A Health Care Reform Primer What Does Health Care Reform Mean For You?

The Role of Independent Insurance Agents and Brokers 61.8% of Agencies Sell Health Insurance. 14.4% of Their Total Revenue is From Health Insurance Sales. Breakdown of Sales: o 15% Large Group (51+ employees) o 25% Individual o 60% Small Group (2-50 employees) NOTE: Employee Benefits, including health care sales, is the fastest growing line of business for independent insurance agents.

Timeline for Health Care Reform Legislation Health Care Reform negotiations are moving quickly on Capitol Hill… In late May, DRAFT legislation is expected to be circulated. In June, legislation is scheduled to be considered and voted on by the Senate committees of jurisdiction. In July, legislation is expected to be considered by the full Senate. The House will follow suit.

Political Outlook Given the strong Democratic gains this past November in the House ( ) and Senate (59-40), the Obama Administration is well positioned to pass a health care reform proposal this year. The Obama Administration has labeled health care reform as their #1 domestic priority.

What’s going to be in the legislation? Consensus Items vs. Points of Contention

Consensus Items Part I Universal Coverage: Health Insurance will be available to all Americans. Guaranteed Issue: All applicants, regardless of health status, will be able to purchase health insurance. Individual Mandate: There will be a requirement, likely enforced through the tax code, that all Americans purchase a health insurance plan. Noncompliance will result in a tax penalty or fine.

Consensus Items Part II Health Insurance Exchange/Connector: An independent entity will be created, the primary purpose of which will be to organize affordable health insurance options, create understandable and comparable information about those options and develop a standard application for enrollment in a chosen plan.

Underlying Issues of the Health Insurance Exchange/Connector Will agents and brokers be included in the connector/exchange sale and delivery force? What will the commission structure be inside of the connector/exchange? Will it be a national exchange/connector or will it be state-based? Will a portion of the small group market be folded into the individual market?

Points of Contention Public Plan Employer Mandate Taxes Cost Controls Budget Reconciliation

What is the Public Plan? A “government-run health insurance plan” that would be matched against private plans in the exchange/connector. In theory, individuals and perhaps small businesses would have a menu of private options as well as the ability to purchase the government-run health insurance plan. Supporters of the government-run option believe it will keep health carriers efficient and lower health care costs.

What Does the Public Plan Mean for Agents and Brokers? “A public plan is something that’s sponsored by the government, and therefore has very low or almost nonexistent administrative costs, compared to others. It doesn’t have the need to have brokers out selling; it wouldn’t have the need to have a lot of costs and profits, the way private plans would. So it has that advantage.” - Comments by Nancy-Ann DeParle, Counselor to the President and Director of the White House Office of Health Reform.

What Would the Public Plan do to the Private Market? According to a 2009 Lewin Group Study, if the public plan’s reimbursement rates are similar to Medicare, an estimated 119 million people will shift from private insurance to the public plan. In total, the Lewin study estimates that 131 million people will enroll in the public plan. Within years, private insurers could be driven out of business… A Single Payer System will evolve.

How will the Public Plan Operate? The public plan will operate with the “compassion of the IRS and the efficiency of the post office.” - Comments by U.S. Representative Kevin McCarthy (R, Calif.) at the IIABA Legislative Conference & Convention, April 29, 2009.

Employer Mandate There is discussion in Congress of requiring employers to offer their employees health insurance. Noncompliance would result in a tax penalty or fine. For small businesses, there is talk of requiring them to supplement the purchase of their employees health insurance purchase in the exchange/connector rather than requiring them to offer a full benefit package.

What is the Impact of an Employer Mandate? A 2009 NFIB study found that 1.6 million jobs would be displaced within the first five years of implementation – 66% coming from small businesses – real GDP would contract by $200 billion. A 2007 Employment Policies Institute study found that 1.5 million workers would be shifted from full-time to part-time status as a result of the mandate.

Taxes Q. How do you pay for an estimated $1.3 trillion health care reform package? A. Increase Taxes  Remove Employer Tax Deduction of Employee Health Care Benefits – Under current law the money put forward by employers to purchase health insurance for their employees is tax- deductible.

Cost Controls The Centers for Medicare and Medicaid Services (CMS) projects that health care spending will total $2.5 trillion this year and increase to $4.4 trillion by Cuts will have to be made to medical reimbursement rates, commissions, etc. The question is how big are the cuts and where do they come from…

Budget Reconciliation Part I Each year when Congress writes the budget resolution, they may include reconciliation instructions for the purpose of legislating mandatory spending and tax revenue policy proposals. Under normal Senate operating procedures, it takes 60 votes to prevent a filibuster and pass legislation. With reconciliation, it only takes 51 votes to gain passage of a measure.

Budget Reconciliation Part II Included in this year’s congressional budget resolution are instructions to consider health care reform legislation under the budget reconciliation process effective October 15 th. Therefore, if a bipartisan deal has not been reached by October 15th, the Democratic Leadership has the power to fast track passage of legislation in the Senate with a mere 51 votes.

What are we fighting for? Unlike 1994 during the Clinton health care debate, interest groups and relevant trade associations are at the table negotiating a deal. We can’t simply oppose health care reform efforts. IIABA’s focus is on preserving the role of independent agents and brokers in the sale and delivery of health insurance.

What can you do? Schedule meetings with your congressmen and senators over the Memorial Day recess (May 25- June 1). Attend town hall meetings with your congressmen and senators – many will occur over the Memorial Day recess. Talk with your clients – explain how their businesses could be adversely affected. Talk with your local business groups: chambers of commerce, rotaries, etc. Participate in IIABA Grassroots initiatives that will be activated soon…

Points to Stress in Meetings with Policymakers Part I Independent insurance agents and brokers serve as trusted advisors in the placement, installation and ongoing service of health insurance to individuals as well as small and large companies and their employees. Each individual and business has distinct health care needs, and agents help them navigate the complexities of the market to find the best coverage – Independent insurance agents help their clients understand the market, not the reverse.

Points to Stress in Meetings with Policymakers Part II The work for agents doesn’t end at the sale as independent agents help their clients through the claims process and deal with any problems that may arise. Independent insurance agents and brokers are consumer advocates and should be part of the delivery force inside any health insurance exchange or connector; not displaced by a new government bureaucracy.

Points to Stress in Meetings with Policymakers Part III The cost of this important advisory role represents a very small percentage of overall health care spending. According to a February 2009 Milliman Research Report, administrative costs for insurance carriers in aggregate are approximately 6.9% of health care costs. Further, the study found that the cost of the broker-based distribution system only equals 0.2% of total health care spending.

Points to Stress in Meetings with Clients and Civic Groups Part I If the public plan is implemented, the private market will fold within years and we will be on the fast track to a single payer system. If the public plan is implemented, it is the consumer who will suffer. Your health care consultant will be a bureaucrat in Washington; not your local insurance agent.

Points to Stress in Meetings with Clients and Civic Groups Part II If an employer mandate is implemented, 1.6 million jobs could be displaced within the first five years – 66% coming from small businesses. If the employer tax deduction is removed, businesses will be hit with an estimated $246 billion per year tax increase. A tax increase is exactly the wrong medicine for businesses in this time of economic uncertainty.

The Challenge Ahead If you don’t fight for your livelihood, who will? If we don’t stop this, what’s next (e.g. workers comp.)? If you would like more information on IIABA grassroots activities, please contact Jen Dlugasch at or send an to