The passage of a law means nothing to the lobbying industry. It only means refocusing on regulators, and if that fails, changing the law that was passed. Lobbyists for health insurance brokers are in the middle stage: demanding that the White House protect their big sales commissions–up to 20s on each policy– by crippling a key part of the law.
The health reform law requires insurance companies to spend at least 80% of premium dollars on health care, and 20% or less on adminstration and overhead. Broker commissions have always been part of overhead. Yet lobbyists for brokers are pushing the White House and National Association of Insurance Commissioners to allow deduction of the commissions from premium revenue before calculating the percentage spent on health care–a figure known in the industry as "medical loss ratio."
If the brokers win, the 80% floor for spending on medical care will be all but meaningless. The damage will be miultiplied if the insurance industry gets to deduct federal income and possibly investment taxes , before calculating the ratio.
The lobbyists are working overtime on both issues, pushing insurance commissioners who are writing the rules, the Health and Human Services Administration and President Obama himself.
Consumers and their advocates lack the resources to keep up a full-court press and the insider knowledge to fully grasp the consequunces. So here’s a simple hypothetical example of how tax deductions would kill the intention of the law:
A customer pays the insurance company $10,000 a year for an individual
policy. The insurance company spends $7,000 on average per policyholder
for health care in individual policies. $7,000 divided by $10,000
equals a medical loss ratio of 70%–and the insurance company would owe
a big refund Mr. Customer.
But the company also has millions or billions of dollars in invested
reserves, so its income and investment taxes combined come to $1,000
per policyholder. If the insurer get to subtract all of those taxes
from revenue, the equation is $7,000 divided by $9,000. And the MLR is
now miraculously 78%! That means a very tiny refund, and probably
nothing when insurance companies add all the vague all vague "health
quality improvement" activities to the $7,000 health spending.
The deduction of broker commissions–up to 20% in the first year of a policy and 5% a year after that–would work the same way.
It’s hard to say what is most outrageous: the brokers’ demands to deduct their fees, or the insurance companies’ demand that for-profit companies get to deduct every tax. But the most recent letter by the the broker lobby, as quoted in Health Underwriter, has the best example of Alice in Wonderland logic:
Exempting pass-through [broker] fees from the MLR calculation would preserve
existing cost-saving practices in current health insurance markets and
further the intent of the health care provisions to reduce overall.
This statement, to the extent that it makes any sense, is the opposite of the truth (otherwise known as a lie). The deductions would lift any pressure on insurance companies to be more efficient and cut their own overhead, and would undercut, not further, the intent of the law–to make insurers spend more, not less, of customers’ premiums on actual health care.
I wish groups like Consumer Watchdog had a lobbying budget in the hundreds of millions of dollars, like the insurance industry. I wish individual consumers had the time and money to probe the intricacies of the law and insurance industry practices. Most fervently, I hope the White House has the guts to stand up to this trashing of an explicitly, immediately helpful section of the health reform law.