Now that the Republicans control both houses of Congress and the presidency, they’re finally getting the chance to put their money where their mouths have been over the last seven years and four elections. House Speaker Paul Ryan and his staff, together with a crew of Republican representatives from the House, this week unveiled the American Health Care Act of 2017 – to an underwhelming support from conservatives.
The bill comes nowhere near short of a repeal of the Affordable Care Act. Indeed, while the structure of some of the ACA’s features would change if the bill becomes law, a number of characteristics of the ACA would remain in place:
- Carriers will still be required to accept individuals with pre-existing conditions.
- There is no provision allowing carriers to sell policies across state lines. State insurance commissioners are still in control of what plans get approved and still control rate increases within their states.
While many were hoping for more radical reform, including an outright repeal, this version preserves some important benefits for agents and agency principals in the individual insurance market:
- Short and simple applications
- Guaranteed issue policies
- Nearly 100 percent approval rates on complete applications
- No medical underwriting
- Little or back and forth correspondents with underwriters
- Possibility of higher commissions
Industry veterans who were selling individual health insurance prior to the enactment of the Affordable Care Act will recall the days of long applications, frequent requests for more information from underwriters, uncooperative doctor’s offices who did not respond to medical information requests from underwriters, frequent denials, chargebacks on advanced commissions, and general frustration among agents and clients/applicants alike.
Additionally, the GOP House bill allows carriers to charge their older customers up to five times what they charge their younger customers. The ACA sets the maximum allowable ratio at three times what they charge their youngest insureds.
This means that it could become more profitable to market to older individuals, due to the higher premiums they pay – and less profitable to market to Millennials in the short term. However, it makes sense for agents will be happy to sign up Millennial clients thanks to their tremendous potential lifetime value.
The GOP plan, as written, would repeal the employer mandate to provide health insurance – at least at the federal level. Some states may have mandates of their own, or their legislatures may enact them if the Republican proposal becomes law.
Our take is that relatively few companies are offering insurance solely because of the ACA. The labor market is considerably tighter now than it was when the ACA was passed, and employers are being forced to sweeten their compensation packages to attract talent.
The GOP plan would be good for health savings accounts, and therefore improve the value proposition for high deductible health plans. The GOP plan calls for contribution limits of at least $6,550 for an individual plan and $13,100 for family plans, beginning in 2018, plus catch-up contributions: A great reason to call clients who may be on the fence about embracing the HDHP and HSA.
While it’s still early in the game – the bill may not pass the Senate without some major changes – the bill in its current form is probably a good thing for agency valuations. The worst-case scenario from the agency point of view would have been the reintroduction of medical underwriting, with its associate costs, delays and frustrations.
What to do now
For the time being, agents should be reaching out to clients and prospects, educating them about the progress of reform, while beefing up their contacts in the age 50-65 market, as these will likely be hit with premium increases as a result of the ratio expansion. These people will be looking to make changes – perhaps unloading less risk and buying a catastrophic policy, or moving to a higher deductible plan. You can be the person presenting the solution they need – and be in a position to speak to them about a number of other possible solutions as well:
- Long term care planning
- Retirement income planning
- Life insurance
- Estate and succession planning
- And much more.
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