Insurance Broker Plan Would Raise Health Premiums, Cheat Consumers of Rebates, Says Group

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Washington, DC — State insurance commissioners meeting this weekend in Austin, Texas will decide whether to sponsor legislation that would raise health insurance premiums and demolish consumer protections, said Consumer Watchdog. The legislation, written by lobbyists for insurance brokers, would preserve broker sales commissions and benefit the bottom line of insurance companies at the expense of consumers.

A majority of state insurance commissioners have ties to the insurance industry according to an analysis released by Consumer Watchdog this week.

“The NAIC, which has a stated mission of protecting consumers, must not put its name and reputation on the line for insurance salespersons at the expense of consumers and taxpayers,” said Judy Dugan, research director of Consumer Watchdog, who will speak at a forum on the legislation Sunday.

Download Consumer Watchdog’s detailed comments to the National Association of Insurance Commisioners (NAIC) here.

Download a slideshow outlining consequences of legislation here.

Numerous members of the National Association of Insurance Commissioners have indicated that they favor the legislation. Twenty-four state commissioners came from the insurance industry and eight were elected with campaign contributions from the industry. Six presidents of the NAIC since 2000 took jobs in the industry and two of them are the chief Washington lobbyists of their companies. See updated Consumer Watchdog analysis with new campaign contribution information here.

The brokers’ measure, misleadingly named the “Access to Professional Insurance Advisors Act of 2011,” would change the federal health reform law to let insurance companies exclude broker commissions from their administrative costs when calculating how much they spend on actual health care.

Key points:

  • Current law requires insurance companies to pay consumer rebates if they spend less than 80% to 85% of premium dollars on health care.
  • The legislation, by excluding a chief administrative cost from the administration vs. health care calculation, would effectively take the rebate money from consumers and pay it to brokers and the insurance companies.
  • Investment analysts calculate that under the current law, health insurers would pay up to $1.5 billion in rebates or reduce premiums to avoid rebates. That incentive will disappear if the broker legislation becomes law.

A hypothetical example showing the proposal's effects on one consumer is below.

“The broker lobby and insurance companies are trying to hide behind the NAIC and the insurance commissioners,” said Dugan.

How It Would Work

Before and after example, using a hypothetical “Joe Policyholder” for the sake of simplicity. Individual policies require a medical care ratio of 80%:

Before: Joe’s premium, including 10% broker commission, is $10,000/year

  • Insurer spends $7,500 on medical care. Administrative costs and profit come to $3,500
  • Medical care ratio is 75% and Joe is owed 5% rebate of $500

After: Joe’s premium is still $10,000, but 10% commission is deducted from premium before medical care ratio calculation.

  • Insurer medical care spending remains $7,500, but administrative portion falls to $2500.
  • Medical care ratio is 83% (no rebate owed, premium increase expected)

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Consumer Watchdog is a nonprofit, nonpartisan organization with offices in California and Washington, D.C.

Carmen Balber
Carmen Balber
Consumer Watchdog executive director Carmen Balber has been with the organization for nearly two decades. She spent four years directing the group’s Washington, D.C. office where she advocated for key health insurance market reforms that were ultimately enacted into law as part of the Affordable Care Act.

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