Supporters consider the medical loss ratio provisions in the Patient Protection and Affordable Care Act to be critical to the “affordable” part of the new health care reform law’s title. They also believe that requiring carriers to spend a specified percentage of premiums on medical claims and health quality improvement programs is necessary to prevent heath insurers from receiving an unwarranted windfall when all consumers are required to obtain health care coverage beginning in 2014.
As a direct result of this MLR provision carriers are slashing broker commissions. Cuts in broker commissions on individual health insurance policies of 35-to-40 percent are common, and some cuts exceed 50 percent. Few businesses can absorb a revenue reduction of this magnitude and insurance agencies are no exception. As a result, many brokers are considering abandoning the individual market altogether, an unfortunate outcome for both these producers and consumers in general. Consumers benefit greatly from the expertise of professional brokers not only when purchasing coverage, but when problems arise after the sale as well. Exchanges created by the PPACA cannot replace the value brokers deliver, a fact borne out by the experience of existing exchanges.
All this explains why, at their October meeting, the National Association of Insurance Commissioners was on the verge of recommending that commissions to brokers be removed from the formula used to calculate a carrier’s medical loss ratio. Their lawyers, however, convinced them that the PPACA denied the NAIC the authority to do so.
Carriers receive no benefit from the commissions they collect from policy holders and pass along to brokers. Insurers provide an administrative convenience (reducing system wide overhead), but pass through 100 percent of the commission. Consequently, including these dollars in the medical loss ratio calculation fails to further the purpose of this provision. However, to make this common sense adjustment to the PPACA will require legislation.
Enter Congressman Mike Rogers. Politico Pulse broke the news in their February 16th edition: “The Michigan rep will introduce legislation in the coming weeks to pull brokers’ fees out of the MLR formula, just as agents had lobbied the NAIC to do.” According to the Politico report, the bill’s language has been drafted and mirrors the NAIC proposal. The article goes on to cite an “industry source” as claiming “There’s been some surprising interest from moderate Senate Democrats.” As any changes to the PPACA will require bipartisan support, this is indeed good news. (Representative Rogers is a Republican).
And yes, this is something broker organizations led by the National Association of Health Underwriters (NAHU) along with the National Association of Insurance and Financial Advisors (NAIFA) and the Independent Insurance Agents & Brokers (the Big I) have worked hard to make happen. Getting a bill introduced is neither simple nor easy. Members of Congress are harangued by countless individuals and groups to put forward legislation. But throwing something in the hopper is serious business and not undertaken casually. That Representative Rogers, a member of the House Energy and Commerce Committee’s Subcommittee on Health, will be putting his legislative reputation behind this bill is very meaningful.
Introducing a bill is, of course, not the same as enacting a law. However, no law gets enacted unless someone first introduces a bill. Which makes this news, as the saying goes, a [very] big deal.