Work on Medical Loss Ratio Agent Fix Continues

The Patient Protection and Affordable Care Act (PPACA) established medical loss ratio (MLR) requirements for insurance carriers which went into effect on Jan. 1, 2011. The law mandates that at least 80% (individual and small group) or 85% (large group) of premiums collected by the carrier must be spent on claims reimbursement and “activities that improve health care quality.” In other words, no more than 20% on individuals or small groups or 15% on large groups may go toward “non-claims costs” such as profits, advertising, administrative costs, etc. If a carrier does not meet these ratios, they must send consumers rebates.

Earlier this year, the National Association of Insurance Commissioners (NAIC) formed the NAIC Professional Health Insurance Advisors Task Force to examine the effects of the controversial federal MLR requirements on insurance agents. After conducting a lengthy public hearing in March and completing an exhaustive review of the issues in the ensuing weeks, the task force recently voted to support federal legislation that would remove agent compensation from the MLR formulas altogether.

The 15-member task force specifically endorsed H.R. 1206, the “Access to Professional Health Insurance Advisors Act of 2011,” introduced in March by Reps. Mike Rogers (R-Mich.) and John Barrow (D-Ga.). The bill currently has strong bipartisan support in the U.S. House of Representatives (see sidebar).

Since the MLR rules went into effect, they have created great uncertainty in the marketplace. In particular, the effect on agents and brokers has been damaging as many insurance carriers have cut their agent compensation in an effort to meet the new mandate. This has in turn reduced consumer access to agents and brokers, leading to a detrimental effect on the essential services they provide, such as guidance in claims processing and tailoring health plans to fit the needs of individuals and businesses. Big “I” government affairs staff is making the case to the NAIC and members of Congress that without the active participation of the agent and broker community in the process, many consumers would have fewer resources and access to professional health insurance advice, assistance and service.

The Big “I” has noted that members of the task force were motivated to act and to support a change to the methodology used to calculate loss ratios because of the effects the MLR mandates are already having on insurance agents and consumers. The regulators recognized the important and ongoing advocacy role that agents play long after the sale of a policy and understood that sudden and dramatic reductions in compensation will ultimately force many agents to reduce the level of service provided or to perhaps leave the individual and small group markets altogether.

The Big “I” greatly appreciated the action of the task force and its chairman, Florida Insurance Commissioner Kevin McCarty. Since the task force endorsement of H.R. 1206, the organization has held one plenary meeting, during which Commissioner McCarty described the task force action and outlined the group’s plans to continue to work with the Department of Health and Human Services (HHS) on potential alternative solutions. The plenary did not vote on the task force endorsement; in fact, contrary to some inaccurate press reports, no such vote was ever scheduled. The NAIC is expected to continue to work internally and with HHS and other parties on a resolution to this issue.

The Big “I” believes that if the MLR calculation is not quickly corrected through either the regulatory process at HHS or through legislative action on Capitol Hill, consumers may lose the professional guidance of licensed insurance agents during this time of great change in the health insurance market. This damaging regulation has already been in effect for more than seven months and insurance agents and consumers are feeling its negative effects more every day. The Big “I” looks forward to continuing to work with the NAIC on this critical issue.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.


MLR Bill in the House
The Big “I” strongly supports bipartisan legislation H.R. 1206, the “Access to Professional Health Insurance Advisors Act of 2011,’’ sponsored by Rep. Mike Rogers (R-Mich.) and Rep. John Barrow (D-Ga.), which would clarify that agent compensation is not part of the MLR formula as enacted in the health care overhaul law. At press time, the bill enjoyed the support of more than 100 members of the House from both sides of the aisle and the number was expected to grow.

While the PPACA did not address how to classify independent agent compensation under the MLR formula, through the regulatory process agent compensation was included in the MLR formula, as part of the “non-claims costs” category. H.R. 1206 would correct this by specifically excluding agent compensation from this calculation.

The Big “I” continues to highlight that agent compensation is passed-through by the insurance carrier from the consumer to the agent and is only collected with the premium as a convenience. This compensation is not insurance company revenue and therefore should not be part of the MLR formula, and the Rogers-Barrow legislation is a crucial technical fix to correct this error.

—M.T.