No on Proposition 45

As you know, this blog has been—and remains—on hiatus. I’m playing around with reviving it down the road, but before I could even think that idea through, a California issue has arisen that compels me to write something now. That issue is Proposition 45. There’s a long and storied history in California of great sounding initiatives that harbor devastating impacts. Proposition 45 is one of those and that’s why it needs to be defeated on November 4^th.

Proposition 45 is Unnecessary

Proposition 45 supporters claim it will lower costs by simply requiring the California Department of Insurance Commissioner to approve rate and benefit changes to individual and small group medical plans before they take effect. (Large group coverage is exempt and untouched by Proposition 45). Whether this would actually lower rates or not is an open issue. After all, insurance rates are driven by a host of issues—the cost of medical care, new technologies and drugs, an aging population and changing demographics, increasing rates of chronic conditions—none of which are addressed by Proposition 45.

Regardless of its intent, Proposition 45 is late to the lower-premiums party. The Patient Protection and Affordable Care Act (the “ACA”), often referred to as ObamaCare, already requires carriers to spend a specified percentage of the premium they take in on medical services and related expenses. This mechanism acts to prevent the price gouging Proposition 45 proponents claim is rampant in the industry.

That Proposition 45 is unnecessary is reason enough to vote no on the initiative. But it’s far worse.

Proposition 45 Gives too Much Power to One Politician

Proposition 45 doesn’t create a single payer system; it creates a single overseer system. By explicitly giving the Insurance Commissioner authority over rates and benefits, Proposition 45 gives this elected official implicit power over everything relating to health plans in California. This includes what treatments carriers cover—or don’t cover, what doctors and hospitals are in—or out—of a carrier’s network, what insurers spend on marketing and distribution, and virtually everything else but what colors are in the carrier’s logo. And a creative Commissioner could probably find a way to control that as well.

The ability to leverage explicit powers to expand control over other items isn’t idle conjecture. I’ve seen it done in other contexts. In fact, I did this kind of thing in another context. When I served on the Santa Monica City Council we used our authority over zoning to extract all sorts of concessions from developers. For example, while we didn’t have explicit authority to require a developer to set up a job training program in the city, leveraging our power over zoning exceptions we got it anyway.

The power given the Insurance Commissioner by Proposition 45 is unprecedented—and dangerous. For example, while the Commissioner oversees insurance companies, HMOs are regulated by the Department of Managed Health Care. Proposition 45, however, allows the Commissioner to overrule a DMHC decision concerning an HMO’s rates. Or benefits. Or network. Or anything else.

Covered California is the state agency running the medical exchange in the state setup pursuant to the ACA. In that role Covered California negotiates with participating carriers over rates and benefits. Under Proposition 45, however, the Commissioner (or, as we’ll see, virtually anyone else) can object to the deals reached by Covered California. The result, discussed below, could be catastrophic for California’s health insurance exchange.

So long as we continue to elect human beings to public office no politician should be given such unbridled power. The temptation to misuse it (even in the name of all that’s good and just) would overpower a saint. And to my knowledge, there are few politicians who have been up for sainthood.

Here’s an interesting fact: every elected California Insurance Commissioner but two have run for higher office. One of the exceptions, Chuck Quackenbush was indicted and resigned the office. The second, the incumbent Dave Jones, simply hasn’t had the time yet. Commissioner Jones will be reelected this Tuesday and is widely assumed to be eyeing a run for Governor, Senator or Attorney General at the next opportunity. The post of Insurance Commissioner is a stepping stone, not a destination.

There’s nothing wrong with political ambition. But it does mean almost every decision made by an office holder is at least partially a political one. The calculus facing an Insurance Commissioner when reviewing a carrier’s rate submission is pretty straightforward. At the next election does the Commissioner want to run ads bragging about the hundreds of millions of dollars they saved voters or does she want to give her opponent ammunition to call her a tool of the evil insurance companies? In the political world, regardless of party affiliation, this choice is as close to a no brainer as politicians are legally allowed to stand. The market isn’t always a perfect pricing mechanism, but it’s far preferable to a political one.

Proposition 45 Will Create Chaos and Confusion

Some 35 other states require state regulators to approve rate changes. None of them, however, have an “intervener” system like that contained in Proposition 45 (or gives such extensive power to a single politician). Proposition 45 enables “consumer advocates,” lawyers and others to object to carriers’ rate actions. Once their intervention is accepted by the Commissioner, these interveners can earn $675 per hour for their efforts. A similar provision in Proposition 103, which dealt with auto and home insurance, has earned the authors of that initiative millions of dollars since its passage. No wonder they included a role for interveners when they drafted Proposition 45.

The extremely lucrative intervener provisions in Proposition 45 are virtually guaranteed to result in costly and frequent objections. Which means rate and benefit changes could be delayed months. Under Proposition 103, the average rate filing subject to intervention takes 343 days … over 11 months. Given that health insurance is not the same as property & casualty coverage this is extremely troubling. Timely decision-making is even more important with medical coverage than homeowner and auto policies.

If anything remotely close to these delays were to result from Proposition 45 the result would be chaos and confusion. Here’s a nightmare to consider: the premium subsidies available individuals in Covered California’s individual exchange is based on the cost of a specific plan (the second lowest cost Silver plan for those interested). What happens if, after this linchpin-product is identified, priced and in place, an intervener objects to its rates? What would the premium subsidy be based on then? What plans would be available in the exchange?  It could, and I believe probably would, take months to decide.  And by then open enrollment in the exchange could be over.

Think of the opportunities for mischief. Want to undermine the ACA? Wait until the last-minute and then object to the plans and rates negotiated by Covered California. No wonder the Board of Covered California have expressed their dismay about the damage Proposition 45 could do to their program.

Broad Opposition to Proposition 45

And the Board of Covered California (who took no formal position in opposition to Proposition 45) are not the only ones concerned about Proposition 45. The roster of Proposition 45 opponents is broad and impressive.

Earlier this week House Minority Leader Nancy Pelosi voiced her opposition to Proposition 45.telling the editorial board of the San Francisco Chronicle, “If I wanted to kill the Affordable Care Act, I would do this.”

Minority Leader Pelosi joins the California Medical Association, the California Hospital Association, the Service Employee International Union of California, the California State Conference of the NAACP, the Small Business Majority, the California Association of Health Plans and a host of others in opposing Proposition 45. Significantly, the vast majority of newspapers in the state are opposing the initiative as well, including the Los Angeles Times, Sacramento Bee, U-T San Diego and the San Francisco Chronicle.

As are the major agent and broker organizations: CAHU, NAIFA-California, IIAB-Cal and WIAA have come together to form Agents of Action. This is a grassroots effort to generate 100,000 No votes on Proposition 45. The strategy is by harnessing the efforts of brokers throughout the state to educate and motivate their clients, colleagues, friends and family on why it’s important to defeat Proposition 45. (Full disclosure, I’ve played a leadership role in Agents of Action).

If you’re a broker in California, please check out the web site at www.AgentsOfAction.org, download the tools available to you there and get your network out to the polls on November 4^th to vote No on Proposition 45. As Agents of Action emphasizes, Proposition 45 is bad for you and worse for your clients.

Of course, the important thing to do is vote. Too many have given too much for us not to live up to our responsibilities.

And, hey, when you do vote, please vote No on Proposition 45.

Initial Response

It’s going to take some time to dive into the Supreme Court’s 5-4 decision on the constitutionality of provisions of the Patient Protection and Affordable Care Act. The opinion is now online for those who wish to wade through it. Here’s my initial take:

1. As noted in my first post today, the individual mandate isn’t much of a mandate, but the principle of a mandate could have brought down the entire health care reform package. It didn’t, but that doesn’t mean the individual mandate, as written, will have the impact supporters of the PPACA intend. The only thing that’s new today is that this provision of the law can now be described as a “tax.”

2. Chief Justice John Roberts makes clear that he believes an individual mandate would violate the Commerce Clause. However, because he interprets it as a tax, that observation is important, but doesn’t effect the outcome. The other four Justices in the majority (Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan), in a separate opinion, stated their belief an individual mandate is constitutional. However, in order to form a majority they’ve signed off on Chief Justice’s Robert’s interpretation. So while having four members of the Court interpret the Commerce Clause this way is significant to legal scholars and could impact the future, for now it’s immaterial.

3. The four Justices dissenting from the majority opinion (Antonin Scalia, Anthony Kennedy, Clarence Thomas, and Samuel Alito) would have found the entire PPACA unconstitutional. Chief Justice Roberts often sides with this group of colleagues. He made history by parting ways with his more conservative colleagues. Justices might have lifetime tenure on the Court, but it still took courage for the Chief Justice to make this decision.

4. Politically, this decision is a two-edged sword for both presidential candidates. The Administration’s key domestic accomplishment has been upheld. The Administration can now move forward to implement the health care reform package without the cloud of court decisions making their work meaningless. But the President’s key domestic accomplishment is also one of his greatest liabilities in the upcoming election. The PPACA remains unpopular. Many Americans (including four Supreme Court Justices) believes it’s an unwarranted expansion of federal power at the expense of personal liberty. This decision will only flame the passions of those who take this view, meaning they’ll be going to the polls in November with one goal in mind: elect a President and Congress that will repeal the PPACA. Will supporters of the bill be as motivated and engaged? Not likely.

5. Just because the PPACA is constitutional does not mean we’ve seen the final version of the law. Congress will amend health care reform. Agencies (both federal and state) will interpret it. The PPACA is complicated and open to significant interpretation. The upcoming election will determine how much the law will change, not that it will be changing.

6. The PPACA accomplishes a lot of good things: increases access to coverage, provides some useful and meaningful consumer protections, takes the first steps needed to begin constraining health care costs, and more. The PPACA also botches a lot of important things: it will not make coverage more affordable, it doesn’t go far enough to constrain escalating health care costs, and more. Lawmakers owe it to their constituents to revisit the law and make some substantial changes. This doesn’t mean Democrats have to follow the GOP’s demand to repeal the law nor does it mean Republicans have to cave to the administration. But both sides need to recognize that the PPACA is the law of the land. Barring a GOP super-majority in the Senate come 2013, the PPACA is not going away. So responsible leaders will try to make it the best law possible.

7. The Court majority made clear an individual mandate is not justified by the Commerce Clause or the Necessary and Proper Clauses of the Constitution. This will have an impact on other social welfare efforts Congress might consider. Needing to fund expansion of the safety net through taxes is a tough political and practical challenge.

8. However, there were four votes to uphold the PPACA under the Commerce Clause. Which underscores the importance of this November election. Presidents appoint Supreme Court Justices. All of the Justices four of the Justices upholding the law under the Commerce Clause were appointed by Democrats. All four of the Justices voting seeking to overturn the law were appointed by Republicans. The Chief Justice shows that not every appointment votes in the way one would expect based on the party of their appointing President. And two of the liberal Justices joined with conservatives and agreed that the Medicaid expansion included in the PPACA was unconstitutional. But the fact is, the appointments of Republican Presidents tend to be more conservative; those appointed by Democrats tend to be more liberal. At least one, and maybe more, vacancies will open on the Supreme Court in the next four years. Who is President matters.

9. The Supreme’s decision on the Medicaid provision of the health care reform law will be interesting. In essence, a 7-2 majority said the law went too far in threatening to withhold Medicaid funding to states who refuse to expand Medicaid eligibility to those at up to 133% of the federal poverty level. They ruled the federal government can withhold the additional funding promised in the PPACA to pay for this expansion, but they can’t take all Medicaid funding away from non-participating states. Put another way: states have the ability to opt out of the Medicaid expansion. Given the importance of this expansion to reduce the uninsured, this is an issue President Obama and his allies in Congress will need to address. As noted above, the health care reform debate is far from over.

10. While watching the news about the decision, an ad by Concerned Women for America with a vicious (and somewhat inaccurate) attack on the PPACA aired on CNN. The upcoming election will be about the economy, but health care reform will be a major factor as well.

7. People who predict what the Supreme Court is going to do and how they are going to do it are making wild guesses. Pundits take another blow.

So, I don’t pretend to have any special insight on the meaning of the Court’s decision today. But my mother misses these posts so I thought I’d return to the keyboard again. I’ll try to write a more thoughtful piece later today or in the next few days. In the meantime, please let me know your thoughts on all this.

And the Winners Are … Maybe

According to SCOTUSblog, the winners are the Patient Protection and Affordable Care Act, the administration of President Barack Obama and the individual mandate … as a tax. But as Amy Howe of that blog notes “It’s very complicated, so we’re still figuring it out.” Chief Justice Roberts joined with the more liberal members of the Court to find the individual mandate (such as it is) constitutional.

So, bottom line: the PPACA is upheld. Yes, the Medicaid provision that allows the federal government to terminate state’s Medicaid funds if they fail to expand coverage to 133% of the federal poverty level is limited a bit through a strict reading of the provision, but the bottom line is the bottom line: the PPACA

The sky is not falling as of yet. The Republic survives. And the Chief Justice, appointed by President George W. Bush (not Justice Anthony Kennedy) is the swing vote. Few predicted that one.

The critical quote, again as reported by SCOTUSblog (which, really, anyone reading this as it’s written should just move over to that site) is “Our precedent demonstrates that Congress had the power to impose the exaction in Section 5000A under the taxing power, and that Section 5000A need not be read to do more than impose a tax. This is sufficient to sustain it.” Section 5000A being the individual mandate.

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.