How will health-care ruling impact brokers?

New York City real estate agents have long been classified as independent contractors rather than employees of the firms they work for.

But since the U.S. Supreme Court ruled in late June in favor of the Affordable Care Act, President Obama’s health-care reform, that distinction has become more crucial than ever.

The law’s much-discussed “individual mandate,” slated to take effect in 2014, will require all Americans to have health insurance or pay a fine. It also requires businesses with more than 50 employees to provide coverage or pay a similar fee — but while full-time employees of brokerages count toward that number, brokers don’t.

The Court’s decision, then, will have significant ramifications for the brokerage community in New York City. Indeed, going without insurance, as many agents currently do, will be much more difficult come 2014.

The real estate industry here is sorting through exactly what the law will mean for brokers and firms, and what sorts of new options for buying insurance will be made available to agents. And the presidential and congressional elections this fall could determine whether, and in what form, the law survives.

“Sadly, it’s not all really set yet,” said Diane Lazowsky, a Manhattan insurance broker at the firm Professional Group Marketing. “Even the insurance companies are not really sure yet.”

Under the current system, without employer-provided insurance, agents who aren’t covered by their spouses’ plans can either pay steep premiums for individual coverage or choose to go without insurance.

“It’s been very difficult and expensive for real estate agents to get health insurance,” said Klara Madlin, owner of Manhattan brokerage Klara Madlin Real Estate, which has 15 sales brokers.

Madlin said she personally paid $550 a month for individual coverage last year, and her premiums were slated to rise by 17 percent. (Luckily, Madlin is now old enough to qualify for Medicare, which brings her costs down to about $200 a month. “The only good thing, other than half-price transit, about getting old,” she joked.) She said her agents have similar individual coverage plans.

Assessing the options

There are no figures tracking the number of uninsured brokers in New York — those who will have to buy insurance or pay the fine.

But there are 51,805 real estate brokers and salespeople in the five boroughs, according to the New York Department of State. The National Association of Realtors says that nationwide, about 28 percent of its members go without health insurance. Applied to New York, that means there could be 14,000 brokers in the city without coverage.

One option for New York City brokers who want coverage is to buy health insurance through the Real Estate Board of New York, the industry’s largest trade association.

REBNY said more than 4,800 of its members — both residential and commercial brokers — are insured through the various plans the board offers. The discounted group plans are provided by such carriers as Oxford, Empire Blue Cross and Blue Shield, Aetna and EmblemHealth. Prices range from $246 per month for individual plans with very high deductibles to well over $2,000 per month for family coverage.

A spokesperson for REBNY said because insurers haven’t yet fully modified their plans to account for the new law, the range of options for customers beginning in 2014 is unclear. As such, she said, the board hasn’t yet seen an increase in enrollment in its plans.

Other options for real estate salespeople include an association plan — typically with a high deductible — like those available through the Freelancers Union or Einsurance.com. There is also a low-cost, bare-bones plan available through the National Association of Realtors — though the association cautions that it is no substitute for a major medical plan, which covers large expenses.

Marcia Salkin, managing director of legislative policy at NAR, said that under the new law, there will be exceptions to the mandate for individuals who demonstrate that they can’t find coverage that costs less than 8 percent of their income. In other words, they won’t face a penalty if they don’t buy insurance.

Agents who do buy insurance and earn less than other thresholds can qualify for subsidies through state-operated insurance “exchanges” — mandated by the new law — that are still being set up. The details of the plans and subsidies, though, are unclear.

But the good news, Salkin said, is that the subsidies available to individuals or families who participate in the exchanges will be fairly broad. Credits will be available at decreasing levels as income increases to people making up to 400 percent of the federal poverty level, she said. That could mean individuals with incomes up to $43,000 a year, or families of four earning up to $88,000 a year, could be able to buy subsidized insurance.

Risky business

One thing that will remain difficult for real estate professionals, Salkin said, is forming groups to get insurance at a discounted rate.

The problem, she said, is connected to the demographics among brokers. For example, insurance companies have been reluctant to write group plans for NAR, whose members are, on average, 56 years old, and predominantly female. Given the relatively high number of insurance claims among that demographic, she said, “the actuarial analysis doesn’t work.”

Moreover, independent contractors aren’t considered by the insurance industry to be a good risk. That is, the companies believe people with health problems are more likely to buy insurance, and healthy people are more likely to forego coverage.

Consequently, said Katherine Sayer, a health and life insurance broker who has clients in real estate, “the rates are very high for individuals, and I don’t know how that will change.”

In theory, the creation of exchanges — as well as the new requirement for more people to get insurance — will lower these high rates. But it’s not yet clear how that will play out, experts said.

And until the exchanges are created, Sayer said, individuals are left to fend for themselves.

“There is coverage available — that’s the good news,” Sayer said. “The bad news is it’s expensive and it doesn’t cover as much.”

Whatever happens with the new law, most agents will still not get insurance through their firms. Because brokers are independent contractors, firms that want to provide some form of coverage — or at least make it available — face complex rules and costs.
“It’s an expense that no one will want to tackle or take on,” said Kathy Braddock, a cofounder of Rutenberg Realty. “[With] the margins for these firms, it’s just not possible.”

Madlin explained that, due to the independent-contractor business model, she “can’t afford” to provide coverage for her agents. “They’d have to change the commission split or something, and nobody wants that.”

Madlin said her agents will remain on their own after the new law kicks in, though she added that she hopes the new law will create more affordable options.

Some firms do make attempts to help their brokers with health insurance. Town Residential offers its agents a $150 monthly reimbursement toward health insurance or gym benefits. And Bellmarc Realty administers insurance plans that agents can buy into at a group rate, though it doesn’t contribute to employees’ premiums. Neil Binder, Bellmarc’s president, said he doubts that more companies will administer group plans.

“It’s too hard, it’s very involved,” said Binder, who is also a licensed insurance broker and accountant. “I had a unique skill set,” he added, “that other people who are real estate brokers may not have.”

DSA Realty, a Manhattan-based residential and commercial brokerage founded in 2007, takes another approach. In addition to providing health insurance for its full-time staff, like most firms, DSA allows its 40 agents to buy into its group health plan, explained company president Jesse Rhinier.

Agents who hit certain sales benchmarks are reimbursed either 35 or 70 percent of the cost of coverage, he said. Agents who don’t participate in the insurance, meanwhile, are eligible for cash bonuses or higher commission splits.

Rhinier said the payments are a motivator that he hopes will keep agents at the company. Still, he said, he has agents who choose to forego coverage. Even if they hit the highest benchmarks, he noted, agents still must pay 30 percent of their insurance costs out-of-pocket, which can add up to around $1,500 a year.

“Some people just aren’t willing to do that,” Rhinier said. He added that “a lot of agents, as scary as it sounds, would rather be paid more than have some of their money go to insurance.”