Commissions: In or Out of MLR Calculation?

The National Association of Insurance Commissioners is meeting with the intent of finalizing rules surrounding the medical loss ration requirements contained in the Patient Protection and Affordable Care Act. The impact of their decision will be profound on consumers, employers, carriers and brokers. A final vote is scheduled for tomorrow (October 21st) by the full membership on the rules – and on amendments to those rules – which have been worked on for hundreds of hours by NAIC committees. Whatever emerges from the NAIC plenary session will be forwarded on to the Department of Health and Human Services. The Department may make amendments to the NAIC proposal, but The Hill has reported that HHS is reluctant to “override” the commissioners on NAIC medical loss ratio rules.

What this means is that a lot of issues surrounding the MLR provisions of the new health care reform law – provisions which take effect on January 1, 2011 – will come into clearer focus tomorrow. Again, HHS may still modify these rules, so these won’t be the final rules. And states are given some flexibility in applying the medical loss ratio regulations on carriers doing business within their boundaries, but there will be far greater clarity tomorrow than there is today.

Some of the issues being hashed out are esoteric (not to actuaries, but to the rest of us). But one issue that is of great concern to brokers is how commissions will be used in calculating a carrier’s MLR. As noted previously in this blog, the National Association of Health Underwriters and other agent organizations have been working hard to have broker commissions be removed from the medical loss ratio formula. The logic behind this is that carriers collect broker commissions as an administrative convenience to producers and their clients, passing 100% of these dollars along to independent third-parties. The carriers receive no benefit from this process, but the cost to brokers and policy holders, in the aggregate, is greatly reduced, lowering overall administrative costs.

Exempting this pass-through of commissions from the medical loss ratio calculations is not currently a part of the NAIC MLR regulations. However, I’ve been told that at least 10 Insurance Commissioners are co-sponsoring an amendment to create this pass-through exemption in the rules sent to Health and Human Services. And supporters believe they are closing in on the majority of the Commissioners needed to adopt this amendment.

Politico is reporting on the upcoming commission amendment, too. They note that “This could be a tough one for many commissioners who say that if agents/brokers go out of business – because their commissions would decrease – they’re going to get flooded with consumer inquiries and requests for help.”

Inclusion of the pass-through provision in the NAIC’s medical loss ratio rules would certainly decrease the pressure on carriers to dramatically reduce commissions. However, pressure on commissions will still continue. Tying broker commissions to a percentage of premium – premiums that increase based on medical cost inflation, not general inflation – is still likely to fall as carriers’ commission systems are refined to accommodate different calculations. And broker commissions will need to be disclosed to employers and consumers (carriers will need to separate broker fees from premium). In some states this is likely to result in downward pressure on commissions. And the guarantee issue provisions taking effect in 2014 will also tend to lead to lower commissions. On the positive side, the Insurance Commissioners’ recognition that brokers play an important role after the sale in counseling and advocating for their clients will tend to assure that brokers are compensated fairly.

Of course, all of this is moot unless the NAIC approves the amendment, HHS concurs with this provision and states don’t enact laws or regulations that run counter to it. We’re about to get some clarity. Certainty, however, is still to come.

8 thoughts on “Commissions: In or Out of MLR Calculation?

    • Obama says he should have sold his policies better
      From Associated Press
      October 21, 2010 2:18 PM EDT
      SEATTLE (AP) — President Barack Obama staunchly defended his health care and stimulus initiatives Thursday but acknowledged he may not have taken enough time to explain the policies to the public.

      Campaigning in Seattle, he said: “We had to move so fast, we were in such emergency mode, that it was very difficult for us to spend time a lot doing victory laps and advertising exactly what we were doing because we had to move onto the next thing.”

      And they do away with the health insurance broker who is the biggest advocate in play for the client? We need health insurance agents more than ever with Obama Care- even he admits that he did not explain it to the public well enough or maybe he is counting on the keeping the citizens masses in the dark so that he can get what he wants.

      • My main post is below, however;

        Jeanette, had we, the Agent/Broker Community responded as has Obama, we would have our license revoked for Errors and Omissions.

        “He said: “We had to move so fast, we were in such emergency mode, that it was very difficult for us to spend time a lot doing victory laps and advertising exactly what we were doing because we had to move onto the next thing.” Hey, Obama, we don’t get that luxury, pal!

        Had we voiced that BS we would be fighting for our license! Where the hell does He get the right to be so damn arrogant?! He didn’t Explain things right? We would be out of work, whether or not we had a President who wanted us out of work!

        With disgust,

        Spencer A. Lehmann, RHU

      • Alan,

        I would be more sensitive to your comments were it not for the utter and complete lack of respect shown by Barack Obama, Pelosi, and others in this “War against Insurance Companies and Agents” being waged by them, against us.

        What goes around comes around”, “You get what you give”, and so on.

        Obama, Pelosi, and Gang are receiving no worse nor better than they have given, and He is the President, She the Speaker of the House, and if they can’t take the heat, after applying their brand of heat against our colleagues, well, you know the rest of that saying.

        At some point, even you, Alan, will need to acknowledge that we, those who have served the public honorably, are being sought after by those we ELECT, for destruction, the primary goal of our careers, to help the insurance consuming public, totally and completely disregarded, and done so with impunity, by those who would socialize this country. That isn’t calling people names, Alan, it’s calling those people for what their philosophies tell us they are.

        I’m as respectful toward others as anyone, but not to the point of being kicked out of my chosen career, which I have attended to with diligence, as have most of us, with no honor or respect shown whatever.

        I refuse to capitulate with dishonor. This “game” has gone too far. And too many of us have “kept quiet” while we’re being tossed under the bus by those we pay “to lead us”, which they have NOT done. They have instead, dishonored us.

        Thank you for the time you’ve given me here.

        • Spencer: I understand your anger (even though I disagree with your reasoning on this). All I’m saying is that there are other forums in which you are free to express your anger by calling people name or slapping labels on them the way you did in the deleted comments. Just not here.

          • With all due respect, Alan,

            I am not using rhetoric that is unfairly characterizing Mr. Obama, or his Lemmings.

            No one on this blog is unaware of the threats of loss of leadership positions as Committee chairs, threatened by Nancy Pelosi, Harry Reid, Patty Murray, and a myriad of other Democrat Leadership toward those under their leadership who refused to do as ordered, which led to the biggest shame the Blue Dogs have ever experienced, in their cowardice.

            Perhaps you don’t like the words I express to define those unwilling to show courage in their profiles. That is not badmouthing or using nasty words to characterize those who are living up to that characterization. You don’t need to agree. To censor my words, however, is to demonstrate the same kind of lack of respect for “Freedom of Speech” the Democrats have condemned the GOP for exhibiting for decades.

            We have been harmed by ObamaCare, and any suggestion to the contrary is simply ignoring the obvious.

  1. Of course, all of this is moot unless the NAIC approves the amendment, HHS concurs with this provision and states don’t enact laws or regulations that run counter to it. We’re about to get some clarity. Certainty, however, is still to come.

    Thank you for the analysis, Alan.

    That certainty, once clarified, may result in an “Okay, we can deal with it.” kind of response, and it may result in a response that will reflect the worst possible outcome, for the Agent/Broker, the NAIC, and the citizens we are supposed to protect.

    As with the rest of this poorly thought-out, poorly researched, and poorly implemented HCR ObamaCare law, Oy vey, Obama & Company. What have you wrought upon our society? One step forward, two back.

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