New Opportunities for the Supplemental Insurance Market
The stage is set for the Affordable Care Act to close its run in 2018 as the headline act for Federally-mandated health insurance, leaving insurers speculative—but also optimistic—about legislative changes that could open the door for new business.
The removal of the individual insurance mandate—which requires basic health insurance for most Americans and imposes tax penalties for non-compliance—in the Tax Cuts and Jobs Act signed into law by President Trump on Dec. 22 is the latest in a series of proposed ACA changes.
The removal of the provision that you have to have Obamacare “will be an opportunity for us to go in and sell short-term medical insurance and all our supplements to these consumers,” says Jim Jordan, president of Phoenix-based Colorado Bankers Services. “You pull the fines out of the way,” and people are a lot more apt to consider those options.
“Premiums are going up everywhere because the ACA just doesn’t work,” says Jordan.
It’s based on a premise that’s idealistic—the pipe dream that young healthy kids are going to buy insurance if employers don’t provide it.
The reality is, they’re not buying and are opting to pay tax penalties instead, so there aren’t enough healthy people enrolling to make up for all the unhealthy people enrolling into these exchanges, he says.
“Insurance companies can’t operate with the claims ratio that they’re seeing. A lot of them are going out of business or trying to merge.”
Paying the Price
Anything but affordable, the law (a.k.a. “the Unaffordable Care Act”) has spawned ACA-compliant guaranteed issue plans (you can’t be denied coverage for pre-existing conditions) in the individual market with infamously high premiums, putting already-cash-strapped families under extreme pressure.
For example, in Arizona several years ago, plans were $200 per month and there were a couple hundred choices, says Jordan. Last year, plans went up to $450 a month and there were four choices—bare-bones plans—with almost $7K in out-of-pocket costs with no doctor visits and limited prescription benefits, he adds.
In Texas, there was a family looking for a health plan and the lowest priced option in their county was $3K a month/$35K a year for health insurance.
Prior to the ACA, the average amount that put a family into bankruptcy was just over $13K; now with the ACA, the plans that these same families are selecting because they’re getting a full subsidy, have a $13.2K deductible—the same amount they couldn’t pay in the first place to keep them out of bankruptcy, says Jordan.
Agents aren’t pulling in the lucrative income they used to from selling health plans alone. The pre-ACA days of having the bulk of their commissions and income from health plans is now a distant dream.
Case in point: An Arizona insurance company had individual health plan products that were 25 percent cheaper than anybody else’s in the marketplace, says Jordan, so “we called all our agencies around the country and said, ‘You need to contract with this company if you’re going to do business in Arizona, because they’re the cheapest and it will allow you to be competitive.’”
On Nov. 1 last year when enrollment started, they were paying a 10 percent commission on their plans, and on Nov. 16 they sent out an email saying they were reducing commissions to zero, he adds.
Supplemental Insurance Takes Precedence
There’s a silver lining, though.
The ACA has “lowered commissions or eliminated them altogether” from basic plans, Jordan says, so when agents are selling a health insurance package, they’re turning to supplemental insurance plans to pay the bills.
“It’s creating this supplemental insurance market where agents can make a living, because prior to that, we were just an add-on,” he says. “We weren’t their main source of income. Now, the supplements are the individual health insurance agent’s main source of income.”
Packaged plans—a medical plan with a Colorado Bankers critical illness supplement to help with deductibles and co-insurance—are selling well, says Jordan, as are accident plans, which have very small deductibles, around $250, and then pay between $5-$15K to cover bills, depending on the plan chosen.
Section 4 of President Trump’s Oct. 12 executive order, promoting healthcare choice and competition, proposes extending the duration and renewability of short-term insurance. A final ruling on this is pending.
Short-Term Plan Workaround
When shelling out for an ACA-compliant guarantee issue plan just isn’t an option, an alternative stop-gap is a short-term medical plan.
However, these plans are of limited duration (under a year) and don’t comply with Obamacare rules—they may also not allow pre-existing conditions or have out-of-pocket ceilings—but they’re still better than no insurance at all.
“We’ve seen over the last couple of years a really good spike in short-term medical plans, and while those aren’t ACA-compliant, they’re what the client can afford and have coverage,” says Jordan.
Plus, says Jordan, this alternative frees up money for premiums to buy these supplement plans to work in conjunction with these short-term medical plans. “And there are some good short-term medical plans out there that have good limits, doctor co-pays, RX benefits, and they’re super affordable,” he comments.
The Extra Mile
For our supplemental accident benefit, “the consumer can either send us their EOBs from their health insurance and receipts and we’ll reimburse or we can assign a beneﬁt to the doctor or facility,” Jordan says, “and not a lot of companies are doing that.”
Having access to telehealth services is a huge perk for supplemental clients.
“We have a doctor visit benefit that allows clients to call the doctor over the phone or smart phone and have a video chat with that physician for any ailment they have that can be treated that way,” says Jordan. “They’re not spending time going to the doctor trying to get an appointment; it’s for simple stuff—colds, flu, med refills. We sell quite a bit of that.”
And it’s not just the convenience that’s attractive.
“There are a lot of companies that do telemedicine, but a lot of them have co-pays, $30, $40 every time a client calls, whereas our plan is unique—we have none,” Jordan adds. “They can use the benefit as many times a year as they want. Right now, we’re the only company, as far as I know, that has unlimited visits for telemedicine.”
The average premium for a critical illness plan is around $40 per month and around $50 for an accident plan, but the plans pay for themselves if clients use the benefits, particularly the unlimited physician calls benefit.
“If a family uses that four or five times a year, that literally helps pay for that plan,” says Jordan.
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