Shortly after the reform law was enacted, some industry observers predicted that insurance exchanges would operate like Orbitz and other online travel sites…and that insurance agents and brokers, like travel agents, would fade away.

But in recent email and telephone interviews with HEX, those leading state insurance exchange efforts agree that brokers and agents will play a critical role in the development of exchanges, and say the entities probably can’t succeed without them…particularly during the first year or two. Moreover, if the broker community were to lobby against the implementation of an exchange, it could be impossible for that entity to get off the ground.

But exchanges also are expected to cause a major shift in the way brokers do business and might favor large brokerage entities over mom-and-pop operations. The brokers who succeed in the world of exchanges will be those who understand the intricacies of the new entities and are able to help clients navigate them. Small employers and individuals, for example, will turn to brokers to help them understand how to find exchange-based coverage and figure out how the tax credits work.

In existing insurance exchanges in Massachusetts and Utah, as well as in private exchanges and purchasing groups around the country, agents and brokers have a “distinct role,” says Janet Trautwein, CEO of the National Association of Health Underwriters. “They don’t just enroll people in coverage, they serve a very big role in providing services afterward….We have every expectation that they will place businesses inside [and outside] of the exchanges,” she tells HEX.

Wes Bissett, senior vice president, government affairs and state relations at Independent Insurance Agents & Brokers of America, Inc., draws parallels to a provision of the reform law that calls for the development of Pre-Existing Condition Insurance Plans (PCIPs,) which are federally operated in states that don’t have a high-risk pool. Initially, he says, there was no compensation for agents and little thought that agents should be part of the enrollment process. As of March 31, 2011, just 18,313 people were enrolled nationally in PCIPs, which were designed to serve as a bridge for people who can’t otherwise find health coverage.

“They found out very quickly that people just were not enrolling in those plans and they had to go back to the drawing board. [HHS] came up with a pretty fair compensation system,” he says. In May, HHS announced that beginning in the fall, insurance agents and brokers would be eligible for an incentive of $100 for each member they successfully enroll in a federally operated PCIP. This is on par with what some state high-risk pools now pay agents. Once the state insurance exchanges are operational in 2014, people enrolled in high-risk pools will be able to purchase coverage through an exchange without being charged higher rates due to a pre-existing condition.

But Bissett says he’s not so sure that there will be state-run insurance exchanges. Even the states that are the furthest ahead in the development of exchanges have only the most basic framework, he says. “I would have thought there might have been 10 or 12 states that were slow to act rather than just 10 or 12 that are moving forward.”

In the early days of the reform law, Trautwein says there were some concerns that navigators might replace agents. Now it’s understood that they will play more of a facilitative role, while agents will continue to serve as consumer advocates and educators. The reform law doesn’t require navigators to be licensed. She says some state exchanges are likely to develop a registry of approved agents and brokers and possibly create a certification program for them. She says her organization is working with HHS in determining the role brokers will play in federally facilitated exchanges. “We know they intend to use agents and brokers and we are working with them on how that process will work.”

Role of Brokers Will Change

When purchasing coverage through a public or private exchange, consumers will want access to multiple channels [e.g., the Web, telephone and retail outlets] to research coverage options and make a purchase, says Steve Auerbach, president of Connextion, a technology company acquired by UnitedHealth Group’s OptumHealth subsidiary in August. The company has about 4,000 employees, represents most of the nation’s largest health plan operators and sells more than $3 billion in premium a year on behalf of those clients, according to Auerbach.

On average, consumers have 4.3 interactions before they make a decision, he says. “So it is critical that you have a very integrated exchange that includes a Web component, a telephonic component and a retail component. And the brokers and agents will be critical not only to support that telephonic component but also the retail component.” But, he predicts, exchanges will cause a shift away from small brokerage firms and favor more of a Wal-Mart-style, direct-to-consumer distribution system for health coverage. Over the past several months, Connextions has hired more than 2,000 insurance agents to support its growth, he says.

“As this market evolves, and as exchanges gain a foothold, the distributor [i.e., very large brokerage groups] will gain power over [health insurers] because the distributor will represent millions of lives. Brokers and the agents will be a natural part of that distribution capability,” he explains. “But mom-and-pop broker agencies…we see them going away because they don’t have the scale to be able to drive efficiency. They won’t have the scale to leverage their buying power on behalf of the consumer.”

Exchanges Will Rely on Brokers

HEX contacted several people involved in the development of state exchanges to ask where they thought brokers and agents would fit into the new entities. Here’s what they said:

• Colorado: Although the role brokers will play hasn’t yet been defined by those heading the Colorado exchange, “the business community in Colorado believes that insurance brokers are a vital piece in the small-group marketplace of the Colorado Health Benefit Exchange,” says Dan Anglin, president of Anglin Public Affairs. “We believe that without the utilization of brokers within the SHOP [Small Business Health Option Program], many employers who currently provide benefits to their employees will not be inclined to explore the exchange due to the fundamental relationships that employers and brokers have previously established.” Prior to launching his own firm, Anglin was a governmental affairs representative for the Colorado Association of Commerce & Industry.

• Connecticut: “Producers will continue to add great value to the exchange. They have the expertise, the ability to educate and help consumers navigate through the many options. Their role is a vital one, particularly in the individual and small-group business,” says Insurance Commissioner Thomas Leonardi. In Connecticut, the insurance department has played the role of a technical advisor, he tells HPW. “The department strongly supports having people involved in the sales process be licensed, trained professionals — that’s what’s best for consumers,” he says.

• Mississippi: While no official decisions have been made about the role brokers will play, “we intend to utilize them within the exchange to the greatest extent possible,” says Aaron Sisk, senior staff attorney at the Mississippi Dept. of Insurance. “It is very important that individuals have health insurance experts readily available in order to assist them in the purchase of health insurance plans and to provide customer assistance throughout the life of the policy. “The broker community provides these services today and we intend for them to continue to provide the same services through an exchange.”

• Oregon: Those involved in building Oregon’s exchange are developing a program for navigators and agents. “We are working with a variety of stakeholders — including agents, community groups and small businesses — on defining the roles navigators and agents will play. We also are awaiting federal guidelines, which will help shape our program,” says Lisa Morawski, a spokesperson for the Oregon Health Insurance Exchange Corp.

• Rhode Island: Last summer, Health Insurance Commissioner Chris Koller told HEX that brokers play an important role in the small-group market now and will have a role in the exchange. Along with helping employers sift through coverage options, they also keep track of enrollment records, which can be onerous for a small employer. “In some ways, brokers are an outsourced [human resources] department, and I don’t see that function changing.” But given that just 15,000 people in Rhode Island have individual coverage, it will be difficult to maintain markets both inside and outside the exchange. Rhode Island’s exchange likely will be a quasi-public authority modeled after the Massachusetts Connector Authority.

• Washington state: Molly Voris, project manager for the Health Benefit Exchange Program in Washington, says brokers and agents “will be critical” in helping small businesses and individuals navigate the exchange and select the most appropriate coverage. “We see them playing a role as a navigator, as well as assisting their clients through the exchange in a more traditional broker role,” she tells HPW. “We are just beginning the discussions of how all of this will work, but the good news is that we don’t have to rush into decisions. We have time over the next year to work through many of the details of these interactions with the exchange.”

What role do you see brokers and agents playing in the exchanges? Will they still be needed a year or two after the exchanges get up and running? Join the conversation at the AIS Blogs.