NAIC To Collect More Data On Effect Of Medical Loss Ratios On Agent/Broker Commissions

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Austin, Texas — It took more than three hours, for the National Association of Insurance Commissioner's Professional Health Insurance Advisers Task Force to agree to hold off on deciding whether to endorse a federal bill that would exempt commissions paid to insurance agents and brokers from the medical loss ratios required under the Patient Protection and Affordable Care Act.

Instead, the task force opted to refer the issue back to the Health and Managed Care Committee to collect more data on the matter.

Task force chairman Kevin McCarty, Florida's insurance commissioner, gave the Health and Managed Care Committee,  chaired by Kansas Insurance Commissioner Sandy Praeger, four weeks to collect data on whether MLRs were responsible for the reduced commissions agents and brokers have said they have received in the wake of the Affordable Care Act's passage.

Under the ACA, health insurers are required to devote 80% of the premiums they take in on policies sold to individuals and small groups to medical costs. For large group policies, the medical loss ratio target is 85% (BestWire, March 26, 2011).

Earlier this month, two U.S. representatives introduced a bill that would exempt broker compensation from the medical loss ratio calculations required by the ACA. The task force held the hearing to decide whether to endorse that legislation as it moves through Congress.

"Time is of the essence," McCarty said. "This isn't a partisan issue. It's an important issue to the agents and brokers who provide such valuable services to the consumers. We can't afford to let this languish."

But while many of the more than 30 commissioners who attended the hearing appeared to agree that swift action was needed on the issue, some expressed concern that the NAIC might be moving too quickly.

Connecticut Insurance Commissioner Thomas Leonardi told committee members that if the NAIC moves too swiftly and doesn't properly vet the data related to the issue, it could be in a position where whatever decision it makes could lack credibility.

Leonardi told BestWire speed "is important here because the issue is before Congress, and I think that was what the chair of the committee was focusing on. In fairness to him, I think he was trying to say we can't afford to let this sit for three years in study, and I completely agree with that."

But Leonardi added, "There was some suggestion that maybe we should move towards a vote in very short order on the issue before we have done the work. If we were to make a decision when we haven't done the analysis, we haven't done the homework, and we understand what the real facts are, then I think we run the risk of diluting our own reputation."

The question of what role MLRs play in the significantly reduced commissions many agents and brokers have seen since the passage of ACA is one that has drawn passionate commentary from all corners of the insurance industry.

Consumer advocates have argued that setting up protections for agents and brokers will drive up health insurance rates for consumers. During the hearing, Judy Dugan, research director for Consumer Watchdog, said there was little evidence that MLRs were responsible for falling commissions.

Dugan said, "Brokers' percentage commissions of up to 20%, even 25%, presumably rose in tandem with premiums as they more than doubled over the last decade. In addition, brokers as well as insurers are poised to gain millions of new customers under the ACA. The law seeks greater efficiency from all parts of the industry in return. Yet brokers ask to be exempted from that effort."

On the other hand, small insurers and the agents themselves argued that unless their commissions are protected by law, then they will be forced out of the marketplace, depriving consumers of valuable resources when they have to buy and administer health insurance policies.

Candy Gallaher, vice president of state policy at America's Health Insurance Plans, said, "By including agent and broker commissions in the MLR calculation the current regulation fundamentally threatens this long-standing, consumer-centric model. Moreover, several insurance companies that are dependent on health insurance advisors to serve their customers exited the health insurance market before the MLR requirements went into effect, citing the extreme difficulty of meeting these new standards on an immediate basis in a pre-exchanges marketplace."

Michael McRaith, Illinois' insurance commissioner, was skeptical of AHIP's argument, saying that there was little evidence that it was MLRs driving insurers to cut agent and broker commissions. McRaith said that the problem could be that insurance premiums have risen steadily during the past decade and commissions may have risen accordingly. On March 21, McRaith was appointed to serve as the first director of the new Federal Insurance Office (BestWire, March 21, 2011).

McRaith said, "As regulators concerned about consumer protections. And we're being asked to solve a problem AHIP members started 10 years ago. I don't expect the industry to give us any help in trying to solve it."

That said, agents who work in small agencies in rural America said that their livelihood would be destroyed unless the federal legislation protecting their commissions passes.

Beth Ashmore, who owns a small agency in Lubbock, Texas said that the jobs of her 25 employees were on the line. She also said that agents offer services that customers are unlikely to find anywhere else, especially in small towns across the country.

"When a policyholder purchases a policy they expect to be able to call us and get servicing on a claim and they deserve that," Ashmore said. "It's included in the equation regardless of whether we can provide a staff member to provide that service. It comes by virtue of my signature on the application. We don't want to have to tell anyone that we can't help them with a claim. That would be horrible."

(By Jeff Jeffrey, Washington Correspondent: [email protected])

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