Industry Trends Signal the Need for Sales Compensation Plan Review

The health insurance industry is facing unprecedented challenges and opportunities in the wake of the COVID-19 pandemic, regulatory changes and market expansion. How can health insurance companies design sales compensation plans that align with their strategic goals, motivate their sales force and reward their brokers and agents?

The following are some of the key topics and considerations that health insurance executives should keep in mind when designing their sales compensation plans. These topics are based on our extensive experience and research in the health insurance industry, as well as our recent client work with leading health insurance companies.

Broker Compensation Trends

Brokers are critical partners for health insurance companies as they help them acquire and retain customers. However, many health insurance companies have not reviewed or updated their broker compensation plans in the last 10 years or since inception resulting in misalignment, inefficiency and dissatisfaction.

Sales incentives are the primary tool payors have to promote desired behaviors within their brokers. Therefore, we recommend that health insurance companies review their broker compensation plans on an annual basis to ensure alignment and consider the following design elements:

• Formalize broker tiers: Tier brokers based on their value to the company considering factors such as profitability, retention, cost to serve, quality of network and alignment to payor strategy.
• Create or update the broker bonus program: Establish a broker bonus program that aligns with the payor’s growth goals and broker tiering, and distinctly rewards brokers for both new and renewal business.
• Include ancillary products: Build ancillary products into the sales incentive program and penalize brokers for carving out ancillary products from the main offering.
• Align broker and agent compensation: Align the sales team compensation with the broker compensation to ensure mutual benefit and collaboration.
• Reward retention and larger books of business: Motivate brokers to focus on retention and building a larger book of business with add-on renewal bonuses, establishing retention bonus tiers based on the amount of annual premium earned and requiring a new business contract minimum to achieve the retention bonus goal (i.e., hurdle).

The Impact of CMS 2024 Regulations on Sales Compensation

The Centers for Medicare & Medicaid Services (CMS) have announced several changes to the agent and broker compensation for 2024 which will affect the Medicare Advantage and Part D markets. These changes aim to simplify the compensation structure, eliminate separate payments and introduce new guardrails for sales compensation to reflect only the legitimate activities required of agents and brokers. The key changes are as follows:

• Simplified compensation structure: CMS has decided to set a single agent and broker compensation rate for all plans. This reflects a simplified structure for agent and broker compensation.
• New guardrails for sales compensation: CMS is redefining “compensation” to set a clear, fixed amount that agents and brokers can be paid regardless of the plan the individual enrolls in. This addresses loopholes that result in commissions above this amount that create anti-competitive and anti-consumer steering incentives.
• Elimination of separate payments: CMS has decided to eliminate separate payments for administrative services provided by agents and brokers. Now, all forms of compensation will be included under a single revised definition of “compensation.”
• Elimination of annual reporting requirement: CMS also eliminated the requirement for plan sponsors to report independent agent and broker fees each year.

The impact of these changes will vary across payors depending on their percentage of revenue coming from Medicare versus non-Medicare offerings. However, payors will need to adjust their compensation programs to better align with the new CMS rulings by considering the following:

• Increase the number of products: Add more products to the agent and broker portfolio to supplement the Medicare payouts and increase the value proposition for customers. (Note: Adding products to a seller’s portfolio will likely fundamentally change the responsibilities of the job and will result in downstream considerations in addition to sales compensation).
• Increase ancillary payouts: Increase the measure weighting (percent of total target incentive achieved at 100% of ancillary quota) and remove performance thresholds to encourage ancillary sales and offset the potential loss of Medicare-related revenue. (Note: A detailed cost model will need to be built to ensure that the updated payouts are aligned with the sales compensation budget and the company goals).

Market Expansion Plays

Health insurance companies are constantly looking for ways to expand their footprint and access and customer bases, either organically or through acquisitions. This requires a strategic approach to sales coverage and sales compensation to ensure that the sales force is aligned with expansion goals and rewarded for performance.

Some sales coverage and compensation design considerations that health insurance companies should consider when expanding into new markets includes:

• Adopting a bifurcated coverage model: Create a hunter-farmer model where hunters focus on acquiring new customers and farmers focus on retaining and growing existing customers, and design sales compensation plans accordingly.
• Creating a ‘Tiger Team’: Establish a ‘tiger team’ or ‘big deal team’ which is a specialized group of top-performing sellers who partners with account owners to close particularly large, challenging or high-stakes opportunities.
• Rewarding new membership growth: For hunters, payors should award sales credit for new membership growth. Once accounts have been handed off the account management team (farmers), payors should cease paying hunters for those accounts.
• Introducing temporary team measure: Build a temporary secondary measure into the plan based on team performance to incentivize collaboration and support during the nascent stage of the new market.
• Predefining sales credit splits: Create flexible, predefined sales credit splits to account for the different roles and contributions of sellers involved in the sales process.
  • Example A: Credit splits between the seller who owns the General Agent (GA)/parent-level account and the seller who owns the territory/market-level child account.
  • Example B: Use flexible, predefined credit splits to appropriately recognize and reward Tiger Team members while also incentivizing account owners to use these teams when appropriate.
• Aligning acquisitions: Mergers and acquisitions should trigger a sales compensation program review. Companies may discover that acquired compensation program(s) may or may not be in alignment with the parent organization’s goals and require adjustments.

Next Steps

Designing sales compensation plans for the health insurance industry is a complex and dynamic task that requires a deep understanding of industry trends, regulations and best practices. Alexander Group is the leading consulting firm that specializes in sales compensation design and has worked with many of the top health insurance companies. We can help you design, implement and manage sales compensation plans that align with your business objectives, motivate your sales force and reward your brokers and agents.