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Study: Brokers are health insurance catalysts for small businesses

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Agents and brokers serve as health insurance catalysts for businesses with 50 or fewer employees, according to a new study by the National Bureau of Economic Research.

The study had three main findings:

• That small firms in more competitive agent/broker markets are more likely to offer health insurance to their active employees.

• That increased agent/broker competition is associated with lower premiums.

• That premiums have lower variance (are less dispersed) in markets with more agent/broker competition.

"Health insurance markets in the United States are characterized by imperfect information, complex products, and substantial search frictions. Insurance agents and brokers play a significant role in helping employers navigate these problems," the study said. "The role of brokers and agents is particularly important for small firms that usually lack the expertise and human resource departments to evaluate large health insurance choice sets."

The study notes that the Patient Protection and Affordable Care Act marketplaces, which are to open Oct. 1 and offer coverage beginning Jan. 1, 2014, specifies a minimum, standard benefit package with varying levels of cost sharing and also calls for electronic, state-based health insurance exchanges designed to facilitate informed consumers choice among health insurance policies.

"These changes will improve transparency and reduce search costs," the study says. "As yet to be determined is the role of brokers in these exchanges."

Two existing broker marketplace models the study cites are the Utah Health Exchange, which began operating in 2011 for small employers (2 to 50 employees), and the Massachusetts Health Connector, which dates to 2006. Utah has a more broker-friendly model, the study said, and also a higher percentage of small-group policies sold than did Massachusetts.

"If more states follow the broker-friendly Utah exchange model, our results suggest that a competitive broker market structure will contribute to enrollment of small employers in the exchange," the study said. "States might assess the level of broker density before deciding to adopt that model. Additional monitoring of the policies sold through brokers in the exchange also might be helpful. If brokers tend to sell the more-expensive policies to small firms, this might be a sign that they are not acting as agents for small employers."

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