BY PHIL CALHOUN
A growing trend for health insurance professionals is to look at off-loading some of their commissions to either spend time enjoying other pursuits in partial retirement or gain the time to build their other lines of insurance business. The cases below involve two actual scenarios where health insurance professionals made the move to exit the Medicare
Advantage Prescription Drug Contracting (MAPD) business, and one where they chose a complete exit.
People are individuals and so are health insurance professionals. One solution for all is often not the best solution for you. We’ve outlined four examples that illustrate options.
Becky has a Medicare only practice with a 50/50 split between MAPD and Medicare Supplement. She realized she was tired of the annual cycle. She was exhausted by mandatory AHIP and carrier certification process required each year to be active in the MAPD business and retain residual MAPD and PDP commissions. If she stayed with Medicare supplements only, Becky would have the opportunity to avoid this certification process and win back time in the fourth quarter. When she did her income analysis, she realized she would reap an annual time savings of several weeks each year. Becky liked the fact that this change would open the option to travel more in the Fall. She also knew about the drug plan concern should she no longer certify annually.
Becky began searching for a friendly buyer for her MAPD clients. She wanted someone who could successfully manage her Medicare supplement client’s drug plan review process every annual election Period.
With her focus shifting to finding a buyer, Becky interviewed buyers. She found several:
A second wanted to be paid a split of commissions to handle her service work in exchange for a transfer of clients and commissions A third offered to purchase her commissions over several years. They would pay 50% annually while also agreeing to manage the annual PDP work in a friendly and helpful role for her Medicare Supplement clients, and perform the essential work to protect her Medicare Supplement clients in all life events with a formal Commission Protection Agreement.
In her final buyer review, she realized the one-time payment would be both the lowest payout amount and the most tax intensive. It would result in a lower after-tax amount. She then studied the shared client role and realized once her commissions were transferred to a broker, the clients would be won over and her negotiating position would be weaker when she wanted to sell.
She also concluded that her buyer might not positively impact her payout as the clients would be at risk without a solid retention program that was proven over time and backed by a team of experienced Medicare professionals. She wanted a buyer with a proven track record to both manage the transfer of commissions from each MAPD carrier, handle the service work required to reach the highest possible retention, and agree in writing to have at least two employed Medicare specialists commit to certify with all carriers each year to cover her book of business. She wanted them to cross cover one another in the event anyone had a life event during her payout period.
So, her research led her to the one buyer who could provide both the client service and support, commit in writing to a long payout period, and show her a history of success in doing just this type of work for over ten years.
The Commission Protection role to protect her Medicare Supplement commissions weighed heavily in her final decision. Becky realized that while she stayed active enrolling people in Medicare supplements, her commissions were 100% at risk. The solution was in the agreement the buyer offered her.
Now she has her Medicare supplement commissions covered in any life event, and she has the buyout deal points set should she decide to retire. This agreement outlined how her commissions would be paid with terms she agrees are favorable. With this decision Becky stays in contact with clients, enjoys enrolling referrals, but mostly she cherishes the free time in the fourth quarter to travel and relax.
Larry has a voluntary benefits book of business and small book of Medicare. Larry also wanted to sell his Medicare book of business to focus on voluntary benefits while gaining time in semi-retirement to spend with his wife, grandchildren, and friends. He followed the same path as Becky and decided to hold onto Medicare supplement while selling MAPD clients and commissions. After completing the agreement and looking into the Commission Protection process and agreement, he decided to sell all his Medicare clients and commissions.
He negotiated a solid buyout amount and used a payout period that suited his planning needs. Larry enjoys working with small business clients and finds voluntary benefits to be rewarding as he educates clients on methods to cover health risks.
Randy moved into health insurance sales after a long and successful career building businesses in other industries. He was able to sell two businesses he grew. As a retiree, Randy enrolled in Medicare and immediately explored giving the Medicare business a try. Since he was active socially with friends and enjoyed helping solve problems for people, he was a natural. Fast forward ten years and Randy’s Medicare book of business was large enough to be attractive to buyers.
With plans to relocate he decided to retire and sell all his health commissions. When he shopped around, his prior experience in selling businesses led him to a desire to collaborate with a buyer who had experience and a proven track record. After finding a couple of options it came down to personality fit and professionalism. Randy’s final decision was based on his must-have deal points and the fact the buyer he selected had delivered on the same points with other brokers. Randy sold his Medicare business and was able to move to another state with his wife. Today they enjoy their retirement together.
EMBRACING THE ANNUAL CYCLE
Some health insurance professionals love the annual cycle of open enrollment and the annual commitment to the client management process. They like how the client’s needs require them to be available for service and support when needed.
When Medicare specialists look hard at their book and decide to explore what it would be like to have an exit plan for some or all their commissions, it pays in many ways to research the options: Full or partial retirement, sell some—keep some and add new lines are options. Health insurance commissions give the freedom to keep going for a long time or retire fully or partially.
PHIL CALHOUN, MBA, writes on topics of interest to health brokers. He assists brokers with planning for their future and his book on this topic is available free at www.healthbrokersguide.com.