EDIT, March 29, 2016: In addition to having state-run exchanges, there’s another factor involved here, which is much more likely to be the correct explanation. California, Colorado, Connecticut, and Kentucky are the four states that have taken regulatory action to prevent health insurance carriers from cutting commissions. Although my initial hypothesis wasn’t bad, direct action by Insurance Commissioners and/or exchanges is a pretty solid reason for the differences in commissions in those four states!
Several months ago, we started hearing that health insurance carriers were upset that qualifying events were not being adequately verified when enrollments were submitted through Healthcare.gov. This took us by surprise, as Connect for Health Colorado has always required documentation to verify that a qualifying event has occurred in order to grant a special enrollment period (SEP).
Then, as open enrollment progressed, the national media started reporting that a not-insignificant number of carriers were announcing cuts to commissions, mostly for plans with effective dates after March 1. March 1 was the latest effective date you could get without a qualifying event – all further effective dates this year will be the result of a special enrollment period triggered by a qualifying event.
In January, CMS announced that they were going to begin what essentially amounts to a random audit process to ensure that special enrollment period eligibility is being adequately verified. And this week, they announced that “beginning in the next several months,” Healthcare.gov will require proof of eligibility for the five most common qualifying events:
- Loss of minimum essential coverage,
- Permanent move,
- Birth,
- Adoption, placement for adoption, placement for foster care or child support or other court order, or
- Marriage
I am a bit flabbergasted to know that up to this point – and continuing forward until these new enforcement measures are fully implemented – there was apparently no requirement that Healthcare.gov applicants submit things like a marriage license or certificate of creditable coverage when they enrolled during a special enrollment period.
There is no doubt that carriers have been asking for this sort of eligibility verification for quite some time now, and hopefully these measures will help carriers see less adverse selection for people who enroll outside of open enrollment.
Carrier actions
Carriers clearly believe SEP eligibility verification is good for their risk pools. Consider Humana and Anthem, two major players in the individual health insurance markets. Prior to the the announcement that Healthcare.gov would begin verifying SEP eligibility, Humana and Anthem announced commission cuts for plans sold outside of open enrollment this year.
To be clear, commission cuts are a means of stemming the flow of enrollments. If carriers don’t want to enroll a lot of people – but also don’t want to cease enrollment altogether and make it more difficult to re-enter the market later on – cutting commissions to brokers is an obvious way to go about it. Brokers will be less likely to enroll people in plans offered by carriers that aren’t paying commissions, since brokers receive no other compensation beyond commissions, and would essentially be working for free if they enrolled people in plans that aren’t paying commissions.
Humana’s new commission schedule for plans with effective dates of March 2 or later is here. There are only two states where they’re continuing to pay 5% commissions on all products: Colorado and Kentucky, both of which have state-run exchanges for the time being (Kynect’s days are numbered, but they’ll continue to operate during 2016). In the other 13 states on the commission schedule, Healthcare.gov is the enrollment platform. And the commissions in most of those states have been reduced to 3% or less, and in most cases, only apply to bronze or catastrophic plans, which don’t tend to be the option selected by people who are in need of immediate healthcare.
In the case of Anthem, plans are available in 14 states. And commissions have been eliminated in ten of them for plans with effective dates of April 1 or later. Incidentally, the four states where commissions haven’t been eliminated by Anthem are all states with state-run exchanges: California, Colorado, Connecticut, and Kentucky. New York is the only state with a state-run exchange where Anthem has eliminated commissions, but it’s possible that might be because New York added a SEP this year for pregnant women, allowing them to enroll as soon as they find out that they’re pregnant. From a carrier’s perspective, that’s clearly an adverse selection magnet, and it’s understandable that carriers might want to stop paying commissions for SEP enrollments in a state that has such a provision.
When we step back and look at those two examples of commission cuts, it appears obvious that carriers are more confident in their risk pools in states with state-run exchanges that may be doing more adequate eligibility verification than Healthcare.gov has been doing up to this point (EDIT, 3/2/2016: Covered California does not yet require proof of eligibility for a special enrollment period, but is considering adding eligibility verification). Perhaps by 2017, the changes that Healthcare.gov is implementing this year will make enough of a difference that carriers will no longer find it necessary to try to avoid SEP enrollments.
