SMALL EMPLOYER HEALTH BENEFITS PROGRAM
20 West State Street, 10th Floor
PO Box 325
Trenton, NJ 08625
Phone: 609-633-1882, ext. 50302
January 23, 2002
To: SEH Program Member Carriers
From: Wardell Sanders, Executive Director
Re: Producer Compensation Arrangements
The New Jersey Small Employer Health Benefits Program ("SEH") Board requests that a Member Carrier that adopts a producer commission arrangement other than on a level percentage of premium basis or a decremental percentage of premium basis provide notice of such arrangement to the SEH Board at least 45 days prior to its effective date. The notice should provide a clear description of both the new and old producer compensation arrangements.
Further, the SEH Board requests that after providing the notice noted above the carrier provide the following data on a quarterly basis:
The notice and quarterly reports should be sent to the Executive Director of the SEH Board at the address above.
The purpose of this request is to allow the SEH Board to gather data to determine whether a particular producer compensation arrangement has the effect of limiting or precluding access to coverage. The SEH Act provides that all small group health benefits plans must be issued on a guaranteed issue basis to all eligible groups, and the SEH Act provides that all plans are guaranteed renewable, except under certain limited circumstances. In 1994, concerned about the potential of carriers using the producer compensation arrangement as a vehicle to circumvent the guarantee issue and renewal requirements in the SEH Act, the SEH Board promulgated a regulation, set forth at N.J.A.C. 11:21-17.5(b), that attempted to protect against this potential problem. Currently, that regulation provides as follows:
No small employer carrier shall, directly or indirectly, enter into any contract, agreement or arrangement with an insurance producer that provides for or results in any consideration provided to an insurance producer for the issuance or renewal of a small employer health benefits plan that varies on account of health status-related factors of eligible employees or dependents, the number of eligible employees or the number of enrollees, or the industry, occupation or geographic location of a small employer covered by a small employer health benefits plan.
Further, the federal Health Insurance Portability and Accountability Act of 1996 requires all states to provide for guaranteed issuance and renewability of all small group plans. HIPAA also contains non-discrimination provisions. The Federal Department of Health and Human Services issued Bulletin 98-01 in 1998 which noted that nationally some carriers had attempted to discourage the offering of small group plans to groups with high-risk individuals by withholding or reducing commissions from agents for sales to such groups. The bulletin noted that many states had taken action against such practices under state Unfair Trade Practices Acts or rating laws.
The SEH Board recognizes that carriers have a legitimate need to periodically reassess producer compensation arrangements. It is the intention of the Board to collect data from carriers that move away from the historical industry standard of a percentage of premium basis to some other methodology to determine the impact on access to coverage, if any, resulting from the new compensation arrangement.
If you have any questions about this bulletin, please let me know.