It’s too soon to tell whether health insurance brokers are an endangered species on the cusp of going the way of the Dodo or, more recently, the travel agent. But as health care reform takes effect, potentially bringing medical coverage to 6 million uninsured Californians by 2014, insurance brokers are fighting for survival in a changing world.

Many health insurance brokers say their services will still be relevant once the dust settles on health care reform. The overhaul is so complicated, so confusing, so ripe for further change, services are needed now more than ever. With all of their expertise and knowledge, the argument goes, they are the ones who can guide employers through the layers of red tape and bureaucracy to find the best plans.

“Our clients will be relying on us to explain all of the red tape,” says Shannon Zajec, a broker and consultant with Barclay West in Sacramento. “When there are more laws and more rules out there, we become more valuable to our clients.”

That’s the conventional wisdom, and there is plenty of merit to that view. The health care overhaul, in many ways, is still a work in progress as policymakers haggle over definitions and interpretations of the law; but the reform has also brought about several key changes that will alter the insurance landscape and how brokers do business.

First and foremost is the issue of medical loss ratios — the amount of money insurers have to spend on medical coverage versus what they take in for premiums. The overhaul requires insurers of large businesses to spend 85 percent of revenues on medical care. Insurers of small businesses or individuals are required to spend 80 percent of revenues on medical care.

There are many insurers out there that already run lean and mean. For example, the not-for-profit Western Health Advantage — which serves Sacramento, Yolo and other area counties — meets these benchmarks.

But there are other insurers that come up short on the medical loss ratio (sometimes way short), and as they look to reduce expenses to get ratios in line with the new law, one place they might turn to is broker commissions.

Chris Bender, vice president of Warren G. Bender Co. in Sacramento, gives the example of an insurer who comes in at an 83 percent loss ratio. That insurer will be forced to make adjustments to bring the loss ratio in line with the new law, but it will then look to make up the difference by cutting expenses — and one obvious place to do so is a broker’s commission.

“So if you have an 85 percent loss ratio and you’ve got expenses, generally a producer on a large group would receive 5 percent or less in commission. If the government clearly defines that commission is part of the remaining 15 percent, then the 5 percent commission could go to 4 (percent) or less,” Bender says. “With a drop of 20 percent in account revenue, there is definitely an effect there.”

It doesn’t help that nobody knows what will be counted as a medical cost. Insurance commissioners across the country have been scrambling to get some kind of definition and so have interest groups, but so far nobody knows. Does an outsourced contract count? What about reinsurance against inordinately high claims? What types of federal taxes count?

“The controversy in this medical loss ratio figure is what is being considered as part of the incurred claims figure,” says Lee Ann Trumbull, president of Gallagher Benefit Insurance Services and the Sacramento Association of Health Insurance Underwriters. “This is an issue that has many outstanding questions.”

For example, insurers had hoped to include all federal taxes and fees as medical costs, but that’s looking less and less likely.

In August, a handful of influential Democratic lawmakers sent a letter to Health and Human Services Secretary Kathleen Sebelius saying only those taxes and fees tied to revenues generated from the insurance provision in the reform law should be counted as medical costs. That excludes items such as income and payroll taxes.

This kind of clarification would keep expenses higher while forcing insurers to spend more on coverage. Not surprisingly, the insurance industry has said not counting payroll and income taxes as medical costs will make it difficult for many plans to meet the 80 and 85 percent medical loss ratio standards, taking more affordable plans out of the market.

The medical loss ratio could very likely result in fewer choices for customers — killing off popular limited-benefit plans that fall short of the 80 and 85 percent loss ratios. All of this, of course, means fewer plans on the market, fewer options brokers can shop around for employers and, as some plans cut costs to hit their loss-ratio benchmarks, potentially smaller commissions for brokers.

An estimated 1.7 million Americans rely on limited-benefit plans, and while it’s not clear if these plans are better than not having insurance — there are countless experts arguing on both sides — it is clear why they have been so popular.

Limited-benefit plans are cheap, sometimes costing as little as $10 a week, but the coverage often is lacking. There are caps on benefits sometimes as low as $2,000 in doctor care for a year or $100 a day. For most people, these plans help subsidize basic care, but the few people who go over the limits find themselves in a world of hurt.

In recent years, these limited-benefit plans have been moneymakers for the insurance industry because they are low in medical costs. And they’ve been popular with employers because they are an inexpensive way to offer insurance. But they come nowhere near the medical loss ratio, sometimes coming in as low as 60 percent. And in the fall, most health care policies will have to cover at least $750,000 in medical care per person. That number jumps to $2 million in 2012.

The bottom line is the medical loss ratio coupled with the elimination of a coverage cap will potentially put the squeeze on broker commissions while limiting some choice in the market. But it’s not the only pressure point the health insurance industry and its brokers are facing.

“This is not really health care reform. It’s really health insurance reform.”

Shannon Zajec, broker and consultant, Barclay West

California’s forthcoming health insurance exchange also has game-changing potential both in its creation as a place for one-stop insurance shopping and its possible ability to negotiate premiums.

At the very least, the exchange will allow individuals or employers to access different plans on one website. The concern among brokers is this will have an almost Expedia-like effect on health insurance in the same way the popular airfare search engine, and others like it, made travel agents irrelevant. Instead of relying on a broker to guide them to the best insurance deals, employers and individuals can hop online and check out plans on their own.

California lawmakers are also considering the possibility of allowing its health care exchange to negotiate premiums. Supporters say the additional bargaining powers would curb excessive rate hikes, while those in the insurance industry say it will lead to less competition.

For now, all of this remains in flux until 2014 when the bulk of the overhaul kicks in. That means there is plenty of time to lobby, amend and cut the bill.

Zajec, the broker with Barclay West, says she expects the health care overhaul to continue to be, well, overhauled between now and 2014.

“This is not really health care reform,” she says. “It’s really health insurance reform, and we think there will be changes in this law. There are still three elections we have to go through.”

Zajec says true reform would have included tort reform, reducing the cost of care by limiting excessive tests that arise out of liability concerns. She also advocated for keeping the high-risk pool separate from other insurance pools. In 2014, people in the high-risk pool can move to other insurance pools, potentially leading to shifting costs. Healthy people will pay for sick people. Younger people will pay for older people in their premiums.

This is more or less the rallying cry of most folks on the insurance side of the health care business. Everyone agrees that premiums will go up for most people, particularly people in their 20s and 30s who are in good health, as insurance plans become more comprehensive and more high-risk consumers enter the market.

“The bill did nothing to actually control the rising costs of health care,” says Dennis Carlson, a principal with Bespoke Benefits Insurance Services in Davis who specializes in small-group insurance plans. “Really the reason that health insurance is expensive is because health care is expensive.”

Carlson says in the short term he expects coverage to get better for many people simply because of the addition of preventive services and elimination of medical cost limits.

But in the long term, Carlson sees people continuing to pay more for less as premiums rise.

“I’m telling (clients) to still expect double-digit increases (and) still expect to downgrade plan options because none of this is going to lower costs,” he says.

Already the market has begun to shift in anticipation of the health care overhaul. Insurers have been raising rates preemptively. In March, Anthem Blue Cross made headlines for seeking a 39 percent increase in premiums for 800,000 policyholders. That plan was killed after public outrage, but Trumbull says Anthem is still pursuing an increase of about 13 percent.

“I think the carriers are a bit reluctant to be in the news,” she says. “Do I think they are arbitrarily setting them a little higher? I really can’t say that. They do have to include things that were not included in the 2010 rates. … I guess in summary, health insurance is going to continue to be expensive because health care is going to continue to be expensive.”

Trumbull says she’s already seen employers attempt to downgrade their insurance plans to help minimize costs. She also notes that the Sacramento area is buffered from any major changes because of Western Health Advantage, the nonprofit provider that runs at a very low medical loss ratio. The presence of Western Health Advantage, Trumbull says, forces competition in the marketplace.

“They run lean and mean,” she says. “Not a lot of administration overhead and expenses, and they claim they are able to pay 90 cents on every dollar claimed. They are very competitive.”

Of course, no one knows who the winners and losers of health care reform will be. Certainly younger people will pay more. So will employers. On the other hand, millions of people without access to health care will gradually enter the market.

“That’s a loaded question because it depends on who you are,” Bender says. “Some of those that don’t have coverage, from a standpoint of not being able to qualify because of pre-existing conditions, it’s going to improve their world for sure. In addition, some employers with (fewer) than 50 employees (with an average salary of less than $50,000), there will be tax credits available. But for many employers, their groups and insurers, it’s going to create exponential rising costs. In a difficult economy, It’s going to make it harder for many employers to survive.”

The same could be said of brokers. Maybe health care reform will make them needed experts whom employers rely on to navigate red tape for the best plans. Maybe commissions won’t be cut. Maybe the online exchanges won’t choke off any business. It’s a changed market. Time will tell who survives in it.