‘Archaic’ Agent Commissions Should Die In Health Reform, Group Says

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A consumer group is warning that “health insurance salespeople” are attempting to “rewrite the health reform law to guarantee broker income at the cost of increasing consumer premiums.”

The nonprofit consumer advocacy group, Consumer Watchdog, said in a statement that legislation backed by lobbyists for insurance brokers would “let” insurance companies pay commissions on individual and small-business policies without counting them as administrative costs under health reform.

“Now the insurance sales lobby is trying to guarantee private brokers’ excessive commissions by law, no matter how much it causes premiums to rise,” said Carmen  Balber, Washington director for Consumer Watchdog, in a statement.

The broker system was “losing relevance” even before the enactment of the federal reform law, according to the group, which has a history of railing against the insurance industry, most recently about health insurance rate increases in California.

“More people purchase insurance online, unaware that they are paying for the broker fee whether they seek help for the purchase or not,” the statement said. “States are increasingly demanding that brokers disclose their fee structures, including financial incentives that favor one insurer over others and appear to constitute a conflict of interest.”

The reference to disclosure of fee structures appears to point toward New York, where regulators are forcing agents and brokers to disclose any compensation they receive, if asked. However, that regulation remains the subject of a civil suit.

“It is not the job of Congress, or of state insurance commissioners, to protect an archaic commission payment system for insurance brokers by decreeing that such payments are magically not administrative costs,” according to the statement.

Members and lobbyists representing the National Association of Health Underwriters (NAHU) and the National Association of Insurance and Financial Advisors (NAIFA) have been lobbying members of Congress, state regulators and the U.S. Department of Health and Human Services, seeking an exemption from the medical loss ratios (MLR) for agent and broker commissions.

The National Association of Insurance Commissioners (NAIC), the national association of state regulators, also is seeking to ensure agents play a role in health reform in the future.

At issue is where agent and broker commissions fall under the Patient Protection and Affordable Care Act (PPACA), the federal health reform law passed in March 2010. The health reform law establishes minimum funding requirements for insurers. The MLRs require insurers to devote 80% of individual and small-group premiums collected, and 85% of large-group premiums taken in to medical costs. The remainder includes all administrative costs and any profit insurers can generate.

With the new MLRs, carriers have seen their administrative budgets shrunk, leading to reductions in agent and broker commissions of up to 50%.

Broker commissions–up to 20% of premium in the first year of a policy and a few percentage points each year after that–have always been considered an “overhead cost,” according to the Consumer Watchdog statement. If the commissions are removed from the cost equation, insurance companies will be “free to ignore the original intent of the law, which was to force insurers to operate more efficiently, spending more on patient care…and less on overhead,” the statement adds.

“The insurance industry succeeded in killing any public alternative to private insurance,” Balber said.

Insurance trade groups did work to ensure that health reform did not include a single-payer or universal health insurance system, which would have made health insurance a federal program.


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