Everything You Ever Wanted to Know About Health Insurance Brokers*
*….but were Afraid to Ask

The "strange theatre" of the American Healthcare Industry features an extensive cast of characters with roles that are somewhat less than clear. Let us shine the spotlight on one important player on the healthcare stage: the health insurance broker.

The Basics

The insurance broker, also called a "health insurance agent" or "independent agent," has a unique role in the dynamics of contemporary healthcare. Simply put, health insurance brokers are tasked with assisting individuals, businesses and other interested parties in choosing the right health insurance policy. In the process of pairing the interested party with the appropriate policy, the broker is obligated to collect insurance premium payments, process claims, and act as liaison to insurance c ompany and policyholder. Demographically, the insurance broker is most likely a man and, unlike a “captive agent” who works exclusively on behalf of one insurance company, he is authorized to offer policies of competing insurance providers.

The broker will likely divide his day between two tasks: calling on current and potential clients and executing administrative tasks. Usually working in small offices in or near an urban center, his overarching goal is to maintain and expand his customer base. Because the insurance broker makes his living largely on commissions, he must inspire in his clients the feeling that they are in good, trustworthy hands. A happy client offers referrals and the bulk of his business comes from referrals. It is not surprising that building a satisfied client base takes time and, for this reason, many new to the industry drop out because they do not feel their personal fiscal goals are being met. Nevertheless, with patience and perseverance, a seasoned insurance broker earns more than $100,000 annually.

Over time, a health insurance broker will be earning an above average income but the road is long and the rise is steep – along the way, many fall by the wayside. For those at the top, how did they get there and what is their background?

Getting Your Foot in the Door

Typically, a broker enters the industry by one of two roads: having been mentored while in college or having transitioned from another industry, usually with a sales background. First, let us look at those entering the industry straight from college.

Although it is possible to become an insurance broker without a college diploma, the diploma will open doors and expand professional options. For those interested in management, the college diploma is almost de rigeur. Brokers entering the field directly from college usually have a degree in business or sales. Some in the field will have been directly sponsored by a health insurance brokerage house in a scenario where, in return for tuition assistance, the new broker will have agreed to devote a specific number of years working for the health insurance brokerage firm. It goes without saying that being directly mentored means the young insurance broker will arrive on the first day well versed in the industry.

Those that enter the industry from other fields usually come from sales backgrounds. Experience in sales means experience seeking new clients, soliciting referrals, and working to maintain a satisfied client base. Most sales positions are commission-based and the pressure of working for commission will not be new to sales veterans. Indeed, while the product may change, the skill set is consistent. Those that transition to the insurance broker role would benefit from a health care background – pharmaceutical sales for instance – but it is by no means a requirement. Because the majority of healthcare insurance brokers arrive to the industry from another field, the age of those new to the industry tends to be over the average age of those entering other fields.

The Legal Angle

Regardless of the road taken to the broker industry, a series of licensing requirements must be fulfilled. The legal and ethical guidelines that govern the brokers vary by state, and some states actually require the use of health insurance brokers. In every case, the cost of health insurance will be the same if an agent is used or if the insurance company is contacted directly because, if the insurance company is directly contacted, the employee who closes the sale will collect the same commission as a health insurance broker. Pre-licensure coursework is the norm and, more and more, both states and employers are requiring ongoing classes. Increasingly, states are granting a license to brokers licensed in other states.

Because an insurance company, legally speaking, is a "person", it cannot act for itself. Therefore the insurance company requires the use of "agency" -- hence the health insurance broker, the "agent" of the insurance company. Health insurance companies choose which brokers to authorize to distribute their policies. Not every agent is authorized by every insurance company.

One guideline is strictly enforced in every state: it is always illegal to sell unauthorized insurance. But what, exactly, is "unauthorized insurance"? Basically, it comes in two flavors: (1) bogus insurance policies and (2) insurance policies a given agent is not authorized to offer.

Let us summarize what we have learned so far:

• A health insurance broker acts as liaison between insurance company and policyholder
• A health insurance broker earns a commission-based salary
• The cost for a given policy will be the same whether or not a broker is used
• The typical broker is a male and has a degree either in business or sales or comes to the industry with a sales background
• Licensure guidelines vary by state but every state must license insurance brokers operating in that state (and some states accept licenses granted in other states).
• Insurance companies authorize agents to distribute their policies; not every agent is licensed by every insurance company

A Day in the Life of an Insurance Broker

Now that we understand the hoops a health insurance broker has jumped through to enter the industry, let us place a fictitious broker into an imaginary day-in-the-life scenario to further illustrate the job and its inherent duties.

For our purposes, let us imagine a health insurance broker, one John Smith, resident of Livermore, California – 44 miles east of San Francisco. He is 47, married and has two teenage children preparing to enter college. He used to sell hospital equipment and has been a health insurance broker for ten years. He owns a home, will help pay for college, and earns just shy of $100,000 annually. His “field” is the San Francisco Bay Area, including San Francisco, Oakland and parts of Silicon Valley to the south and Marin County to the north. Like many of his colleagues, he is a member of both the American Insurance Association (AIA) and the National Association of Health Underwriters (NAHU).

John arrives at the office at 7:30 each morning to catch up on paperwork before he begins calling on clients. Some colleagues hire assistance to process paperwork and answer phones but, because an administrative assistant’s salary would come out of his own pocket, John prefers to do the administrative work himself. On the morning of November 12, John is blessed with a light amount of paperwork. An employee of one of his clients has filed a claim and, having investigated the claim the day before, he now has to file the claim with the policy provider. Like every day, after he completes his paperwork, John will leave the office for a day of meetings.

The first meeting is with a long-term client, a small software development company. Like any insurance broker, John understands that his living depends on satisfied clients who refer him to other clients. To keep clients happy, John must be aware of the various options available and has recently discovered a plan more suited to this particular client’s needs. Having met with the HR department and CEO (meeting with CEOs is a relatively new development), the company is now ready to change policies. This means John must present to the employees a detailed explanation of all features of the new plan and must answer any questions and present (for later processing) all paperwork.

John’s next meeting is with the HR director of a company referred by an ongoing client. Based on information gathered in preliminary phone calls, John knows the client is savvy. Despite the fact that John has a good reputation and was referred to the company by another client, the potential client will be interviewing several candidates. John knows to expect some standard questions all knowledgeable clients ask: how long has John been an insurance broker? Are his customers happy? Are any current or past clients open to being interviewed? And does John have a particular specialty?

This last question is coming up more and more. Once upon a time, the insurance broker’s job was simple: find the client an appropriate policy, collect commission, continue offering excellent customer service, and repeat. Two recent factors have altered the dynamic: the introduction of the Internet and the expectation of additional advice. These two factors have inspired agents to carve out specific niches and to position themselves as the go-to person for a given field. Living in the Bay Area, John promotes himself as the expert on policies open to small technology firms.

Part of the trend toward specialization results from widespread use of and access to the Internet. The Internet has, as in many industries, revolutionized the way the healthcare industry operates. While once no one was more aware of policy options than the broker, potential clients can now pull various options from the web in seconds. Clients may know what policy they want before even making contact with the insurance broker. This places increased pressure on the broker to be aware of all options and, if there is a viable policy option for which the broker is not authorized, the broker should certainly be aware of a similar or better option and to be able to explain clearly why. On the flip side, the Internet has helped the broker tremendously because they can now file forms electronically with insurance company, dramatically reducing time spent on administrative work.

John arrives to the meeting ten minutes early. He has prepared a presentation of all options he believes would suit this particular client. Having done some late night research, John knows there are some policies he could be asked about which he is unauthorized to sell. Fortunately in this case – and this is not always so – like any good insurance broker -- John has some comparable offers to present. He arrives well prepared for the meeting and, when it is over, he thinks the meeting goes well enough and leaves knowing the potential client will make a decision ultimately based on a combination of instinct and a sense of having been given the best information. As with every client, John would work closely with this company, hopefully over a period of time, and the client would be wise to choose a broker that is both trusted and liked.

John’s next meeting is with a client whose policy has changed. Like many insurance policies, because the year is ending soon, new rates will soon be taking effect. The company reps he will be meeting with are operating on a shoestring budget and they currently have a comprehensive policy offering health, dental and vision. The rate increase may be more than the company can afford. John is bringing updated paperwork and information about alternative policies. For each, John will honor his obligation to clearly explain a given plan’s policies, provisions, costs, and obligations. Every insurance broker knows the client will likely have to cut coverage and John will present all suitable policy options. A meeting with the employees has not yet been scheduled but one will be necessary, once a decision is made, because all information will need to be presented and signatures will be required to acknowledge all changes.

Collecting signatures is part of his contractual obligation to the insurance policy provider; John is contractually bound to act on behalf of authorizing companies, a relationship constructed to maximize benefit to the various insurance companies on whose behalf John is authorized. While the insurance broker’s ultimate duty is to his clients – a duty ensured by the commission structure – every pertinent detail about a client, including information about risk, must be presented to the insurance company. To offer some clarity on the often vague line between obligations to client and insurance company, a series of laws and ethical guidelines are in place.

When the meetings are finished, John returns to the office for more paperwork. The scheduling of meetings must always be done at the convenience of the client. For businesses, meetings are during normal business hours. For individual policyholders, meetings are often on nights and weekends. Because paperwork is done when not meeting with current and potential clients, John’s business hours often deviate from the standard 9-to-5.

John will end this particular day with the processing of payment. As with everything an insurance broker does, he is an agent acting on behalf of the insurance company. He is therefore contractually and legally obligated to collect payment on behalf of the authorizing insurance company and to pay the insurer and other applicable parties all the monies to which they are entitled. The money is held in trust until the time for payment arrives, and today John will end the day with cutting checks.

Looking Towards the Future

Our imagined broker, John Smith, member of two insurance associations, walks the line between obligation to client and to insurance company. He is motivated by commissions to provide excellent and honorable service to current and potential clients. He is acutely aware of the impact the Internet has had on his business and his decisions are guided by ethical and legal guidelines. Having gained an understanding of how one becomes a health insurance broker and what a typical day involves, the remaining question is what does the future hold for the insurance broker industry?

The incredible impact of technology has revolutionized the way a healthcare broker does his job. The once stable cycle of work – find client, collect commission, ensure client is happy, work to net referrals – is in flux. An empowered consumer base has forced health insurance brokers to seek recognition in unique industries and to network for referrals based on an understanding of a given industry. As brokers increasingly trend towards specialization, additional services are routinely expected: financial strategy, long-term planning and even assistance with corporate planning. How this state of fluctuation will play out remains to be seen. There is no doubt that the Internet and other computer technologies will profoundly impact how empowered consumers research and select health care policies. Whatever happens, and however health care is secured, the need for access to health care will remain and certainly, as the baby boomer generation retires, grow.

Sources:

• Bureau of Labor Statistics
• http://www.buyerzone.com
• The Commonwealth Consulting Group
• http://www.insurance.com
• The Internal Revenue Service
• Life and Health Insurance License Exam Review Guide
• Maryland Insurance Administration Glossary of Terms
• National Association of Health Underwriters
• Princeton Review Career Profiles