Insurance Brokers Battle For Commissions Under Health Reform Law

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WASHINGTON, DC — In another flashpoint over implementation of federal health reform, insurance brokers are trying to undo a regulation that, they say, has already led to deep cuts in the commissions they earn from selling health care policies.

The issue pits brokers against consumer groups, with state insurance commissioners split on the subject. Connecticut's new insurance commissioner, Thomas B. Leonardi, is among those resisting federal legislation to make sure agents' fees are protected under the health reform law.

The battle comes at a time when there's significant upheaval in the health care marketplace, as insurers and consumers adjust to the law's changes.

Brokers say their services-which help consumers understand their health care options and choose a suitable plan-are more vital than ever. But consumer groups say brokers are just trying to protect their profits as their role becomes diminished, or even obsolete, in a new era of more consumer-friendly health care.

At the center of the fight is legislation <>  in Congress that would take brokers' fees out of the equation when it comes to calculating how much an insurance company spends on administrative expenses. That calculation is a fundamental element <>  of health reform, known as the "medical loss ratio," or MLR.

The health care law mandated that insurance companies spend 80 to 85 percent of their premium revenue for clinical care or activities that improve health care quality. The rest can go to marketing, overhead, and profits. And brokers' fees.

Those commissions that insurance companies pay to private agents who sell their policies, mostly to individuals and small businesses, have been a little noticed element of the health care economy. But they are suddenly front and center.

Under health reform, the National Association of Insurance Commissioners (NAIC)-a group of state insurance regulators–helped define what qualified as an insurance company's administrative expenses and what counted towards clinical care. The state insurance officials were torn when it came to how to tally brokers' fees. But eventually, they determined the health care reform law forced them to count those commissions as administrative expenses, despite an intense lobbying campaign by brokers for an exemption.

The new requirements that insurers spend at least 80 percent of their premium income on medical care went into effect in January. And almost immediately, brokers say, insurance companies started slashing their commissions–an easy target in trimming administrative expenses.

Spencer Houldin, president of Ericson Insurance Services, a Washington, Conn.-based brokerage, said some insurers have cut his firm's fees by 20 to 30 percent since January.

"What we've seen through our larger carriers, like Anthem, they used to pay a percentage of the premium," he said. "Now they pay us a flat fee on each enrollee and… it's a significant cut from what we were doing."

He said the decreases are so significant that his company might stop selling health insurance and focus on property, life, auto, and other insurance products. "It's going to get to a point where that's a product line I can't offer anymore and [that will] leave the consumer there twiddling their thumbs," Houldin said.

That will have serious consequences, he said. "It's an extremely complicated product line at the forefront of every household… You need an adviser to understand the marketplace."

He and others have been lobbying the National Association of Insurance Commissioners to endorse legislation that would change the way their fees are tallied-taking them out of the insurance industry's administrative expenses column. This weekend, the NAIC met in Texas to debate a proposed federal bill that would do just that.

Several observers expected a quick vote by the NAIC, giving its seal of approval to the legislation. The NAIC's proposed bill is similar to a bipartisan  <> measure introduced in the House earlier this month.

But Connecticut's Leonardi and other newly appointed state insurance commissioners blocked the NAIC's endorsement. Leonardi opposed bringing the issue up for a vote and instead joined with a few other commissioners in asking a task force to study the issue more closely.

In a statement to the Mirror, Leonardi said he wants a better understanding of how the bill would affect consumers before the NAIC gives its endorsement. He said he hasn't yet seen "any hard data" demonstrating that the new "medical loss ratio" rule is the driving factor behind a decrease in brokers' commissions. While he appreciates "the value of brokers," he said, a rush on this issue would be "imprudent."

Consumer groups hailed <>  the NAIC's inaction. They've been sounding alarm bells about the brokers' intense lobbying campaign, and they feared that backing from the NAIC would give the bill significant momentum in Congress.

"It would be a big coup for the broker lobby to get the NAIC's support," said Carmen Balber, director of the Washington office for Consumer Watchdog, a left-leaning advocacy group that's been strongly critical of the insurance industry.

"They've been pushed very hard by the brokers' lobby, which is saying 'the sky is falling and we're all going to go out of business if this rule goes into effect'," Balber said. "But there are a whole lot of problems with that claim."

For one, she said, there's little to no information about how much brokers currently make. She said that since premiums have skyrocketed, and brokers typically earn a percentage commission, it's quite possible they've seen a windfall in recent years and this is just a "market correction."

But more importantly, she said, the health care law includes many provisions designed to make it easier for patients to get consumer-friendly information about their health care options-from a new website that will provide detailed information about doctors to the health care exchanges envisioned as a one-stop marketplace to shop for insurance policies.

"We're moving into a new era… and how people purchase health insurance is changing," Balber said. "We're implementing changes that are supposed to make it much easier" to make informed choices about health insurance.

She noted that travel agents are now "more or less obsolete" and said the same might eventually be true of insurance brokers.

"The typical American goes online and buys their plane ticket on their own," she said. "If the exchanges function as planned, more and more people will be getting clear understandable information about their options, about their cost, and about how their health policies work, so they won't necessarily need a broker. I don't imagine the entire industry disappears, but the health markets are changing and the role of brokers has to change along with it."

Given that, she added, "it seems foolhardy to write into stone the current broker commission model, and that's what would happen if this piece were pulled out of the MLR ratio."

Needless to say, the brokers don't like that comparison. "I don't like the analogy at all of travel agents," said John Prible, a top lobbyist with the Independent Insurance Agents & Brokers of America, an industry advocacy group. Purchasing health insurance is "not buying a round trip ticket to Miami and back. This is much more complicated."

For small businesses, he said, "when they're shopping for health insurance, their doing it for 30 or 40 of their employees." Each of those employees will have different medical histories, different ages, and different health care needs, he noted.

And the range of health care options is especially complex right now, because of changes ushered in by the new law.

"If you want the consumer to try to figure this out via a web portal, good luck," said Houldin. "The biggest change that we've seen is just a lot of confusion in the marketplace, a lot of chaos–and from a consumer standpoint, a lot of questions."

To be sure, one reason the NAIC has become involved is that some state commissioners are worried about the impact on their agencies if brokers stop taking health care clients, and all those questions are suddenly directed their way.

"In a day in time when we're looking at state budget cuts, that's certainly a very pointed issue," said North Carolina Insurance Commissioner Wayne Goodwin, vice chair of the NAIC's professional health insurance advisors task force. He said that last year, his consumer services division fielded 87,000 phone calls-on top of emails, letters, faxes and the like–with health insurance questions a leading topic. "We are on the front lines of this issue."

Whether the brokers' bill will gain traction in Congress-with or without the NAIC's backing-is far from clear. Although it has bipartisan support in the House, the Senate will be an "uphill battle," said Prible, of the brokers' lobby group.

He said his association is trying to frame the bill "not a wholesale upheaval" of health care reform but as a "technical fix."

Consumer groups say even such a carefully-tailored pitch could be a tough sell, especially if the NAIC stays on the sidelines.

"Without the united backing of the state insurance commissioners, the legislation's special-interest authorship is laid bare and its aim-to protect large percentage commissions on health insurance sales-is easier to detect," Consumer Watchdog said in a press release after this weekend's NAIC meeting. The NAIC "put the brakes on an industry pay bonus from the pockets of consumers and taxpayers."

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