Where the Heck Have I Been?

My apologies. It’s been too long since I wrote a post here and I haven’t left word as to why and what’s up.

First, my absence is not because there isn’t a lot to write about. On the contrary, what’s going on with health care reform is both fascinating and diverse. Rather, I simply haven’t had a chance to carve out the time necessary to write about the many things that are happening. I’ve tried, often unsuccessfully, to make this blog a resource that provides a perspective on health care reform developments, a perspective that takes what’s evolving and makes sense of it in some way that isn’t always available elsewhere. After all, there are a lot of resources out there on the topic. I wanted to provide something different. The downside of acting on this desire, however, is that it takes more time than simply linking to other sources, and time has been in somewhat short supply of late, for reasons described below.

The second reason for my absence is a change in my occupation. In this blog I’ve sought to present a broker’s perspective on health care reform. Yes, I’ve held many positions in-and-outside of the insurance industry. When I started writing I was (again) leading an insurance agency. Subtitling this blog “Health Care Reform From One Broker’s Perspective” was both accurate and appropriate. Even when, a  few years ago, I became a consultant the subtitle felt comfortable. Yes, I worked with carriers, agencies and others. And I wa no longer actively selling health insurance. But I remained active in working with brokers. I wrote a book on sales, spoke frequently before audiences of brokers. And I remained active in Health Underwriters. In short, I still felt like a broker. As most brokers who read this blog know I’ve worked hard over the years to educate the public and decision makers about the value we bring to the system. And when discussing brokers and what we do, it still feels more natural saying “we” than “they.” So I kept the subtitle.

Now, however, my job has changed. One of my clients, a carrier named SeeChange Health Insurance, made me an offer I couldn’t refuse. They have offered me an opportunity to help build and launch not only a new carrier, but a new approach to health coverage. Value-based benefit plans focus on the “health” in health insurance, providing financial incentives to members who take specified actions to take care of themselves and identify chronic conditions before they blossom into serious problems. This, it seems to me, is how health care coverage should work. The opportunity to be a part of the first carrier whose entire product portfolio provides this kind of benefits on a fully-insured basis to small and mid-size groups was irresistible.

Which brings me to the third reason I haven’t posted anything here of late. I’m too much of a broker to pretend that assuming a leadership role at a carrier is incompatible with calling oneself a broker. I may be bringing the attitudes and outlook of the brokerage community into this insurer (and SeeChange Health is, not surprisingly, both broker-friendly and broker-centric), but that doesn’t mean I can do a blog discussing “health care reform from a broker’s perspective.” By necessity, the nature of this blog has to change.

For example, I need to be sensitive to the fact that when I criticize carriers (either specific ones or as a group) I’m no longer viewed as an observer or broker, but as a competitor or participant. Or that when I talk about how carriers in general approach issues of importance to public policy or commissions, there will be a tendency for readers to think I’m speaking for or about SeeChange Health. Or when I challenge some brokers on one issue or another some are likely to perceive my response as “typical of the way carriers think.”

The need to rethink the nature of this blog coincided with the requirement that I devote considerable effort and time to launching a new venture. (Although we’ve launched in only one state, for now, when that state is California we’re talking about a big state). As a result I’ve been away from the blog for several weeks.

I confess I miss the place. I’ve enjoyed deep dives into the issues surrounding health care reform and I’ve learned a great deal from those of you who have taken the time to comment on this blog or been kind enough to introduce yourselves at various speaking engagements. And I do intend to return to more regular postings, starting in September. Yes, this blog will change–a bit. (It will definitely need a new subtitle for one thing). I hope, however,  the community we’ve built here will remain and even grow.

I look forward to continuing our dialogue. Soon.

HHS to Pay Brokers for Enrolling Consumers in Federal High Risk Pool

Should brokers be compensated for helping consumers to enroll in government programs like the Pre-Existing Condition Insurance Plan (PCIP) created by the new health care reform law? Until now, the federal government’s answer has been “no.” That changed today and a significant precedent is being set.

The National Association of Health Underwriters announced today that, beginning no later than October 1st, licensed agents and brokers will be paid a flat fee of $100 per enrolled applicant. (Payments could begin sooner if the changes to the application can be done more quickly).

This fee will only apply to the high risk pools set up by the federal government for the 23 states who declined or were unable to do so plus the District of Columbia. Many, if not most, state-run exchanges already pay brokers for assisting their citizens in enrolling in their pools. According to NAHU the average state-based fee is $85 per enrolled applicant.

In announcing the change, the Department of Health and Human Services noted the greater enrollment success achieved in states pools that compensate brokers for their work. As stated in the Department’s press release: “This step will help reach those who are eligible but un-enrolled. Several States have experimented with such payments with good success.,”

The decision to support and work with brokers is part of the Department’s efforts to increase enrollment in the PCIP high risk plans by removing administrative hurdles and lowering premiums. In fact,  in 18 of the states, premiums will be coming down as much as 40 percent according to a press release from HHS.

The PCIP was designed to provide coverage to individuals unable to obtain health insurance in the private market due to existing health conditions. 18,313 Americans have enrolled in the federal high risk pool through March 31st, a fraction of the 5 million consumers expected to enroll in the program (fraction as in “0.4%).

Progress usually comes in small steps, not giant leaps. The significance of HHS recognizing the value brokers bring to America’s health care system—and their willingness to pay for that value—should not be underestimated. For example, the House of Representatives will soon conduct a hearing on HR 1206, the legislation to remove broker compensation from the medical loss ratio calculations required by the Patient Protection and Affordable Care Act. Proponents of this law will be able to point to the recruitment efforts of HHS in support of the federal Pre-Existing Condition Insurance Plan to reinforce the need to keep brokers in their role as consumer counselors and advocates in the new health insurance world being created by the PPACA.

NAHU and other agent organizations worked hard to achieve this recognition. No doubt, however, some brokers will protest that the HHS program pays brokers only a one-time fee. This complaint is misplaced. Enrollment in the PCIP is fundamentally different than working with consumers shopping for coverage in the commercial market. The PCIP is, after all, a government health plan, more similar to Medicaid than to plans available on the open market. Further, enrollees in the high risk plan, by definition, cannot obtain traditional coverage. What’s significant is not the details of the compensation (although it is worth pointing out that HHS is setting the fee higher than the average paid by states), but the existence of compensation for enrolling Americans into a federal health plan.  When it comes to precedents, this is one that can aptly be described as “significant.”

States and Health Care Reform

Health insurance has long been a state affair in the USA. Insurance companies were even exempt from many aspects of federal anti-trust law to better enable state regulators to oversee their activities. Yes, there were federal laws that standardized certain aspects of the business—think HIPAA and COBRA. Think about Medicaid, Medicare and SCHIP while you’re at it. But when it came to health insurance regulation the states reigned supreme.

Enter Congress and President Barack Obama stage left. With the passage of the Patient Protection and Affordable Care Act the federal role in shaping and regulating health insurance shifted significantly to Washington, DC. The Secretary of the Department of Health and Human Services is now arguably the most important health insurance regulator in the country. The Department of Labor and Internal Revenue Service will also play significant roles in determining the future of the nation’s health insurance market and the choices (or lack of choices) Americans have to meet their health care coverage needs. No wonder critics of the PPACA condemn the law as a “federal takeover.”

That the nexus of health plan oversight has shifted to the federal government is beyond argument. The new health care reform law touches everything from how medical plans are designed, priced, offered, maintained and purchased. To conclude that state insurance regulators are shunted to the sideline, however, dangerously overstates the case. In fact, the PPACA invests tremendous flexibility in the states, allowing them to implement the federal requirements in what will likely be very divergent ways.

Rebecca Vesely, writing in Business Insurance, makes this clear in her article describing how two states, Vermont and Florida, are taking strikingly different paths in addressing health care reform. Vermont has taken the first step toward creating a single payer system by 2017. Legislation to set up a five member board to move the state in this direction has already been enacted. And while many details need to be worked out (funding, to name one) and Vermont will need to obtain a waiver from the Centers for Medicare and Medicaid Services to put the package together, the state is further down the road to single payer than any other.

Then there’s Florida where the move is in the opposite direction. That state is seeking to shift virtually all of its Medicaid population from government coverage into private plans starting in July 2012. These private managed care plans would be offered through large health care networks with health plan profits above five percent shared with the state. Whether this approach will achieve the $1.1 billion in first year savings promised by the Governor or not, it has brought new participants into the Medicaid marketplace such as Blue Cross and Blue Shield of Florida.

The Business Insurance article includes a prediction by Boston University law professor Kevin Outterson that the Obama administration will sign off on the waivers Vermont and Florida need to move forward.

What the starkly different approaches to reigning in skyrocketing health care costs being taken by Florida and Vermont demonstrates is the broad flexibility states retain in shaping their own health care destiny. Yes, federal waivers are required, but that would be the case even if the PPACA had never passed—Medicaid is a federal program after all. The CMS web site lists 451 state waivers or demonstration projects in place today. The concept of allowing experimentations and exceptions is ingrained in the Medicaid program just as they are in the Patient Protection and Affordable Care Act. There’s nothing wrong with this any more than having shock absorbers on a car is an indictment of an automobile’s chassis or tires.

The marked variation in approaches being taken by Vermont and Florida are extreme examples of what we’ll see as states implement exchanges and other aspects of the Patient Protection and Affordable Care Act. Of course, whether this is good news or bad news depends a great deal on the state in which you live and work. States that are heavily tilted toward one party or the other (I’m looking at you California and Wisconsin) could make some of their residents yearn for the federal government to step in and keep things in perspective. Given the way the PPACA preserves state powers, however, they are going to be disappointed.

Catching Up on Health Care Reform

Hello. It’s been awhile. Hope you’re all well. To all who have inquired, my thanks for your concern, but all’s good. Hectic, but good. Lot’s going on (more on that later) and an awful lot of travel. I’ve had a chance to meet and talk with brokers in various parts of the country, including a few places I’ve never been before or haven’t been to for years: Boise, Omaha, Denver, Nashville. It’s been a great time to learn, recharge and stay a bit too busy to write any meaningful posts. While staying busy appears to be the new constant, I’ll try to find something worthy to share on a more regular basis. For now, however, let’s play some catch-up:

We’ll start with some (relatively) good news. One of the more popular elements of the Patient Protection and Affordable Care Act is the ability for children up to age 26 to remain on their parents’ medical insurance. The Department of Health and Human Services estimated 1.2 million young adults would take advantage of this opportunity. A story at Kaiser Health News indicates the actual number may be much higher: at least 600,000 young adults have already obtained coverage under their parents’ health plans. While most of the growth has apparently been in self-insured groups, fully insured plans are experiencing the same upsurge in membership. WellPoint, for example, reports adding 280,000 young adult dependents nationwide and the federal government added a similar number (although the article didn’t state what percentage of these were in fully-insured plans).

Of course, when it comes to health care reform every silver cloud has a gray lining. The Kaiser Health News article quotes Helen Darling, CEO of the National Business Group on Health, as noting “I don’t think anyone is eager to spend more money. This is not something employers would have done on their own.” She further cites the unfairness of asking employers to cover adult children who may be employed elsewhere. And businesses (and their employees) will pay a bit more due to this expansion of coverage to young adults – about one percent more according to estimates. And while its unclear how many of these individuals would not be able to obtain coverage elsewhere, but the general thinking is that a large majority of these young adults would be uninsured or underinsured, but for this provision of the PPACA.

Next let’s pause to note how rate regulation can be big business for consumer groups. In some states, regulators must approve health plan rate increases before they take effect. In others carriers may need to file their rate changes with regulators, but so long as the rate increases are actuarially sound they move forward. California, where rate increases tend to generate national news, is in the latter camp. The state’s Insurance Commissioner, Dave Jones would like to change that. (Actually he’d like to put health insurance companies out-of-business by implementing a single-payer system, but that’s another matter). However, he and others are pushing to change that. Assembly Bill 52, authored by Assemblymen Mike Feuer and Jared Huffman. This legislation would give the Department of Insurance (which regulates insurers in the state) and the Department of Managed Care (which regulates HMOs) to reject rate or benefit changes the agencies determine to be “excessive, inadequate, or unfairly discriminatory.”

In the findings section of the bill (which are the “whereas” clauses justifying the bill), the legislation cites rising premiums and the need for the state to “have the authority to minimize families’ loss of health insurance coverage as a result of steeply rising premiums costs” are among the problems the bill is intended to address. The solution: give politicians and bureaucrats the power to reject rate increases. No need, apparently, to address the underlying cost of medical care. The assumption seems to be that the way to reduce health care spending is to clamp down on premiums. This, of course, is like saying that the way to attack rising gas prices is to limit what gas stations can charge at the pump. One might conclude that, to be charitable, the legislation is addressing only a part of the problem.

Not only does AB 52 give medical care providers a free pass, it is likely to result in a windfall for the consumers groups supporting its passage. Politico Pulse notes that AB 52 requires insurance companies to pay for costs incurred by groups representing consumers at rate hearings. For groups like Consumer Watchdog this can represent a substantial amount of income. The Politico Pulse post reports that “Under a similar California provision for property and auto insurance, Consumer Watchdog has recouped approximately $7 million in legal fees since 2003”

Then there’s the 4th Circuit Court of Appeals hearing on two Virginia law suits seeking to have the Patient Protection and Affordable Care Act declared unconstitutional. A ruling from the three judge panel is expected in July. Much has been made of the fact that two of these three Appeals Court Judges were appointed by President Barack Obama – and the third by President Bill Clinton. While those so inclined are likely to consider this a conspiracy of cable news worthy dissection ad nauseum, it’s important not to make too big a deal about this.

First, courtrooms are not like the floor of Congress: partisan leanings have far less influence there. Second, as the Associated Press article points out, there are 14 judges on the court. Which of them hear a particular appeal is randomly determined by a computer program. There’s nothing sinister about the three judges selected for these appeals being appointed by Democrats, it’s just the way things turned out. No black helicopters are involved. Third, whatever this panel decides will be appealed by whichever side loses. The appeal could go to a hearing before all 14 Appeals Judges in the 4th Circuit or it could go straight to the Supreme Court. Finally, even if the appeals remain at the circuit level for another round, the final decision will be made by the Supreme Court. Everything going on in the lower courts (and there’s a lot of other suits out there needing to go through their appropriate Circuit Courts), is simply prelude. Yes, what the appeals court decide influences the Supreme Court Justices, but in a matter of this magnitude, far less than one might imagine. What happens at the District and Circuit levels is not unimportant, but it’s far from definitive.

While we’re playing catch-up: my previous post noted that Congress was likely to repeal the 1099 provision in the health care reform law. They did and the President Obama signed the law removing the tax reporting requirement from the PPACA. The PPACA no longer impacts 1099 reporting. I know you already knew that, but I wanted to close the loop on this issue. It’s now closed – and repealed.

Finally, a note about broker commissions and the medical loss ratio calculations required by the health care reform law. Where we last left our heroes, the National Association of Insurance Commissioners was debating whether to endorse bi-partisan legislation (HR 1206) that would remove broker compensation from the MLR formula used to determine a health plan’s spending on claims and health quality initiatives. The NAIC task force dealing with this issue wants time to review data being pulled together by the National Association of Health Underwriters, carrier filings and elsewhere.  Pulling together all this information, much of which has never been gathered before and is not maintained in a centralized data base, took a bit longer than initially anticipated. According to Politico Pulse, however,  the task force no”now believes it has all the data it will be able to get.” Which means the task force’s final report on broker commissions and the MLR calculation is now expected by May 27th.

Stay tuned.

And thanks again for staying tuned to this blog.  I look forward to continuing the dialogue with all of you.

Repealing PPACA’s 1099 Provisions Could Happen Soon — Maybe

Getting anything done in today’s Washington is never easy. Even when there’s widespread agreement. .

Congress has been trying to eliminate the 1099 requirements since last year. Everyone agrees that the provision is an unaffordable burden on American business. President Barack Obama supports removing it from the health care reform law. So do a majority of Democrats and Republicans in Congress. It’s not hard to see why. Today businesses file a 1099 with the Internal Revenue Service only when they pay contract workers $600 or more. The Patient Protection and Affordable Care Act expands this to all vendors and contractors providing $600 or more in goods or services. Meaning a business (non-profit or government agency) buying $600 in paper and staples per year from, say Staples, would be required to file a 1099 form. Same with paying the guy who waters the plants. Or UPS for delivering products. Or the printer, the security service, the landlord, the … well, you get the idea.

Even with what passes in the Capitol these days for near universal support, Congress has tried and failed to repeal the provision. The problem is that more thorough reporting of payments for goods and services is expected to bring roughly $20 billion into federal coffers over the next 10 years. Repeal the enhanced reporting and the money goes away.

Democrats and Republicans have differed on how to make up for these lost funds. The House approach is to increase the amount consumers will need to repay if they receive premium subsidy overpayments. (The PPACA will assist consumers purchasing coverage through exchanges set up by the health care reform law. The premium subsidies vary based on consumers’ income as reported in previous years. If their income turns out to be higher than anticipated consumers will need to repay a portion of the subsidy).

Here’s an example used by Representative Joseph Crowley as reported in the New York Times: “A family of four with an annual income of $88,000 buys a typical family insurance policy costing $13,000. The family would have to pay $8,360 in premiums and could qualify for a federal tax credit of $4,640, which the Treasury would pay directly to the insurance company. If the breadwinner receives a $250 bonus at work, the family would become ineligible for the tax credit and would have to repay the full amount, $4,640, with its income taxes.”

Democrats oppose this outcome because the overpayment of the subsidy was no fault of the consumer. As reported in the The New York Times article, they see this as a “tax increase on the middle class” claiming “honest taxpayers might find themselves owing large sums to the I.R.S.” This they consider a tax trap. Republicans in the House deny repaying money to which one is not entitled can be described as a tax increase. They also claim it’s the same offset Democrats proposed to pay for adjusting Medicare payments to doctors, according to The Hill’s On the Money blog.

The Senate has taken a different approach to paying for repeal of the 1099 provision. They want the Office of Management and Budget to recapture unused federal dollars from various governmental agencies. But it appears there may now be sufficient votes in the Senate to go along with the GOP approach. So things will happen quickly now, right? Perhaps, but maybe not.

Senator Robert Menendez wants the Senate to consider an amendment requiring Health and Human Services to determine the impact the subsidy claw-back provision in the House bill will have on the overall cost of coverage purchased in the exchange. If this amendment were to pass, the Senate version of the legislation would differ from that passed by the House. This, in turn, would require the bill to go back to the lower House delaying passage of the repeal.

Republicans, however, are expected to stand united in opposition to this amendment, effectively blocking its passage. Assuming this is the way things play out next Tuesday, the bill could wind up on President Obama’s desk sooner rather than later. The Administration, in the past, has expressed “serious concerns” about the way the House bill retrieves subsidy overpayments. A statement from the Office of Management and Budget notes “H.R. 4 could result in tax increases on certain middle-class families that incur unexpected tax liabilities, in many cases totaling thousands of dollars, notwithstanding that they followed the rules.” The statement goes on to support the Senate approach to paying for repeal of the 1099 reporting provisions in the health care reform law.

Whether President Obama signs the legislation in an act of bi-partisan compromise or vetoes it in the cause of avoiding a middle class tax cut won’t be known for sure until the bill is before him. It remains highly likely the tax reporting element of the PPACA will eventually be repealed. Whether this will happen soon remains an open question.

NAIC to Study MLR Impact on Compensation and Consumers Before Voting on Changes

Brokers holding their breath to see if their compensation will be removed from the medical loss ratio formula required by the Patient Protection and Affordable Care Act will be turning a darker shade of blue. The hoped for support from the National Association of Insurance Commissioners, which was expected to result from a meeting of the NAIC’s Professional Health Insurance Advisors Task Force this past Sunday, has been delayed at least four weeks.

While there was widespread and strong support for removing independent broker compensation from the formula carriers are used to calculate their medical loss ratio under the PPACA, the Task Force opted to ask their staff to provide additional data before making a decision.

While disappointing the delay is not really surprising. A substantial of the commissioners are new, having just been elected or appointed as a result of the November 2010 election. As Jessica Waltman at the National Association of Health Underwriters put it in a message to NAHU’s leadership, “[I]t was clear as soon as we arrived in Austin that some of the new Commissioners (and there are quite a few of them) had reservations about moving that quickly since this is their first meeting…. some of the more senior Commissioners were very sympathetic to their concerns about rushing things through. The NAIC almost never endorses legislation, so this is a huge deal for them.“

In addition, the issue is controversial. Consumer groups and some liberal Democratic Senators have voiced opposition to changing the MLR formula.

The Agent-Broker Alliance leading the charge for this change to the health care reform law met with several supportive commissioners and the decision was made to delay the vote. This would allow time for information relevant to the issue, already requested of carriers, to be received and considered. This time will also be used by the Agent-Broker Alliance to gather and submit data on how independent brokers are able to save clients money and the post-sale service brokers provide their clients.

Most observers I talk with are optimistic the NAIC will eventually endorse this change in spite of hesitancy from some liberal commissioners. In this regard, Politico Pulse is reporting that “Liberal insurance commissioners got a little feisty (well, for insurance commissioners) … pushing back against the speedy, one-month time line for” considering the broker compensation exemption proposal. Politico quotes California Insurance Commissioner Dave Jones as saying “I’d hate to see haste impede us having the information in front of us to make a relevant decision.” And Washington state’s insurance commissioner Mike Kreidler as declaring “I hope what we produce as a work product we can stand behind and that we’re more interested in accuracy than speed.”

When politicians speak of the need to “study” and “consider” an issue it means 1) they sincerely want to learn more about the topic or 2) they want to defeat the proposal without having to go on the record voting against it. While I hope I’m wrong, given the opposition to the exemption from liberal consumer groups, I’m betting on the latter motivation in this case. (Time will tell as I’m inclined to believe the data will be very supportive of moving forward with the exemption). That the NAIC went ahead with just a four week delay in spite of calls from Commissioners Jones and Kreidler to slow down is a sign that while there will be debate, there’s a better than even chance the NAIC will indeed support legislation to make changes to the medical loss ratio provisions of the PPACA.

Ultimately whether broker compensation is included in medical loss ratio calculations will be determined by Congress and President Barack Obama – which means nothing is certain. While I believe taking this action furthers the intent and purpose of the health care reform bill, the proposal will not enjoy smooth and speedy sailing. The bipartisan legislation introduced by Representatives Mike Rogers and John Barrow, HR 1206, has been referred to the House Energy and Commerce Committee, but no date for a hearing has yet been set.

That the idea is still alive, however, is both remarkable and encouraging. But it’s still too early to start breathing again quite yet.

Broker Testimony Before NAIC Concerning MLR and Commissions

The National Association of Insurance Commissioners will be meeting in Austin, Texas this week to consider a number of issues related to the Patient Protection and Affordable Care Act. One topic will be how the medical loss ratio provisions of the health care reform bill impacts brokers and consumers. A coalition of broker organizations will be testifying this Sunday urging the NAIC to move forward with a proposal to exempt producer compensation from the MLR calculation.

The MLR targets (individual and small group carriers must spend 80% of premiums received on claims or health quality efforts; large group carriers must spend 85%) is a critical part of the PPACA’s scheme to “bend the cost curve” when it comes to premiums (never mind that the biggest driver of premium rates is the cost of medical care). Limiting the amount of premium dollars insurers can devote to administration and profit, supporters believe, will result in reduced insurance rates. Also, since the PPACA requires all consumers to obtain health insurance coverage the medical loss ratio rules are designed to prevent carriers from gaining an undeserved financial windfall.

Significantly, exempting broker commissions does not run contrary to either purpose. The legislation being considered by the NAIC will still limit the percentage of premiums carriers can spend on administration and profit – and to a greater degree than most state measures addressing MLR targets do today. In addition, carriers will still need to aware of the total cost of their policies – including broker compensation. From a consumer’s point of view, the total cost of coverage will be the carrier’s premium and the broker’s commission. Carriers will be unwilling to go to market with a total cost that is uncompetitive because of overly generous broker commissions. This is one, but not the only reason, broker commissions are unlikely to return to where they were before the passage of the PPACA even if broker compensation is removed from the MLR formula. That broker commissions should increase at the rate of medical inflation, as opposed to general inflation, for example, is hard to justify when medical inflation is increasing at twice the rate of increases to the Consumer Price Index. But this change will — and should — be driven by market forces, not arbitrary limits set by Congress.

The NAIC proposal is also consistent with the purpose of the PPACA’s approach to MLRs because, as I wrote last summer, exempting commissions from the medical loss ratio may actually reduce overall administrative costs in the system. Carriers today aggregate broker compensation from small groups and individuals then pass 100 percent of these dollars onto independent third parties, retaining none of it for themselves. This reduces paperwork costs for hundreds of thousands of brokers, businesses and families and is a cost-saving measure that should be encouraged by the PPACA.

Not everyone sees it this way, of course. The American Medical Association, consumer groups and some Democratic legislators have urged the NAIC to keep the medical loss ratio calculation put in place by the Department of Health and Human Services (with input from the NAIC) as is. On the other hand, a bipartisan group in the House of Representatives has introduced HR 1206 to remove broker compensation from the formula used to determine a carrier’s MLR.

The broker coalition, comprised of the National Association of Health Underwriters, the National Association of Insurance and Financial Advisors, the Council of Insurance Agents & Brokers, and the Independent Insurance Agents and Brokers of America, was asked by the NAIC to present their views at Sunday’s hearing on the NAIC medical loss ratio proposal. Significantly, they were told there was no need to talk about the value brokers add to America’s health insurance system – this value was already recognized and appreciated by the Insurance Commissioners. Instead they were asked to focus on the economic impact of the MLR provisions as currently being implemented.

In a letter to NAIC from the Agent-Broker Alliance reports on a study that shows 25 percent of brokers surveyed are reporting business income reductions for individual and small group sales of 21-to-50 percent with another 25 percent describing losses at between 11 and 20 percent. The result is that brokers are leaving these markets, reducing the availability of their expertise to consumers just when the complexity of health care reform makes this expertise more critical than ever.

Past NAHU president Beth Ashmore will be providing testimony at the Sunday NAIC hearing. As a long-time Texas broker she will be able to provide Commissioners with a glimpse into how the “theory” of the PPACA is revealing itself in practical terms.

The NAIC has no vote in Congress, but they do have significant influence, especially to the extent the NAIC vote in favor of changing the MLR calculation is bipartisan. If they support exempting broker commissions it will give considerable momentum to efforts bills such as HR 1206. The legislative process takes time so there will be no quick fix. The key is to keep initiatives moving forward down the path. The NAIC meeting is a milestone along the way.

Bill to Exempt Broker Commissions from MLR Formula Introduced Today

A bit sooner than expected: Representatives Mike Rogers and John Barrow introduced legislation today to exempt broker compensation from the medical loss ratio calculations required by the Patient Protection and Affordable Care Act. Under the PPACA, health insurance carriers are obliged to spend 80 percent of the premiums they take in on policies sold to individuals and small group toward medical claims and health quality initiatives. For policies sold to larger groups this medical loss ratio target is 85 percent.

The purpose of the MLR requirement, in the words of Senator Jay Rockefeller, “is to encourage health insurance companies to deliver health care services to their customers in a more efficient and cost-effective way.” As a consequence of this provision, most health insurers have slashed broker commissions on policies sold to directly to individuals (as opposed to through an employer) and a significant number of carriers have made significant cuts to producer compensation for the sale and service of small group policies as well. This has forced many brokers are reconsidering the viability of continuing to service these market segments. Commissioners and others are concerned about

The National Association of Health Underwriters along with allied broker groups, specifically the National Association of Insurance and Financial Advisors and the Independent Insurance Agents and Brokers of America have been seeking to have broker commissions exempted from the MLR formula almost since the law passed. In October they won support from the majority of Insurance Commissioners at a meeting of the National Association of Insurance Commissioners to accomplish this, but at the last minute attorneys convinced the decided they lacked the power to make the change through regulation. Instead they would need to seek legislation to make this change. And they’re working on doing so.

In the meantime, Members of Congress are looking to change the health care reform law to accomplish the same goal – thus the bill introduced today, HR 1206. What’ impressive about the proposal (which will receive a bill number soon) is the bipartisan support it has received. The primary The lead sponsors are Republican Congressman Rogers and Democratic Congressman Barrow. They have been joined by 10 additional Republicans and 3 Democrats. Given the partisan divide prevailing in Congress, this is a remarkable coalition.

Better still, Jessica Waltman, Senior Vice President of Government Affairs at NAHU tells me that a bipartisan companion bill will be introduced in the Senate as early as next month.

Passage of the legislation is far from certain. Some Democratic lawmakers, several consumer groups and the American Medical Association oppose removing broker compensation from the medical loss ratio calculation. And some Republicans may be loath to improve legislation they are hoping to repeal.

Nor would exempting broker compensation result in a return to pre-PPACA commission schedules. While some of the more recently announced draconian cuts would no doubt be walked back. But as I mentioned in yesterday’s post, even if the PPACA were repealed, the way brokers are compensated was likely to change. The benefit of the Rogers/Barrow legislation is that these changes will reflect market forces, not an arbitrary spending target.

I’ll add a link to the press release from Representative Rogers when it’s available online, but here’s some of the key passages:

“’The nation’s 500,000 insurance agents and brokers help consumers find the right health care, advocate on their behalf, identify cost-savings opportunities and inform them of new products and changes in the industry,’ said Rogers, a senior member of the House Energy and Commerce Committee Subcommittee on Health. ‘A mandate in the new health care law severely restricts their ability to perform such services, meaning small businesses are losing jobs or shutting down completely and consumers are finding it harder to access their services.’”

…

“Insurance agents’ and brokers’ commissions are never part of an insurer’s actual revenue, and should never be counted as an insurer administrative expense, as confirmed by the National Association of Insurance Commissioners, the non-partisan experts on state insurance markets.”

…

“’Insurance agents and brokers serve as the voice of health insurance for millions of families and small businesses in rural communities,’ said Congressman Barrow. ‘These folks can help explain to consumers the many changes taking place in the healthcare world over the next few years, and so it’s important that our insurance agents are not hampered by provisions in the new healthcare law. This is another critical improvement that needs to be made to the healthcare law, and I’m hopeful that my colleagues on both sides of the aisle will work with Mike and me to see that this important improvement is implemented.’”

Edited March 18th to add bill number: HR 1206

Commissions, Medical Loss Ratio Targets, Brokers and Politics

Legislation to exempt broker commissions from the medical loss ratio provisions of the Patient Protection and Affordable Care Act is gaining bipartisan steam. Original sponsor Republican Representative Mike Rogers has been joined by Democratic Representative John Barrow. Other House Members from both sides of the aisle are expected to sign on before the legislation is formally introduced – perhaps as soon as next week.

Meanwhile, the National Association of Insurance Commissioner’s Professional Health Insurance Advisors Task Force has posted their draft of a bill to exempt broker commissions from the MLR (a copy of the proposed law is available at the end of this Employee Benefits Adviser’s BenefitNews article). The NAIC is seeking comments on the proposed legislation (which is very similar to that proposed by Representatives Rogers and Barrow) in that it simply removes compensation paid to independent brokers from the medical loss ratio calculation. A hearing on the draft bill will be held on March 27th during the NAIC’s quarterly meeting in Austin, Texas. (Those wishing to add their two cents to the conversation can submit an email to tmullen@naic.org by Monday, March 21st.

This legislation is a top priority of the National Association of Health Underwriters, the National Association of Insurance and Financial Advisors, and the Independent Insurance Agents and Brokers of America. Florida Insurance Commissioner Kevin McCarty, president-elect of the NAIC, has led the organization’s effort to deal with the negative impacts the PPACA has had on brokers.

All this is pretty good news, right? In a few weeks there could bipartisan legislation backed by the NAIC as a whole and its leadership in particular and supported by the grassroots strength of agent organizations. There’s just two problems: opposition from Democratic liberals and political maneuvering from Republicans.

Senator Jay Rockefeller has sent a letter to the NAIC complaining that treating broker compensation as anything other than administrative costs “would allow agents, brokers, and health insurance companies to retain the estimated $1 billion in benefits that American consumers will receive next year thanks to the health care reform law.” Senator Rockefeller overstates his case ($1 billion just from the MLR provision?), but at least he attempts to marshal some arguments behind his concerns. However, in many of these arguments his reasoning is flawed.

He states, for example, that “the proposal would make it more difficult for consumers and small businesses to understand how their premium dollars are used ….” Why? The PPACA already exempts taxes from the MLR formula, yet no one has expressed concern that this will confuse anyone.

He also assumes that if broker compensation is removed from administrative costs that commissions will revert to what they were before the PPACA. He even quotes a statement from me published in Benefits Selling magazine to support this point. In that article I noted that brokers cost of doing business rises at closer to general inflation, not the rate that medical costs drive up insurance premiums. And I predict that commissions will eventually be decoupled from premiums. However, my belief that how broker compensation is calculated is unrelated to health care reform. I’ve been talking about this dynamic for years, long before the start of the Obama Administration. Even were the PPACA to be repealed I believe the method of determining commissions will change. It’s simply too hard to justify tying commissions to medical inflation.

And that’s what Senator Rockefeller is missing. Commissions are set by market dynamics. Carriers, consumers and business owners need independent producers and are willing to pay for the value brokers provide. In setting commissions carriers not only look at what competitors are offering, but at what brokers can earn selling other products like life or disability. In the end it comes down to an economic calculation: does the compensation justify the time and resources brokers commit to make sales and service their clients. Regardless of how it’s calculated, if the answer is yes, brokers will engage with the product; if the answer is no, they won’t.

The medical loss ratio provisions in the PPACA disrupts this formula. By imposing an arbitrary cap on administrative costs and including commissions within this cap, the law threatens to make remaining engaged in the sale of individual products uneconomical for too many brokers. The PPACA shifts the situation where compensation reflects the value brokers bring to consumers and carriers to a mathematical formula driven by the medical loss ratio calculation which ignores value, effort and resources.

Liberal Democrats, however, are not the only hurdle to making changes to the MLR formula. As noted in a thorough and illuminating examination of the issue by Sarah Kliff in Politico, political calculations by Republicans may doom the bill. Republicans, Ms. Kliff points out, “have little to no political incentive to improve” the PPACA. Improving the PPACA simply makes it more palatable and that, in turn, makes the law harder to repeal. Better to leave the legislation’s flaws in place, this reasoning goes, so as to strengthen calls to chuck the entire package. Or as one source cited in the Politico article says, “If it really became a bill with steam and the Republicans started hearing from all those brokers maybe the odds change.” But I can’t get myself past the ‘we aren’t fixing this bill’ hurdle.”

NAHU and its allies are pitching the MLR change as necessary to protect small businesses – specifically the many health insurance agencies around the country. They are gaining potent support. Yes, there is opposition, but still, if approached on the merits, I believe the Rogers/Barrow legislation could pass. The primary reason for this optimism is that exempting broker commissions from the MLR formula doesn’t undermine the purpose of the PPACA’s medical loss ratio provisions.

It would be a shame, but in today’s world not at all surprising, if this helpful fix were derailed because some lawmakers find a greater political advantage to preserving the flaws within the PPACA than fixing them.

Maine Gains Three Year Waiver from Medical Loss Ratio Target

The Patient Protection and Affordable Care Act requires carriers offering coverage to individuals and families (not purchased on their behalf by an employer) to spend 80 percent of premium on medical claims or other costs related to health care quality. These medical loss ratio provisions took effect in January of this year and has created a host of challenges for states, carriers and brokers.

Authors of the PPACA anticipated that quickly implementing this 80% MLR requirement could disrupt the individual market. Consequently, the health care reform law empowers the Secretary of Health and Human Services to waive this requirement if states can demonstrate that meeting the 80 percent target would “destabilize the individual market” in the state.

To date, five states have sought this waiver: Florida, Kentucky, Maine, New Hampshire, and Nevada. And one of those requests, Maine’s request for MLR release was recently granted by HHS. In approving the waiver, HHS agreed with that a 65 percent medical loss ratio was appropriate given the circumstances in Maine. The waiver is for three years (meaning carriers will have to achieve the 80 percent MLR target in 2014) although the Maine Bureau of Insurance will need to demonstrate the need to keep the waiver in place for 2013. In the letter approving the request, HHS noted that only three carriers issued almost all of Maine’s individual insurance policies: Anthem Blue Cross Blue Shield of Main (with 49 percent market share), MEGA Life & Health Insurance Company (with a 37 percent share), and HPCH Insurance Company (13 percent).  As reported by HealthCare Finance News, MEGA Life and Health had stated it “would likely withdraw from the state if forced to immediately adhere to the 80 percent MLR standard.”

What level of disruption to their individual market that states will need to demonstrate is still unknown. The Maine decision is based on the unique situation of that state and one data point is hardly a trend. However, the Obama Administration is focused on making health care reform work, so they are being very practical when considering waivers and the like. They seem very intent on giving states latitude in implementing the law, James Gutman at AIS Health refers to as “’bend but not break’ mode.”It would not be surprising to see additional states consider seeking the waiver in light of Maine’s success.

In fact, Florida officially filed its waiver request only last week. In making the request Florida Insurance Commissioner Kevin McCarty asserts that meeting the 80 percent MLR requirement would drive some carriers to exit the individual market in the state, erect barriers to entry discouraging new carriers from entering the market, reduce the number of offerings in the individual market and “severely hamper agent involvement in the individual market to the severe detriment of Florida consumers.” Florida is seeking the same three-year waiver received by Maine for insurance plans (65 percent) and a 70 percent MLR for HMO.

For those interested in what their own state is considering concerning requesting a waiver from the PPACA’s medical loss ratio targets in the individual market, Politico Pulse runs a scoreboard each day. As of today, in addition to the five states mentioned above, 11 are leaning toward seeking a waiver, 16 are leaning against requesting relief, and the remainder have yet to make their intentions known.