Like it or not, health care reform is rap idly changing the terrain of our industry. The Patient Protection and Affordable Care Act (PPACA), nicknamed Obamacare by the media, became effective in January 2011, affecting health consumers and health insurance agents across the country.
The new law mandates that health insurance companies spend 80 to 85 percent of premium dollars on actual medical care.1 Any portion of premium not spent on medical care is considered part of a medical loss ratio (MLR), which now, according to the definitions in the PPACA, includes commission as well as administrative and general expenses.
Under pressure to meet the new MLR requirement, health insurance carriers have cut commissions by as much as 50 percent.2 For many health insurance agents, this has translated to dramatic cuts in income-forcing some agencies to close up shop, and self-employed agents to deal with sudden unemployment.3
While industry advocates and associations like the National Association of Insurance Commissioners (NAIC) are backing lobbying efforts to amend the act, health insurance agents and brokers are struggling to stay afloat amidst the changing tides. According to the Bureau of Labor Statistics, there are more than 400,000 agents who, in 2010, had a median income of $47,000.4 A 50 percent slash in income is one loss few can afford-particularly middle-class earners.
What does all of this mean for health insurance producers and brokers? Don’t line up at the unemployment office just yet. It’s time to think outside the box.
The need for insurance agents is still just as crucial as ever. The situation is complex; and with new laws and regulations, it seems to be growing even more complex. The retirement age keeps getting pushed back while the health of Americans continues to decline. In 2005, more than 133 million-about one out of every two adults-suffered from at least one chronic illness.5 Additionally, while those with a higher income tend to live longer, healthier lives,6 workers who have lower incomes often have no choice but to continue working until the official retirement age when Medicare coverage kicks in at 65. So, we’ve got a cycle in which instead of retiring at a desired age, people are working longer in order to afford the health care they need.
If health care costs play a major role in keeping people working longer, then we need new ways to help them meet their life insurance needs and assist in funding health care in later years. Cash value life insurance can be an excellent solution-for both the client and insurance producer.
Cash value life insurance offers clients a valuable death benefit as well as a potential income stream in later years. Along with death benefit protection, cash value life insurance can help provide a potential solution for health care funding during retirement years. Additionally, for an agent, it provides a way to replace a portion of income lost in the health insurance market due to PPACA-two birds, one stone.
As a health insurance agent, your client base is already there-from business clients to individuals. Rather than being forced to go out and drum up new prospects, try presenting this innovative solution to existing clients who have a need for life insurance. It’s surprising how many people simply aren’t aware of how important life insurance protection is-for their businesses, for their families, and for their own futures. Many fail to consider life insurance as an option to help fund a supplemental income stream in retirement years. It’s not a matter of not wanting to know-it may just be a sheer lack of knowledge on the subject. Fortunately, there are many services similar to ParadigmSettlements.com that can help give helpful information on life insurance and its importance.
Clients need to be educated on all of their options for life insurance and the potential to supplement their retirement income. For a health insurance agent who already has an established rapport with clients, it can be as simple as presenting this option to respond to the very real concerns about health care funding.
Cash value life insurance works in multiple ways for your clients:
1. First and foremost it provides a death benefit. We in the industry have seen firsthand the value that life insurance provides to a surviving spouse, business partner or other beneficiaries.
Additionally, it can provide a potential income stream to help cover the cost of health care between the years of desired retirement and the year full-coverage Medicare kicks in.
According to the Wall Street Journal, “The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain the same standard of living in retirement.”7 With the baby boom generation largely dependent on 401(k) plans for retirement, a lesson is quickly being learned today: We need to supplement our supplemental retirement income.
2. It can help to cover potential out-of-pocket costs from Medicare Part B and to supplement insurance or prescription drug plans. Many common needs in later years include hearing care, dental surgeries, vision care, transportation to and from doctor visits or help with home care-not covered by the basic Medicare premium-free plan.8
3. Long term care costs, specifically long term care insurance, can also be covered by the potential income stream of a cash value life policy. Assisted living facilities (not included in Medicare coverage) can cost several thousand dollars a month-more if special care is required.9 Even if clients have a long term care policy, they may be concerned about outliving their benefits or that their benefit package may not be sufficient to fully meet their needs. These are other costs for which many want to plan.
Rather than sit back and watch opportunities run away, it’s time for health insurance agents to take control of the reins. Helping clients meet life insurance needs, while simultaneously creating a potential pool of money to help fund health care costs, can keep these agents in a comfortable, familiar conversation about health care.
Yes, it’s a different product and a different concept, but the reality comes down to the fact that the way we talk about health care is changing. The way we pay for health care is changing. The way clients buy their health care is changing. Cash value life insurance and annuities can be a solid option to the type of questions arising as a result of these changes.
The client base already exists, the need for cash value life insurance is there-so how does a health insurance agent make the transition into selling life insurance and annuities? It’s simple: training.
In order to be successful, health insurance agents will need support. They need good products from a financially strong carrier. With recent fluctuations in the economy, the lessons being learned by the baby boomers and, of course, the impact of health care reform-clients, more than ever, just want something they can count on.
To break into this new market, health insurance agents also need life insurance and annuity training on the various products-not the run-of-the-mill 10-minute webinars offered by many carriers. They need the kind of in-depth, personalized training that puts them in command of the topic, which gives them the confidence needed to be successful. They need marketing materials that cover everything from product descriptions to the way loans work, as well as comprehensive educational materials that cover sales concepts from supplementing retirement to protecting the future of a business. It’s crucial that managing general agents partner with a life insurance and annuity carrier who can help them provide this kind of support and training to their agents.
As insurance professionals, we help clients acknowledge particular realities about their lives and health, and to take substantive steps toward improving their situations. Rather than focusing on how the PPACA negatively impacts commissions, health insurance agents and brokers must embrace this new opportunity to help clients while keeping their careers on a forward track.
The opinions and ideas expressed in this article are those of the individual author and not of North American Company for Life and Health Insurance.
Footnotes:
1. U.S. Department of Health and Human Services. (Retrieved April 26, 2012 from http://www.healthcare.gov/news/factsheets/2010/11/medical-loss-ratio-html).
2. Arora, Nigram, “Obamacare Mandate Kicking Insurance Agents To The Curb.” Forbes, December 12, 2011.
(Retrieved April 18, 2012 from www.forbes.com/sites/greatspeculations/2011/12/12/obamacare-mandate-kicking-insurance-agents-to-the-curb/).
3. Greene, Jay, “Unhealthy Time for Insurance Brokers.” Crain’s Detroit Business, August 15, 2010. (Retrieved April 26, 2012 from www.crainsdetroit.com/article/20100815/SUB01/308159981/unhealthy-time-for-insurance-brokers#).
4. Bureau of Labor Statistics. (Retrieved April 18, 2012 from www.bls.gov/ooh/Sales/Insurance-sales-agents.htm).
5. Centers for Disease Control and Prevention. (Retrieved April 3, 2012, from www.cdc.gov/chronicdisease/overview/index.htm).
6. Orr, Andrea, “Americans Work Longer.” Economic Policy Institute, April 27, 2010. (Retrieved April 18, 2012 from www.epi.org/publication/americans_work_longer/).
7. Browning, E.S., “Retiring Boomers Find 401(k) Plans Fall Short.” The Wall Street Journal. (Retrieved April 18, 2012 from http://online.wsj.com/article/SB100014240052748703959604576152792748707356.html).
8. U.S. Department of Health and Human Services (2012), Medicare & You Handbook (CMS Product No. 10050). Baltimore, MD: Government Printing Office.
9. U.S. Department of Health and Human Services. (Retrieved April 26, 2012 from www.longtermcare.gov/LTC/Main_Site/Paying/Costs/Index.aspx).
