As new rules under federal health care reform take effect requiring health plans to whittle down their administrative bulk, one nationwide insurance giant is striking out with a bold plan to remove the middle man's fees from the equation.

Starting next month, Aetna will no longer fold its brokers' fees – typically a few pennies from each premium dollar – into the cost billed to large customer groups, such as employers. That doesn't mean the fee paid to brokers who sell Aetna policies will disappear, just that the fee will be listed separately, Aetna representatives said this week.  

Though subtle, the move is a clear attempt to prevent a small but significant portion of every insurance payment from being counted under health care reform's new mandate that 85 percent of premium dollars go directly to medical care.

Aetna spokeswoman Anjanette Coplin said in a statement that the change is part of the company's broader effort to "look for ways to be more efficient and simplify the way we operate in order to meet these requirements."

The maneuver is being watched closely by other insurers, including Health Net, whose representatives said it is considering a similar switch. It comes amid the nationwide emphasis by President Barack Obama and lawmakers on finding savings in the health care system, especially by cutting inefficient overhead.

But legal experts and consumer advocates say Aetna's new plan is nothing more than an accounting trick that allows it to spend more money on administrative expenses, marketing and executive bonuses than lawmakers intended under health reform.

"It's very clear that they're trying to figure out how to create a loophole," said Carmen Balber, a legislative advocate with Consumer Watchdog. "Insurers pay that money directly to brokers, and now they're trying to take it out of the calculation, essentially, passing on that cost to consumers."

Under the new rule, health plans can use 15 cents to 20 cents of every premium dollar for nonmedical expenses, depending on the type of health plan, with the rest going toward actual health care. The distinction is part of what's called the "medical-loss ratio," or the amount of money spent on medical expenses compared to administrative costs.

All the attention on nonmedical expenses has highlighted the role of brokers in the health care system. Brokers say that they provide a valuable service to customers and employers navigating a confusing health insurance market. Some brokers also complain that the spending rules could edge them out of the market by cutting commissions.  

Aetna's plan is spelled out in a two-page form the insurer asked its brokers and the brokers' clients to sign. The agreement, which was reviewed by the Daily Journal, states that the client will continue to pay broker fees to Aetna on top of premium rates. But the two amounts are now calculated separately.

According to the form, Aetna also retains the right to "earn interest or other investment income on the Services Fee collected by Aetna," which the company considers payment for collecting and billing services.
The plan has been met with guarded optimism by brokers.

Don Jones, the vice president of employee benefits at Thousand Oaks-based Hogan Insurance, said the change would not disrupt his business. Now clients simply sign a separate form that discloses his fees, but he doesn't expect any of his clients to suffer sticker shock.  

"I don't foresee it as an issue," Jones said, adding that brokers have gotten used to disclosing their fees to clients and going to great lengths to show they provide a valuable service that is worth a commission.
Other brokers raised the plan as a way to avoid their commission being outright cut.

"We've heard from some agents that they think that this arrangement could provide some relief from [medical-loss ratio] restrictions," said John Prible, vice president of federal government affairs for the Independent Insurance Agents and Brokers of America.

Not so fast, said Timothy Jost, a professor at Washington & Lee University School of Law.

"They can say whatever they want to say, but if Aetna collects the commission from the enrollee directly, it is part of the premium and has to be counted as premium," Jost said. "They can't simply escape the requirements of the [medical-loss ratio] law this easily."

Jost and others argue that when Congress and the National Association of Insurance Commissioners crafted the medical-loss ratio requirement in the health reform law, they intended for brokers fees to be included in administrative costs.

While the NAIC and the U.S. Department of Health and Human Services are studying the issue of brokers' fees, no agency has taken a position on Aetna's pay change.

Asked if they were keeping tabs on the plan that goes into effect next week, regulators at the state's Department of Insurance and Department of Managed Health Care said they were waiting to see the proposal.  

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