Agents Cite Advance in Fight Against Medical Loss Ratio

September 20, 2012

A House subcommittee has advanced a bill that would exclude agency commissions from the formula that limits how much health insurers can spend on administrative and other non-medical costs.

The U.S. House of Representatives Committee on Energy and Commerce Subcommittee on Health recently reported out H.R. 1206 (Access to Professional Health Insurance Advisors Act of 2011). The bipartisan bill, sponsored by Rep. Mike Rogers, R-Mich., and Rep. John Barrow, D-Ga., would establish that agent compensation is not part of the medical loss ratios (MLRs) formula as enacted in the health care overhaul law.

The Patient Protection and Affordable Care Act (PPACA) established MLR requirements for insurance carriers starting Jan. 1, 2011. The law mandates that at least 80 percent (individual and small group) or 85 percent (large group) of premiums collected by a health insurance carrier must be spent on claims payments or “health care quality improvement.” This has been interpreted to mean that no more than 20 percent or 15 percent may go towards “non-claims costs” such as profits, advertising, administrative costs or including agent commissions.

Most carriers meet the ratio but those that do not are required to send rebates to insureds.

Some states that fear insurers will depart their market have been granted temporary waivers from the MLR.

Rating analysts have said the MLR could hurt the profitability of smaller health plans.

The MLR has been championed by the Obama administration and consumer advocates.

In June, the Obama administration said the MLR would result in health insurers rebating an estimated $1.1 billion to employers and individuals by Aug. 1. Nearly two-thirds of the $1.1 billion total were to be paid by insurance plans in the group markets for small and large employers. The remaining one-third was to come from insurers in the individual market.

The MLR issue has been a major one for the nation’s independent insurance agents and their lobbyists, who feel the formula gives insurers a reason to shift costs to pay them less and makes it harder for them to serve the market.

Agents argue that if the MLR calculation is not amended to exclude agent compensation, consumers will lose the guidance of insurance agents during a time of great change in the health insurance market.

“This damaging regulation has already had tremendously negative effects,” said Ryan Young, senior federal government affairs, the Independent Insurance Agents & Brokers of America.

The PPACA statute did not address how to classify independent agent compensation under the MLR formula. However, regulators decided that not only should agent compensation be included in the MLR formula but it should also be included as a part of the “non-claims costs” category.

The Rogers-Barrow bill changes this by specifically excluding agent compensation from the MLR formula, citing it as a payment that is a pass-through from consumers to agents.

“Agent compensation does not go to an insurance company’s bottom line and therefore should not be part of the MLR formula,” said Charles E. Symington, senior vice president for government affairs, IIABA, in a statement applauding the subcommitee’s vote.

The bill is now up for consideration before the full House committee.

The federal healthcare reform with the MLR is just one of many factors influencing distribution, costs and consumer habits in the health care field. Some agents and brokers are taking advantage of this time of change while others, often smaller brokerages, are being squeezed out.

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