Monday, July 16, 2012

(No.207) Insurance agents & companies and Obamacare

" The future of American insurance agents and health insurance companies after the upholding of  Obamacare"

by Alastair Rickard

Following the posting of my column "Obamacare & the Canadian comparison" (No.205, posted July 3, 2012) an executive of a Canadian insurance company asked my opinion of a June 29, 2012 piece from Forbes, the American business publication entitled "Insurance agents lose job security with Obamacare ruling".

 Forbes tends editorially towards the Tea Party's apocalyptic vision of President Obama and his policies. The article called into question "the plight of more than 100,000 agents and brokers. The floodgates are about to open for the mass firing of healthcare agents."

I have not seen the slightest piece of evidence to substantiate the claim that there are anything like 100,000 American insurance agents actively engaged in the sale of health insurance, a type of coverage which in any case has been substantially provided through employers' group plans.

My response to my Canadian correspondent included these comments:

"Forbes is a conservative publication. Indeed you may recall that Steve Forbes, son of its founder, ran (unsuccessfully) for the Republican nomination a few years ago and shows up periodically on cable news to go after Obama and his Affordable Care Act. In other words there is an ideological element involved in Forbes playing up supposed negatives in this matter.

"I am far from certain that Obamacare, retaining as it does the central role for private insurance companies, will mean the loss of great numbers of genuine agency jobs. In any case an agent dependent on a single type of policy/product is always at risk vocationally if he/she does not carry a portfolio of products to satisfy a range of client needs.

"Years ago I researched insurance company and agent reaction in Canada to the bringing in of government health care plans by provincial governments, specifically OHIP in Ontario. Many company executives and agents alike thought the absence of the medical insurance business they were issuing and selling -- prior to the government coverage that would supplant it -- was going to be very harmful to their interests.

'The reality: both insurance companies and professional agents went on from strength to strength in the years that followed. So will companies and professional agents (as distinct from order takers) in the U.S."

I also received a very thoughtful response to my column from an American, a longtime analyst of and participant in the U.S. insurance business.

My RickardsRead column (No. 205) had highlighted the absence of a particular viewpoint following the U.S. Supreme Court's upholding of the Affordability Care Act:  that Obamacare, retaining full participation by insurance companies in the health care system in providing insurance coverage for those Americans under age 65 (including the 30 million of the 50 million uninsured in the U.S. Obamacare will bring under the health care umbrella) guarantees that the % of GDP taken up by the health care system will NOT decrease as much as if the American system had gone to a single payer system as in Canada and as the U.S. has with Medicare for seniors.

My American correspondent responded that "another factor I have not seen discussed anywhere is the fact that much if not most of the new coverage will be individual [health insurance] policies. The law provides for a 20% expense margin [for insurance companies] on those policies and even at that there is whining despite the fact that we are talking about order taking with no underwriting. (Some have argued to exclude agent commission from the 20% although that seems to be a dead issue.)

"Twenty per cent is much higher than the expense factor on group policies, even accounting for the fact that much of the administrative burden is offloaded onto the group policyowner -- typically an employer. Given the difference in the efficiency of group and individual coverage, if all the new insurance is comprised of individual policies  the aggregate system will be much less efficient than the current employer-based system, which is bad enough.

"But what will happen if, as predicted by many, employers drop their [health insurance] plans and employees must buy their own [individual policy] coverage? We will further undermine the overall efficiencies of the system.

"Of course nothing on the horizon is really designed to solve the problem that you have identified repeatedly -- the out of control cost structure of the health care sector of the economy. Proponents of so-called defined contribution health plans predict an introduction of market discipline into the system but I have yet to see how the elements of an efficient market can be introduced into the health care arena.

"Among the critical components of a free market are (1) informed buyers and sellers, and (2) low barriers to market entry and exit. Even my friends who are physicians tell me they are unsure when evaluating much of the care outside their speciality -- so what can be expected of lay people? As for easy entry, a limited number of slots in accredited medical schools and the substantial commitment of time and expense make that an obvious barrier to an effective market.

"The argument for having private companies compete to write the [health insurance] business is that they will be more efficient than a single payer -- thus keeping a lower cost. Some countries follow this model and are happy with it. The verdict for the U.S. lies in the future, but you may be right that a single payer is the ultimate solution.

"My guess is that Obamacare is just one halting step along a road of exploration to find a new system. No matter what, we can't keep on the track that we have been following because within twelve years we will be spending 25% of GDP on health care -- and still rising. Ultimately the solution rests in finding more efficient ways to provide health care with the financing issue being only a peripheral consideration.

"The fact that the central issue has been misidentified for so long is a tribute to the ability of the health care industry to obfuscate, abetted by the health insurance companies. I don't doubt", he concluded,"that they will redouble their efforts, so watch for more hot air from the talking heads of the media who have no clue about true analysis but who understand who pays their salaries through sponsorships."




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