerly served in various Medicare sales and communications roles. Andrea may be reached at [email protected] [email protected].

Craig Ritter, CPCU, AFSB, is president and owner of Ritter Insurance Marketing, Harrisburg, Pa. Craig began blogging about Medicare and 2008 and his blog is read by agents and insurance industry insiders, with almost 1 million article views. Craig may be reached at [email protected] [email protected].

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