Saturday, November 1, 2008

Humana trys to Mislead Regulators and Distort Commission Reality.

(This post is a response sent to the recipients of Humana's Letter. Click here to view the Humana letter

Response sent November 2nd, 2008 to:

The Honorable Max Baucus
Chairman, Committee on Finance
United States Senate
511 Hart Senate Office Bldg. Washington, D.C. 20510
(202) 224-0515 (Fax)

The Honorable Charles Grassley
Ranking Member, Committee on Finance
United States Senate

The Honorable John D “Jay” Rockefeller
United States Senate
531 Hart Senate Office BuildingWashington D.C. 20515
(202) 224-6472
(202) 224-7665 Fax

The Honorable Orrin Hatch
United States Senate
104 Hart Office BuildingWashington, DC 20510
Tel: (202) 224-5251 Fax: (202) 224-6331

Dear Chairman Baucus,

I am writing to express my grave concern over the letter written to you from Humana’s Peter O’Toole, Vice President, Medicare Sales, regarding Medicare Advantage (MA) sales commissions.

I find the positions represented in his letter to be misleading, bias, self serving, and one that could potentially place all Medicare beneficiaries at risk of poor service and the behest of arrogant insurance companies.

Humana, in the letter penned by Patrick O’Toole (October 24th, 2008) puts forth an ideology that their direct employed sales force is better at serving Medicare beneficiaries than independent agents. The reality is that captive or direct sales forces are part of the problem. Since by definition, captive or direct employee agents represent only one company theses agents can’t offer a beneficiary choice outside the employers offering spectrum. Imagine a sales representative advising an enrollee to pick something other than what their employer provided. Not producing (read - not selling what they offer) would inevitably lead to employment termination, a precarious position to place an employee. Imagine the representative faced with better designed products and richer features offered by the competition, and then not able to present this to a Medicare beneficiary. Clearly this is not the solution for better service and better benefits for seniors.

Regarding the commission cap suggested by Mr. O’Toole in his letter, I find this particularly appalling. They (Humana in this case but can apply to all direct sales) want to pay their own employed sales force a fair commission, provide millions of dollars in marketing, base salaries, benefits, expense accounts, overhead such as office space, telephone, office supplies and equipment, cell phone, car allowances (fuel etc.), and oh yea did I mention millions of dollars in marketing. And then they tell congress with a straight face that independent agents should be paid $338.00 per new enrollee, and less to advice, and service that client over time. THIS IS AN OUTRAGE! It cost that much just to enroll a beneficiary.

I’m insulted that Humana believes they can distort reality in an attempt to pull the wool over the eyes of regulators. Is there anyone that believes what they are suggesting represents a level playing field? Maybe Humana is frightened by competition? Maybe they will no longer be able to retain beneficiaries in an inferior product line? Having represented nearly every available carrier in my market last season – at a considerable cost in time and expense – I choose not to bother with Humana because I found, zero instances where there wasn’t something better.

What officials should understand; capping commissions will not reduce churn. Just drive out independent agents that are not adequately funded to market and compete with the Millions of dollars spent by carriers like Humana. That lower commissions is exactly what creates churn -- High commissions first year and lower commission in subsequent years -- That under the old commission structure (approximately $400/$100 in ‘08) there was no incentive for agents to maintain and service existing clients, and a strong incentive to churn. Factoring in overhead, marketing cost, expenses (fixed and variable); the ROI for an independent agent to acquire a new client at $400/$100 is marginal at best, certainly not enough to provide a high level of service to existing beneficiaries. Good agents are forced to focus on acquiring new at the expense of servicing existing.

With a level compensation somewhere between $400 -$500 it becomes as profitable and equally as rewarding to service, consult, and maintain existing clients as it is to add new clients – with no incentive to churn an existing client base. This will nurture an environment where agents will service, consult, and inform seniors about health benefits and Medicare related products. I can see a multitude of benefits to seniors in this environment, one where beneficiaries are treated fairly and provided competent, ongoing support.

Under the old method it was 4 times more profitable (in most areas) to get a new client than to keep an old. Under Mr. OToole’s proposal only the insurance companies get to make millions in profits. And we all know what that means – Government money flowing into big bonuses and ZERO service for Medicare beneficiaries. On top of that, in the past the renewal commission was so minuscule that it wasn’t cost effective to allocate time, energy or financial resources to service existing clients. Agents were forced to bring in new clients and beneficiaries were left to figure out the complex and multitude of choices on their own. Anyone who has spent time trying to decipher the numerous selections in a given area knows; learning the available plans, premiums, benefits, co-pays, etc. is not simple. The result is that Medicare beneficiaries are left confused and uncertain of the best choice for their situation. In the face of uncertainty and a vacuum of good advice beneficiaries made decisions to change plans based on something that sounded good and met there needs. Certainly the industry needs stability to thrive, and churn makes forecasting difficult, but not all churn is malicious. In fact, most is certainly not.

The new – level commission -- structure will pay agents and brokers to keep clients on the books. Provide reasonable compensation for agents to allocate resources, spend time, advise, and service existing clients. This structure will eventually reduce migration, and in time establish an industry segment of informed agents servicing seniors.

In Rep Stark’s letter to CMS (October 2008) while Rep Stark was naive, one point that was correct; in 2009 churn will be high, but not because commissions are going up, conversely, because they are not going up – for clients currently on the books. Once commissions are level (in 2 years) the churn problem will diminish and resolve the problem it was intended to address. Unless of course commissions are obliterated then there will be no one to service seniors at all.

What needs addressing is to direct insurance companies to pay the new renewal level commission on existing clients. This will provide the incentive for agents to KEEP existing beneficiaries IN plans. This will reduce churn immediately. However, in order to do this a reasonable commission must be paid which compensates agents/brokers and allows profitability. Clearly the remuneration from the government and profitability is there for the insurance companies (they are paying it on all 2009 new beneficiaries) so direct them to pay it on existing beneficiaries. Otherwise we will have one more year of significant churn. And after that who knows.

My fear, next years churn will be high and Rep. Stark will believe he was correct when clearly the proper factors were not clearly identified. This will result in another year of turmoil and another abomination where CMS can't get their act together until days before the enrollment period. I can see next years mess coming already.

Two quick final recommendation; CMS need to be professional and get their guidelines together before September 1st. Business professionals in any business need more that 2 weeks to assess profitability and finalize business plans. Two months is not much to ask, and two weeks is shameful.

Second in an effort to improve service to Medicare beneficiaries a requirement of a certain number of CE credits for overall Medicare competence (similar to the AHIP course in place by some carriers) plus a certain level of specific market competence. This subsequent piece may be difficult given each county has different plans but it should be considered. My reasoning - I have personally been provided inaccurate information by carrier representatives that didn’t fully or competently understand the offerings of competitors. I find this to be disgraceful, that a carrier provides inaccurate information about direct competitors.

I’ve gone on at some length and appreciate your taking the time to consider these positions.

A very concerned citizen, and career professional insurance agent,




  1. Excellent, Hope someone reads it!

  2. This is a very well thought out post. Humana makes 50% of its revenue from Medicare plans and is trying to prevent agents from taking away their clients that have inferior plans. It is now 4 days before AEP and from the last guidance from CMS it looks like commissions will be even lower than expected and the only ones left standing will be the captured agent that has only his and his companies interest in mind. They raised the salary for Humana agets this last year and all these new rules on commission don't include this in their formula. So much for the little guy doing the right thing. I also feel bad for the senior that has to deal with these terrible plans sold by captive agents.

  3. I agree with this letter. Well said and true exactly what would have said.