Why would Louisiana Sen. Mary Landrieu endorse an attack on the health reform law that could cost her own constituents millions in lost rebates and health insurance premium hikes?
One of the very few provisions of the law with the potential to reduce the price of health insurance for consumers is the requirement that insurance companies spend at least 80 cents of every dollar we pay them in premiums on health care. That limits spending on profits, salaries and overhead to a maximum of 20 percent. The rule is called the medical loss ratio, or MLR.
The insurance industry has been waging a battle for the last eight months, with insurance brokers as their foot soldiers, to push a change to the law that would exempt broker pay from the MLR rule. Such a change would mean no limits on the amount insurers can charge consumers to pay insurance salespeople, and allow insurers to continue spending too much on overhead and profits and too little on actual health care.
Today it was reported that Louisiana Senator Mary Landrieu wrote a letter to federal regulators endorsing the insurer and insurance broker campaign to gut the MLR requirement. She wrote:
“Unfortunately, the regulations that HHS has issued are negatively impacting the livelihoods of insurance agents, who are small business owners that provide valuable guidance and support to insurance consumers at the point of sale and throughout the life of the policy. Specifically, the regulations include agent compensation as an administrative expense in the calculation of the MLR. This provision has had the effect of reducing agent compensation, in some cases significantly, and is threatening to put many out of business at a time when the need for agent services in the years to come is likely to be great.”
The letter makes it sound as if health insurance brokers across Louisiana are seeing their income unfairly slashed thanks to the MLR rule. In fact, there is no such evidence. According to data provided by the broker lobby itself, just one insurance company in Louisiana reported any decrease in broker compensation over the last year. That single insurance company was paying brokers twice what its closest competitor paid, and the reduction from 20% to 10% commissions on insurance sales brought it in line with the highest payments by other insurers in the state. There is no evidence that this adjustment was made because of the MLR rule — after all, it makes decent business sense to bring bloated costs down closer to the industry norm. However, if the MLR rule were responsible, consumers can consider it a job well done: Reducing unnecessarily high spending is the reason Congress included the rule in the health reform law.
(There are some significant shortcomings to the data reporting broker commissions, including that it does not include data for all insurance companies, and it contains differences in accounting that make it impossible to compare compensation across some companies. Nevertheless, it is the most complete data that is publicly available on commissions paid in Louisiana and across the country.)
There is no question about the serious harm that a change to the spending rule would do to consumers. The Senate Commerce committee used data collected by state insurance commissioners to calculate the rebates insurance companies would have owed consumers, state by state, if the MLR rules had been in effect in 2010. Removing broker compensation from MLR would have cost Louisiana consumers $2.49 million in lost rebates in 2010.
Senator Landrieu should rethink a position that would mean millions in higher costs for consumers in her state, and billions for consumers across the country who are struggling to afford their health insurance premiums.