WASHINGTON DC – At their annual legislative conference here last month, the Independent Insurance Agents & Brokers of America were doing their utmost to unravel two elements of the Affordable Care Act: the so-called Cadillac tax and the ACA’s medical loss ratio.
Due to take effect in 2020, the ACA’s high-cost health plan tax—popularly known as the Cadillac tax—will impose a 40% excise tax on employer health plans exceeding $10,200 in premiums per year for individuals and $27,500 for families.
Originally intended to discourage excessive healthcare spending by employees with ‘luxury’ health plans, the tax is poised to disrupt large swaths of the market, according to members of the IIABA.
Because of the steady rise in health plan premiums, the number of employers and their employees who will be affected by the tax is much greater than is generally recognized, says Clinton “Jay” Duke, owner and agent of Waring-Ahearn Insurance in Leonardtown, Md. “We could see as many as 40% of our clients being hit with this tax,” he warns.
“I’m not sure that anybody really understands the full impact or unintended consequences of this law and how many people it will affect,” adds Michael Wojcik, senior vice president of The Horton Group, a benefits brokerage based in Orland Park, Ill. “Legislators need to be educated on this.”
While repealing the Cadillac tax remains the top legislative priority for many brokers, another major concern is the ACA’s medical loss ratio, which the IIABA blames for putting downward pressure on brokers’ compensation during the past seven years it has been in effect.
Since 2011, the ACA’s MLR has required health insurers to pay out a set percentage of the premiums they charge to cover medical claims. For large group plans, this is set at 85%. This has squeezed insurance companies’ margins, leading them to raise their premiums and reduce the commissions they pay their agents--often by as much as 50%.
The fallout has led brokers like Duke to question whether they should remain in the benefits business. “I have a lot of small employers that have five or fewer employees who have given up their group insurance,” he says.
Other brokers like Wojcik argue that they are under compensated for the time and energy they have to invest in serving their employer clients.
“It’s not just a one sale and run type process,” he notes, “it’s a profession where we are dealing with our clients all year long. We have a lot of responsibility to not only find the right policy for their employees, their families and their business, but to also service them throughout the year.”
Add to that compliance requirements, the reporting process and helping clients navigate the continuous changes to the ACA, and “What we do for our clients is a mighty big task,” Wojcik says.
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