NAIC to Study MLR Impact on Compensation and Consumers Before Voting on Changes

Brokers holding their breath to see if their compensation will be removed from the medical loss ratio formula required by the Patient Protection and Affordable Care Act will be turning a darker shade of blue. The hoped for support from the National Association of Insurance Commissioners, which was expected to result from a meeting of the NAIC’s Professional Health Insurance Advisors Task Force this past Sunday, has been delayed at least four weeks.

While there was widespread and strong support for removing independent broker compensation from the formula carriers are used to calculate their medical loss ratio under the PPACA, the Task Force opted to ask their staff to provide additional data before making a decision.

While disappointing the delay is not really surprising. A substantial of the commissioners are new, having just been elected or appointed as a result of the November 2010 election. As Jessica Waltman at the National Association of Health Underwriters put it in a message to NAHU’s leadership, “[I]t was clear as soon as we arrived in Austin that some of the new Commissioners (and there are quite a few of them) had reservations about moving that quickly since this is their first meeting…. some of the more senior Commissioners were very sympathetic to their concerns about rushing things through. The NAIC almost never endorses legislation, so this is a huge deal for them.“

In addition, the issue is controversial. Consumer groups and some liberal Democratic Senators have voiced opposition to changing the MLR formula.

The Agent-Broker Alliance leading the charge for this change to the health care reform law met with several supportive commissioners and the decision was made to delay the vote. This would allow time for information relevant to the issue, already requested of carriers, to be received and considered. This time will also be used by the Agent-Broker Alliance to gather and submit data on how independent brokers are able to save clients money and the post-sale service brokers provide their clients.

Most observers I talk with are optimistic the NAIC will eventually endorse this change in spite of hesitancy from some liberal commissioners. In this regard, Politico Pulse is reporting that “Liberal insurance commissioners got a little feisty (well, for insurance commissioners) … pushing back against the speedy, one-month time line for” considering the broker compensation exemption proposal. Politico quotes California Insurance Commissioner Dave Jones as saying “I’d hate to see haste impede us having the information in front of us to make a relevant decision.” And Washington state’s insurance commissioner Mike Kreidler as declaring “I hope what we produce as a work product we can stand behind and that we’re more interested in accuracy than speed.”

When politicians speak of the need to “study” and “consider” an issue it means 1) they sincerely want to learn more about the topic or 2) they want to defeat the proposal without having to go on the record voting against it. While I hope I’m wrong, given the opposition to the exemption from liberal consumer groups, I’m betting on the latter motivation in this case. (Time will tell as I’m inclined to believe the data will be very supportive of moving forward with the exemption). That the NAIC went ahead with just a four week delay in spite of calls from Commissioners Jones and Kreidler to slow down is a sign that while there will be debate, there’s a better than even chance the NAIC will indeed support legislation to make changes to the medical loss ratio provisions of the PPACA.

Ultimately whether broker compensation is included in medical loss ratio calculations will be determined by Congress and President Barack Obama – which means nothing is certain. While I believe taking this action furthers the intent and purpose of the health care reform bill, the proposal will not enjoy smooth and speedy sailing. The bipartisan legislation introduced by Representatives Mike Rogers and John Barrow, HR 1206, has been referred to the House Energy and Commerce Committee, but no date for a hearing has yet been set.

That the idea is still alive, however, is both remarkable and encouraging. But it’s still too early to start breathing again quite yet.

Broker Testimony Before NAIC Concerning MLR and Commissions

The National Association of Insurance Commissioners will be meeting in Austin, Texas this week to consider a number of issues related to the Patient Protection and Affordable Care Act. One topic will be how the medical loss ratio provisions of the health care reform bill impacts brokers and consumers. A coalition of broker organizations will be testifying this Sunday urging the NAIC to move forward with a proposal to exempt producer compensation from the MLR calculation.

The MLR targets (individual and small group carriers must spend 80% of premiums received on claims or health quality efforts; large group carriers must spend 85%) is a critical part of the PPACA’s scheme to “bend the cost curve” when it comes to premiums (never mind that the biggest driver of premium rates is the cost of medical care). Limiting the amount of premium dollars insurers can devote to administration and profit, supporters believe, will result in reduced insurance rates. Also, since the PPACA requires all consumers to obtain health insurance coverage the medical loss ratio rules are designed to prevent carriers from gaining an undeserved financial windfall.

Significantly, exempting broker commissions does not run contrary to either purpose. The legislation being considered by the NAIC will still limit the percentage of premiums carriers can spend on administration and profit – and to a greater degree than most state measures addressing MLR targets do today. In addition, carriers will still need to aware of the total cost of their policies – including broker compensation. From a consumer’s point of view, the total cost of coverage will be the carrier’s premium and the broker’s commission. Carriers will be unwilling to go to market with a total cost that is uncompetitive because of overly generous broker commissions. This is one, but not the only reason, broker commissions are unlikely to return to where they were before the passage of the PPACA even if broker compensation is removed from the MLR formula. That broker commissions should increase at the rate of medical inflation, as opposed to general inflation, for example, is hard to justify when medical inflation is increasing at twice the rate of increases to the Consumer Price Index. But this change will — and should — be driven by market forces, not arbitrary limits set by Congress.

The NAIC proposal is also consistent with the purpose of the PPACA’s approach to MLRs because, as I wrote last summer, exempting commissions from the medical loss ratio may actually reduce overall administrative costs in the system. Carriers today aggregate broker compensation from small groups and individuals then pass 100 percent of these dollars onto independent third parties, retaining none of it for themselves. This reduces paperwork costs for hundreds of thousands of brokers, businesses and families and is a cost-saving measure that should be encouraged by the PPACA.

Not everyone sees it this way, of course. The American Medical Association, consumer groups and some Democratic legislators have urged the NAIC to keep the medical loss ratio calculation put in place by the Department of Health and Human Services (with input from the NAIC) as is. On the other hand, a bipartisan group in the House of Representatives has introduced HR 1206 to remove broker compensation from the formula used to determine a carrier’s MLR.

The broker coalition, comprised of the National Association of Health Underwriters, the National Association of Insurance and Financial Advisors, the Council of Insurance Agents & Brokers, and the Independent Insurance Agents and Brokers of America, was asked by the NAIC to present their views at Sunday’s hearing on the NAIC medical loss ratio proposal. Significantly, they were told there was no need to talk about the value brokers add to America’s health insurance system – this value was already recognized and appreciated by the Insurance Commissioners. Instead they were asked to focus on the economic impact of the MLR provisions as currently being implemented.

In a letter to NAIC from the Agent-Broker Alliance reports on a study that shows 25 percent of brokers surveyed are reporting business income reductions for individual and small group sales of 21-to-50 percent with another 25 percent describing losses at between 11 and 20 percent. The result is that brokers are leaving these markets, reducing the availability of their expertise to consumers just when the complexity of health care reform makes this expertise more critical than ever.

Past NAHU president Beth Ashmore will be providing testimony at the Sunday NAIC hearing. As a long-time Texas broker she will be able to provide Commissioners with a glimpse into how the “theory” of the PPACA is revealing itself in practical terms.

The NAIC has no vote in Congress, but they do have significant influence, especially to the extent the NAIC vote in favor of changing the MLR calculation is bipartisan. If they support exempting broker commissions it will give considerable momentum to efforts bills such as HR 1206. The legislative process takes time so there will be no quick fix. The key is to keep initiatives moving forward down the path. The NAIC meeting is a milestone along the way.

Bill to Exempt Broker Commissions from MLR Formula Introduced Today

A bit sooner than expected: Representatives Mike Rogers and John Barrow introduced legislation today to exempt broker compensation from the medical loss ratio calculations required by the Patient Protection and Affordable Care Act. Under the PPACA, health insurance carriers are obliged to spend 80 percent of the premiums they take in on policies sold to individuals and small group toward medical claims and health quality initiatives. For policies sold to larger groups this medical loss ratio target is 85 percent.

The purpose of the MLR requirement, in the words of Senator Jay Rockefeller, “is to encourage health insurance companies to deliver health care services to their customers in a more efficient and cost-effective way.” As a consequence of this provision, most health insurers have slashed broker commissions on policies sold to directly to individuals (as opposed to through an employer) and a significant number of carriers have made significant cuts to producer compensation for the sale and service of small group policies as well. This has forced many brokers are reconsidering the viability of continuing to service these market segments. Commissioners and others are concerned about

The National Association of Health Underwriters along with allied broker groups, specifically the National Association of Insurance and Financial Advisors and the Independent Insurance Agents and Brokers of America have been seeking to have broker commissions exempted from the MLR formula almost since the law passed. In October they won support from the majority of Insurance Commissioners at a meeting of the National Association of Insurance Commissioners to accomplish this, but at the last minute attorneys convinced the decided they lacked the power to make the change through regulation. Instead they would need to seek legislation to make this change. And they’re working on doing so.

In the meantime, Members of Congress are looking to change the health care reform law to accomplish the same goal – thus the bill introduced today, HR 1206. What’ impressive about the proposal (which will receive a bill number soon) is the bipartisan support it has received. The primary The lead sponsors are Republican Congressman Rogers and Democratic Congressman Barrow. They have been joined by 10 additional Republicans and 3 Democrats. Given the partisan divide prevailing in Congress, this is a remarkable coalition.

Better still, Jessica Waltman, Senior Vice President of Government Affairs at NAHU tells me that a bipartisan companion bill will be introduced in the Senate as early as next month.

Passage of the legislation is far from certain. Some Democratic lawmakers, several consumer groups and the American Medical Association oppose removing broker compensation from the medical loss ratio calculation. And some Republicans may be loath to improve legislation they are hoping to repeal.

Nor would exempting broker compensation result in a return to pre-PPACA commission schedules. While some of the more recently announced draconian cuts would no doubt be walked back. But as I mentioned in yesterday’s post, even if the PPACA were repealed, the way brokers are compensated was likely to change. The benefit of the Rogers/Barrow legislation is that these changes will reflect market forces, not an arbitrary spending target.

I’ll add a link to the press release from Representative Rogers when it’s available online, but here’s some of the key passages:

“’The nation’s 500,000 insurance agents and brokers help consumers find the right health care, advocate on their behalf, identify cost-savings opportunities and inform them of new products and changes in the industry,’ said Rogers, a senior member of the House Energy and Commerce Committee Subcommittee on Health. ‘A mandate in the new health care law severely restricts their ability to perform such services, meaning small businesses are losing jobs or shutting down completely and consumers are finding it harder to access their services.’”

“Insurance agents’ and brokers’ commissions are never part of an insurer’s actual revenue, and should never be counted as an insurer administrative expense, as confirmed by the National Association of Insurance Commissioners, the non-partisan experts on state insurance markets.”

“’Insurance agents and brokers serve as the voice of health insurance for millions of families and small businesses in rural communities,’ said Congressman Barrow. ‘These folks can help explain to consumers the many changes taking place in the healthcare world over the next few years, and so it’s important that our insurance agents are not hampered by provisions in the new healthcare law. This is another critical improvement that needs to be made to the healthcare law, and I’m hopeful that my colleagues on both sides of the aisle will work with Mike and me to see that this important improvement is implemented.’”

Edited March 18th to add bill number: HR 1206

Commissions, Medical Loss Ratio Targets, Brokers and Politics

Legislation to exempt broker commissions from the medical loss ratio provisions of the Patient Protection and Affordable Care Act is gaining bipartisan steam. Original sponsor Republican Representative Mike Rogers has been joined by Democratic Representative John Barrow. Other House Members from both sides of the aisle are expected to sign on before the legislation is formally introduced – perhaps as soon as next week.

Meanwhile, the National Association of Insurance Commissioner’s Professional Health Insurance Advisors Task Force has posted their draft of a bill to exempt broker commissions from the MLR (a copy of the proposed law is available at the end of this Employee Benefits Adviser’s BenefitNews article). The NAIC is seeking comments on the proposed legislation (which is very similar to that proposed by Representatives Rogers and Barrow) in that it simply removes compensation paid to independent brokers from the medical loss ratio calculation. A hearing on the draft bill will be held on March 27th during the NAIC’s quarterly meeting in Austin, Texas. (Those wishing to add their two cents to the conversation can submit an email to tmullen@naic.org by Monday, March 21st.

This legislation is a top priority of the National Association of Health Underwriters, the National Association of Insurance and Financial Advisors, and the Independent Insurance Agents and Brokers of America. Florida Insurance Commissioner Kevin McCarty, president-elect of the NAIC, has led the organization’s effort to deal with the negative impacts the PPACA has had on brokers.

All this is pretty good news, right? In a few weeks there could bipartisan legislation backed by the NAIC as a whole and its leadership in particular and supported by the grassroots strength of agent organizations. There’s just two problems: opposition from Democratic liberals and political maneuvering from Republicans.

Senator Jay Rockefeller has sent a letter to the NAIC complaining that treating broker compensation as anything other than administrative costs “would allow agents, brokers, and health insurance companies to retain the estimated $1 billion in benefits that American consumers will receive next year thanks to the health care reform law.” Senator Rockefeller overstates his case ($1 billion just from the MLR provision?), but at least he attempts to marshal some arguments behind his concerns. However, in many of these arguments his reasoning is flawed.

He states, for example, that “the proposal would make it more difficult for consumers and small businesses to understand how their premium dollars are used ….” Why? The PPACA already exempts taxes from the MLR formula, yet no one has expressed concern that this will confuse anyone.

He also assumes that if broker compensation is removed from administrative costs that commissions will revert to what they were before the PPACA. He even quotes a statement from me published in Benefits Selling magazine to support this point. In that article I noted that brokers cost of doing business rises at closer to general inflation, not the rate that medical costs drive up insurance premiums. And I predict that commissions will eventually be decoupled from premiums. However, my belief that how broker compensation is calculated is unrelated to health care reform. I’ve been talking about this dynamic for years, long before the start of the Obama Administration. Even were the PPACA to be repealed I believe the method of determining commissions will change. It’s simply too hard to justify tying commissions to medical inflation.

And that’s what Senator Rockefeller is missing. Commissions are set by market dynamics. Carriers, consumers and business owners need independent producers and are willing to pay for the value brokers provide. In setting commissions carriers not only look at what competitors are offering, but at what brokers can earn selling other products like life or disability. In the end it comes down to an economic calculation: does the compensation justify the time and resources brokers commit to make sales and service their clients. Regardless of how it’s calculated, if the answer is yes, brokers will engage with the product; if the answer is no, they won’t.

The medical loss ratio provisions in the PPACA disrupts this formula. By imposing an arbitrary cap on administrative costs and including commissions within this cap, the law threatens to make remaining engaged in the sale of individual products uneconomical for too many brokers. The PPACA shifts the situation where compensation reflects the value brokers bring to consumers and carriers to a mathematical formula driven by the medical loss ratio calculation which ignores value, effort and resources.

Liberal Democrats, however, are not the only hurdle to making changes to the MLR formula. As noted in a thorough and illuminating examination of the issue by Sarah Kliff in Politico, political calculations by Republicans may doom the bill. Republicans, Ms. Kliff points out, “have little to no political incentive to improve” the PPACA. Improving the PPACA simply makes it more palatable and that, in turn, makes the law harder to repeal. Better to leave the legislation’s flaws in place, this reasoning goes, so as to strengthen calls to chuck the entire package. Or as one source cited in the Politico article says, “If it really became a bill with steam and the Republicans started hearing from all those brokers maybe the odds change.” But I can’t get myself past the ‘we aren’t fixing this bill’ hurdle.”

NAHU and its allies are pitching the MLR change as necessary to protect small businesses – specifically the many health insurance agencies around the country. They are gaining potent support. Yes, there is opposition, but still, if approached on the merits, I believe the Rogers/Barrow legislation could pass. The primary reason for this optimism is that exempting broker commissions from the MLR formula doesn’t undermine the purpose of the PPACA’s medical loss ratio provisions.

It would be a shame, but in today’s world not at all surprising, if this helpful fix were derailed because some lawmakers find a greater political advantage to preserving the flaws within the PPACA than fixing them.

Maine Gains Three Year Waiver from Medical Loss Ratio Target

The Patient Protection and Affordable Care Act requires carriers offering coverage to individuals and families (not purchased on their behalf by an employer) to spend 80 percent of premium on medical claims or other costs related to health care quality. These medical loss ratio provisions took effect in January of this year and has created a host of challenges for states, carriers and brokers.

Authors of the PPACA anticipated that quickly implementing this 80% MLR requirement could disrupt the individual market. Consequently, the health care reform law empowers the Secretary of Health and Human Services to waive this requirement if states can demonstrate that meeting the 80 percent target would “destabilize the individual market” in the state.

To date, five states have sought this waiver: Florida, Kentucky, Maine, New Hampshire, and Nevada. And one of those requests, Maine’s request for MLR release was recently granted by HHS. In approving the waiver, HHS agreed with that a 65 percent medical loss ratio was appropriate given the circumstances in Maine. The waiver is for three years (meaning carriers will have to achieve the 80 percent MLR target in 2014) although the Maine Bureau of Insurance will need to demonstrate the need to keep the waiver in place for 2013. In the letter approving the request, HHS noted that only three carriers issued almost all of Maine’s individual insurance policies: Anthem Blue Cross Blue Shield of Main (with 49 percent market share), MEGA Life & Health Insurance Company (with a 37 percent share), and HPCH Insurance Company (13 percent).  As reported by HealthCare Finance News, MEGA Life and Health had stated it “would likely withdraw from the state if forced to immediately adhere to the 80 percent MLR standard.”

What level of disruption to their individual market that states will need to demonstrate is still unknown. The Maine decision is based on the unique situation of that state and one data point is hardly a trend. However, the Obama Administration is focused on making health care reform work, so they are being very practical when considering waivers and the like. They seem very intent on giving states latitude in implementing the law, James Gutman at AIS Health refers to as “’bend but not break’ mode.”It would not be surprising to see additional states consider seeking the waiver in light of Maine’s success.

In fact, Florida officially filed its waiver request only last week. In making the request Florida Insurance Commissioner Kevin McCarty asserts that meeting the 80 percent MLR requirement would drive some carriers to exit the individual market in the state, erect barriers to entry discouraging new carriers from entering the market, reduce the number of offerings in the individual market and “severely hamper agent involvement in the individual market to the severe detriment of Florida consumers.” Florida is seeking the same three-year waiver received by Maine for insurance plans (65 percent) and a 70 percent MLR for HMO.

For those interested in what their own state is considering concerning requesting a waiver from the PPACA’s medical loss ratio targets in the individual market, Politico Pulse runs a scoreboard each day. As of today, in addition to the five states mentioned above, 11 are leaning toward seeking a waiver, 16 are leaning against requesting relief, and the remainder have yet to make their intentions known.

Health Care Reform on Judicial Fast Track

The wheels of justice, as the cliché goes, grinds slowly. Given the complexity of the Patient Protection and Affordable Care Act this poses a bit of a problem. Federal District Court judges are reaching contrarian conclusions concerning the constitutionality of the PPACA. Everyone knows the validity of the health care reform law will be decided by the U.S. Supreme Court. In the meantime, however, should states continue to implement the law or hold off on complying? The sooner the Supreme Court weighs in the sooner federal and state regulators (let alone carriers, employers, brokers, and consumers) will know what’s what.

Remember the law suit filed by 26 states (and the National Federation of Independent Businesses) in Florida? That’s the one in which U.S. District Judge Roger Vinson decided that the PPACA’s requirement that individuals obtain health care coverage or pay a penalty/tax/fine/whatever was unconstitutional. In making his decision Judge Vinson stated the law’s violation of the Commerce Clause made the entire Act unconstitutional, but he declined to issue an injunction to stop implementation of the health care reform law. Some states used the the Judge’s ruling to stop work on implementing the law; others did not.

This is the suit likely to move things to the Supreme Court the fastest. Because in an attempt to bring some clarity to the situation, the Justice Department asked Judge Vinson to clarify whether he intended to halt the law – at least in the 26 states party to the suit. They got their answer from Judge Vinson in a response that, when you weed out the criticism of the Justice Department, comes down to yes, he did mean to halt implementation of the law, but he would stay his ruling (which means he’d delay making it effective) so long as the federal government appealed his decision on an expedited basis.

The Department complied and the 11th U.S. Circuit Court of Appeals has put a hearing of Judge Vinson’s decision on a fast track. For a case of this magnitude, the Court set a short timetable. Lawyers for the Obama Administration must file its first briefs by April 4th. The states will have until May 4th to make their case. Federal attorneys will have until May 18th to respond to the states’ filing.

Usually appeals of this nature are heard by a panel of three Circuit Court judges. The losing party may then appeal the case to the all the judges in the Circuit (referred to as an “en banc” hearing). Some of the states involved in the suit have are seeking to skip the panel and have all 10 judges in the Circuit consider the case. This approach would more quickly get the case to the Supreme Court. In any event, oral arguments before the 11th Circuit will likely occur this summer. Given the importance of their decision, a decision by the Court could take a few months.

This is not the only case moving through the system concerning the constitutionality of the PPACA. And even with this expedited timetable the odds are the Supreme Court will announce its decision in the midst of the 2012 elections. Which means there’s plenty of time for Congress to modify the law, for other suits to address non-Commerce Clause issues, and for health care reform to dominate the presidential campaign and the fight for Congress. Which means the Supreme Court’s decision will not be the end of America’s health care reform process, regardless of what they rule it will only be the start of the next round of America’s health care reform process.

Effort to Eliminate Waste Coming Soon

It’s not that the Patient Protection and Affordable Care Act doesn’t contain any provisions aimed at reducing the cost of medical care – it’s that it doesn’t have enough of them. Still, what it has should be acknowledged. For example, Politico Pulse has reported that a unit of Health and Human Services will soon announce a package to incent providers to “disseminate effective practices and foster the spread of new knowledge on patient safety to the hospital community.” According to Spencer Health Strategists, who obtained a copy of a draft memorandum a few weeks back, the goal is to dramatically cut the estimated $50 billion spent each year on preventable hospital readmissions and hospital-acquired conditions.

The grants are designed to get private hospitals to improve patient safety and improve outcomes. Instead of developing new approaches or dictating specific practices, financial incentives will be to encourage hospital-generated innovations and to share best practices.  For example, the Innovation Center within the Centers for Medicare and Medicaid Services within HHS will support “states and large systems to developed networked learning project.” Those networks that achieve specified results will get additional resources to expand their efforts.

This focus on the private sector links the effort to improve safety and reduce readmissions underway within Medicare. According to the memo posted by Spencer Health Strategies, by 2013 six percent of hospital payments from Medicare to providers will be tied to public reporting of errors and the provision of safer, more reliable care ….” Over the next 10 years, $70 billion of Medicare hospital payments will be tied to hospitals’ “delivery of high quality care.” Medicaid will introduce similar provisions.

None of this is “official” yet, but based on the Politico Pulse report, it appears the Obama Administration will be launching this initiative soon. The potential of the program is to save billions of dollars and to do so relatively quickly. Even more significantly, the program could save thousands of lives. There’s a lot wrong with the PPACA, but this is an example of something that it gets right.