The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Bill to Exempt Broker Commissions from MLR Formula Introduced Today

Posted by Alan on March 17, 2011

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


5 Responses to “Bill to Exempt Broker Commissions from MLR Formula Introduced Today”

  1. In 2010 alot changed in the Healthcare arena. Some people are still “waiting” to see what will happen while other people have gone out and come up with a solution. Whenever there is a challenge like this someone will figure out a way to make it easier and better. A company called Bene$mart has a new product that is being introduced to the market by Total Financial Group that combines section 125 with section 105. What this combination does is allows employers large and small to MAXIMIZE their tax saving opportunities and allows for added benefits like life insurance and supplemental that the employee can choose that are funded by the Tax savings. It’s a no brainer for Group Brokers as well because there is a Life Insurance policy for EVERY employee.
    Check it out

  2. Insurance Guy said

    Hopefully, many brokers are taking advantage of the NAHU and NAIFA “Operation Shouts” to express their support of HR 1206. Alan – Since the legislation has already been introduced, would it still be helpful for us to Email our comments to the NAIC by the Monday deadline?

    • Alan said

      The introduction of the legislation is a great start, but the debate is just beginning. Whatever position taken by the NAIC on HR 1206 or similar legislation will be very influential. If you were going to send a comment, I highly recommend following through on that intent.

  3. So, about a year ago a law was passed that requires “certain type of businesses” allocate their revenues based on a percentage formula that Congress came up with. That law also has a requirement that all Americans have to purchase the product that those “certain type of businesses” sell. Now there is another law, (and don’t get me wrong, I am a broker so I like it- may get to keep my house!) that those “certain type of businesses” can, not, count some of their expenses in that formula that Congress came up.
    And all this is all going to help reduce the cost of health care, how?

  4. alan,

    As usual, an excellent commentary, and very informative.

    I agree with you, “Passage of the legislation is far from certain.” We continue to wait for the Congress (both Houses) to pass the “1099” legislation that both parties have agreed is necessary. They may agree on necessity, but that hasn’t moved them off their backsides to do anything about. Typical political blather with no substance. I suspect that the same will be true with the just mentioned legislation.

    Further, and perhaps more to the point, as many companies have already shown their loyalty, or lack of for the agent/broker community, why should we expect them to change what is already a cost savings and boon to the executives’ bonuses in their slashing or completely doing away with agent/broker commissions? I’d wager that those who hold their breath waiting for such an outcome, may permanently stop breathing.

    It is time, beyond time, in this next evolution of the American Health Insurance Industry for the Agent/Broker Community to change the mis-perception, embraced by so many politicos, that we are an extension of the Insurance Companies, and instead make very clear that we are the best line of defense between the insurance consuming public and the insurance companies. We advocate for the consumer, not for the companies, and it is time for the consumers to recognize that should they wish to have the professional advice and services of an agent who is advocating for them, then they must begin to pay for it.

    Equally, it is time that agents/brokers cease “hiding” the monies we are paid to design plans, educate, implement, and service our clients, and provide truly full disclosure. It is my perception that those who do not wish for their clients to know just how much the agent should be and is paid for the work they provide, may be hiding something else from their client, and is not providing their client with the professional advice and service that they deserve.

    We get what we give.

Sorry, the comment form is closed at this time.

%d bloggers like this: