Agents Tell Regulators Commissions, Consumers Hurt by Medical Loss Rule

“The impact of the medical loss ratio has been dramatic on the agents and brokers in this country and it was dramatic immediately.”

That’s a quote from Beth Ashmore, an independent insurance agency owner from Lubbock, Texas, and a health care insurance and employee benefits specialist.

Speaking at a hearing held by the National Association of Insurance Commissioners on the medical loss ratio (MLR) provision of the Affordable Care Act (ACA) passed by Congress, Ashmore said commissions for health insurance producers have dropped as much as 50 percent, particularly on the individual side, and “it is causing many, many producers to seriously reevaluate their participation” in the health insurance market.

Ashmore, a former president of the National Association of Health Underwriters (NAHU), testified alongside Terry Headley, an agency owner in Omaha, Neb., and current president of the National Association of Insurance and Financial Advisors (NAIFA), before a panel of insurance commissioners.

The NAIC in October 2010 voted to back the MLR requirement that restricts the amount health insurance companies may spend on administrative costs versus health care services. Under the MLR provision, insurance providers must spend 80 to 85 cents of every premium dollar on health care services and only 15 to 25 cents on administrative costs, depending on whether they’re insuring individuals, small groups or large groups. Currently agent commissions are included in administrative costs.

Agents said they began to see a dramatic drop in commission rates from health insurers as soon as the reform legislation was passed. If commission cuts continue, agents will be unable to provide the services after the sale of the policy that health plan consumers need, Ashmore and Headley said.

“Agent-provided service to clients is not transactional. The service does not end after a policy is put in force. In fact that is just the beginning,” Headley said.

“I really want to drive home … the amount of time and energy that agents and brokers spend servicing the account after the sale,” Ashmore said. Those services include enrolling, implementing and installing the health plan, as well as counseling employers and employees. Then there are claims. Headley said an agent can spend “about 20 hours per week … mitigating and mediating claims between consumers, health care providers and companies.”

The reduced compensation for agents will hurt consumers, Headley said. “Licensed health insurance producers simply cannot continue to provide these consumer services without adequate compensation for their time, training and now, more than ever, compliance costs,” he said.

Representatives from consumer advocacy groups said that removing commissions from the MLR could increase health costs for consumers. According to Timothy Jost of Washington and Lee Law school, agent commissions contribute significantly to administrative expenses, particularly in the individual and small group market.

He testified that the removal of commissions would also remove insurer incentives to control those expenses. Consumers would end up paying higher non-commission costs as well as costs of “uncapped producer commissions.”

Lynn Quincy of the Consumers Union said NAIC consumer representatives are recommending that the MLR rules be kept intact for now, but added that more information is needed to craft a final solution. She said one possibility would be to adjust the MLR thresholds to allow for producer compensation.

Michael T. McRaith, currently insurance commissioner in Illinois and President Obama’s pick to head the Federal Insurance Office, questioned whether the MLR is the real culprit behind decreasing producer commissions or if insurance companies are using it as an excuse to increase profitability. He said that the rate of commissions has been decreasing over the past decade. “I’m not sure the loss ratio is the problem,” McRaith said. “You started to see compression in [commission] rates as premiums were increasing in many states far beyond the medical inflation rate.”

Headley and Ashmore agreed that commissions have been trending downward for the past two decades but both insisted that in the past six to nine months, the downward spiral has been “phenomenal.”

Topics Agencies Profit Loss