With approximately 10,000 people turning 65 every day in the United States, there is a lot of interest in Medicare. Every day people are searching the internet or opening the 150 page Medicare & You handbook to learn about the rules, the features, the benefits and the choices they have when it comes to Medicare.
One of the first questions people often ask of themselves is “Do I need an insurance agent for Medicare?” Well, Medicare is not complicated, although the new terms can be confusing at first. It does take time to learn, especially for those that do not work with insurance every day. And it is easy to miss important information and to make wrong choices that cost thousands of dollars down the road. The right insurance professional can help save you time, reduce confusion or the frustration of learning something new and can save you thousands of dollars in medical expenses that you may not be considering when wading knee-deep in Medicare regulation. This guide to finding an insurance agent who will represent your best interest will help.
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What we have found in our many years of experience in the industry is that most people who choose not to seek the help of a professional Medicare agent, do so because they fear being sold something. It’s like how I feel when I walk into a car dealership. I want a car, and I wouldn’t mind some honest help in considering what to purchase, but I don’t want to be sold a car. I understand.
A second reason for not seeking advice from a professional is the belief that you can get all the information you need on their own. Well, that is true, the information is available. However, as a wise man once told me; “Knowledge is not wisdom, and wisdom is not experience.” Anyone can get the knowledge they need from the Medicare & You handbook and the Choosing a Medigap Policy publication. You can even call Medicare or other government services. But, none of those sources can pass along what a good professional has learned from experience.
If you are concerned that an insurance professional will try to sell you something, this article is for you. This is a guide to finding an insurance professional who will represent your best interest and will add value to your process in learning about Medicare and making the right choice in plans at the best price available.
In this article, I will point out the benefits and pitfalls of using an insurance agent or broker to help with your Medicare decisions. I will show you how to tell if a person is trying to sell you something or providing good unbiased guidance. You will learn exactly what commissions are involved in Medicare and who pays them. There are a lot of professional insurance representatives that are capable and willing to provide you with unbiased guidance and help prevent you from making rooky Medicare mistakes that can cost you thousands. This article will show you how to separate those good professionals from the hit and run salesman that just want to sell you something.
Caution: If you are retired military and comparing your medicare options to TriCare for Life, please go here: How Medicare Works with TriCare for Life.
An agent whose business focuses on the needs of the client will also have a website that focuses on the needs of the client, your needs.
Medicare Agent Commissions
First, it’s important to understand how much commissions are involved in Medicare plans and who pays those commissions. You will also want to know if your agent is an Independent Medicare Insurance Agent, or a captured agent.
This may surprise you. You don’t pay the agents’ commissions. The agent is paid by the insurance company. His or her services cost you nothing. Still, a good agent is going to disclose the commission rates so that you, the consumer, can see if there is any bias based on potential income.
There are two ways you get your Medicare. The first is Original Medicare with a Medicare Supplement plan. The second is to replace your Medicare Plan with a Medicare Advantage Plan. Lastly, if you have Original Medicare or a particular type of Medicare Advantage Plan called a PFFS, you can purchase your own Medicare Part D Prescription Drug plan. The Centers for Medicare and Medicaid Services (CMS) regulates the commission paid for Medicare Advantage Plans and Part D Prescription plans.
The rates for Medicare Advantage and Part D 2016 plans are as follows:
- In most states, the first year you purchase a Medicare Advantage Plan, the agent is paid $429. If you renew a previous plan, the agent is paid $215.
- In DC, Connecticut, and Pennsylvania those rates are $483 the first year and $242 for renewals.
- In California and New Jersey the rates are $536 the first year and $268 renewals.
- Part D drug plans pay a $63 commission the first time and $32 for renewals.
In all cases, the agent that is selling these plans during annual enrollment (October 15th through December 07) will not get paid until January the following year.
Medicare Supplement plan commissions are not regulated by CMS. Each State has different rules regarding the Medicare Supplement commission. The insurance company will set the rate within the State guidelines. In general, the insurance company will pay between 18% and 22% of the first year annual premium and limit the payout for five to seven years (depending on the State). Some companies, like United Healthcare / AARP will pay a fixed rate in select states. For example, in Florida, a United Healthcare / AARP plan will pay the agent $210 per year for a Medicare Supplement policy.
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When you consider that the average Medicare Supplement plans across this country cost a 65-year old Medicare beneficiary from $100 to $125 per month, the agent is making between $180 and $330 during the first year of your plan. If the agent has an agreement with the insurance company, he or she can give up a percent or so in order to have part of that money paid upfront and then the rest each month as you pay your premium. Yes, that means if you are paying $125 per month, the agent takes home about $25 per month to feed his/her family.
Let that sink in a minute. When I tell my new prospective client these rates, they are often very surprised.
The Medicare insurance business is not for the greedy. It takes a lot of sales over a long period of time to earn a comfortable living. Also, because most of the money earned is paid only if you keep the plan for years, the insurance broker better make certain it’s the right plan at a good price or they risk losing the business to a better-priced plan. Every month a large portion of our new business is the result of showing a person a better value they simply did not know was available. The original agent failed to offer them all their alternatives so that they could make an informed decision.
So, to be clear:
- The insurance company pays the insurance agent, not you. You cannot negotiate or get a lower price by not using an agent or broker.
- Your premiums are the same regardless of whether you use a professional for help or not.
- When you go direct to the insurance company, you lose the advocate and unbiased advice a good insurance broker will offer over the years. The people you talk to when you call direct into an insurance company represent the best interest of the insurance company, not your best interest.
- If you decide to pay a person a fee for advice, the person advising you could be getting paid twice. Once when you pay the fee and once when the insurance company pays them. Be careful of these pay for advice schemes. There are all sorts of ways people can receive kickbacks while making it look like they are an unbiased resource.
- In order for any insurance professional to be successful in Medicare sales, they need to amass a lot of happy customers that stay with them a long time.
An Insurance Agent or Broker?
Now that you know that it most people working in Medicare insurance are not there for the high commissions, let’s look at the area most important in determining if the Medicare insurance professional you are talking with has your best interest in mind.
The Medicare Insurance Professional
There are two different types of Medicare insurance professionals; the insurance agent and the insurance broker. The insurance agent works for an insurance company. As such, they can only show you, quote you and offer you the products allowed by the insurance company. Needless to say, these are either the insurance company products or the products of a partner company that are even more expensive.
The Medicare & You handbook as well as the government publication Choosing A Medigap Policy both stress two very important points;
1. Different insurance companies may charge different rates for the exact same Medigap policy.
2. Not all insurance companies offer all Medigap Plans.
What does this mean? First, it means that you have to shop price if you are not working with a broker that can shop price for you. The insurance agent is banking on the fact that most people who are new to Medicare don’t know that every company charges different rates for the same plan. The price difference is often many $100s per year, not just pennies. I have seen people purchase a plan for $220 per month when a higher quality competitor provides the exact same plan for $175 per month.
Second, I am sure you have heard the old saw “If all you have is a hammer, everything looks like a nail.” When you are dealing with an agent that works for an insurance company that is precisely the case. If the agent’s insurance company only offers Medigap Plan F and Medigap Plan N, they won’t show or talk to you about other plans that are available to you. Maybe Plan G is the best value or Medigap Plan F-HD. You will never know and never have the opportunity to find out if all you talk to is an agent that is employed by an insurance company.
The insurance agent that is employed by an insurance company is a salesperson. They have a product they sell and are trained to convince you it is in your best interest to purchase their product. They are not trained or encouraged to help you find the right product or the best price.
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The Independent Medicare Insurance Broker
A licensed insurance professional must be licensed in each state they do business, and also appointed to do business by each company they represent. Without going through this process, the insurance professional is not permitted, by law, to show prices or plans of those companies from which they are not appointed and states they are not licensed. The insurance professional that has gone through this process and can offer all Medicare Supplement plans and possibly even Medicare Advantage plans has the ability to represent your best interest. Because they consider your situation and budget then shop all the plans for the best Medigap plan and the best price, they can find and present to you the Medicare Supplement policy and company that is right for you. This is an independent Medicare insurance broker. They do not work for any insurance company. They may work for an insurance agency or for themselves, but their goal is to represent your best interest.
Some states require a separate license for an insurance broker, others do not. Once the independent Medicare insurance broker and you have selected the insurance plan and price that is in your best interest, the independent Medicare insurance broker must then act as a field underwriter. This means that after you have found the plan that is in your best interest, the broker must represent the insurance company while helping you complete the application. To put it simply, the broker may not mislead or lie to either you or the insurance company. If there is a known medical condition that would impact the application, the insurance broker must disclose it.
When it comes to shopping for the best plan and best price, the independent Medicare insurance broker represents your best interest. However, they must disclose all pertinent facts to the insurance company. It’s that simple.
I should add that most insurance representatives start out as an agent working for an insurance company. Some work for the same company their entire career. However, a select few know deep inside that they cannot represent the client’s best interest as an employee of an insurance company. Those few take the extra step to sever their employment relationship and become an independent broker because they want to represent your best interest.
Because the independent Medicare insurance broker can shop all Medicare Supplement plans and all prices, you don’t have to go through the laborious process of calling each company and talking to a dozen agents to find the best price. Also, when prices change as you age, the company that is best priced for 65-year olds is not often the best price for 70-year olds. A good insurance broker will review your plan and the competition to make certain you never overpay for your coverage.
How to Find the Right Independent Medicare Insurance Broker
Now you know the first step in making certain the person you work with has your best interest in mind; work with an independent insurance broker, not an agent working for an insurance company. In my opinion, throwing a dart and selecting any independent Medicare insurance broker will leave you better off than any agent employed by an insurance company. But, you can do better.
Not all independent Medicare insurance brokers are the same and it is in your best interest to find one that has the knowledge, wisdom, and experience to be your advisor. Here are a few bullet points I suggest to follow. It’s not a difficult process, in fact, it can be completed in a moment’s time. These bullet points will you quickly sift out the below average and average insurance broker and find the ones that can add the most value and meet your needs. I might add that what you won’t see is the old “ask for referrals” suggestion. Bernie Madoff built his Ponzi scheme business on referrals. Enough said.
- Make certain the independent Medicare insurance broker is licensed in your state. Always ask them to email you their license number and check on your state license website.
- Find out how long the agent has been in business.
- Is the agent full-time? I am embarrassed to say that the majority of people working as insurance agents and brokers do so on a part-time basis. There are many reasons for this, and it’s doubtful you will get a straight answer. The easiest way to find out is in finding out how easy it is to contact the broker at various times on various days. The broker that is available every business day morning till evening and can pull up quotes or other information is working full-time.
- How many insurance carriers is the agent appointed with? A number near ten will do. Some with years of experience are appointed with much more.
- Does the broker have a business website, business email (not firstname.lastname@example.org, but something like email@example.com). Having no website is a major red flag.
- What kind of information is on their website? Does the broker write their own articles or publish their own videos? Or do they just link to
articles others have written? Are the articles and videos truly helpful, or do they just look like space fillers? The person that can write about a subject has a deeper understanding of the subject than those that don’t. If you can read articles on the site and walk away feeling they were helpful, you are more likely dealing with a person who cares about helping and is experienced enough to add value in their service.
- The independent Medicare insurance broker should be transparent in their business. What I mean by this is that they should be completely open about the commissions paid by each company, they should show you all the prices and plans available if asked. Some will do so without asking. Keep in mind, if the broker does not show you all the plans and prices right up front that is not necessarily a bad thing. For example, an experienced broker will know what plans offer the best value in each state. They may show those plans first and will then explain why the other plans are not good values later if asked.
- The best independent Medicare insurance broker will offer information and add their point of view. Expect them to add value by sharing why one plan may be better than the other. That’s how they add value. As long as you know what the broker will be paid, you will be able to make the right decision for yourself.
- Gut feeling. As odd as this sounds, if you have an uneasy gut feeling about a person, don’t work with them. Science has shown there is more value in our intuition than we often give credit.
What the Independent Medicare Insurance Broker is Expecting From You.
Although the primary purpose of this article is for you to be able to identify the person who will add value and help you with your Medicare decisions, it may be helpful to include what that broker is expecting from you.
- Be as upfront and honest with the insurance broker as you want them to be with you. The best business relationships are built on respect and honesty. You will both get the most out of the process when you treat the insurance broker as you want to be treated.
- Expect the insurance broker to encourage you to make a decision sooner rather than later. They do all their work for you upfront and it is not wrong to ask for your business. So, don’t be offended. Just be honest if you are not ready. Please ask questions if you need more information.
- If you have asked the insurance broker to help you, and they have spent time helping you, then if you follow their guidance you should do business with them. They don’t get paid to help you unless you purchase a policy from them. To follow their advice without paying them is unethical. It happens. Anyone who is in the business long enough has been the victim of the person that asks for their time, knowledge and guidance only to go to someone else (often an inexperienced relative) when making the actual purchase. Remember the Golden Rule: treat others as you would like to be treated.