State insurance commissioners meet in Texas

Brokers: the first casualty of the ACA?

Consumers reps fear NAIC will undercut health care reform

By Barb Rea
ESPC healthcare advocate

In 1993, American insurance companies were spending 93% of insurance premium revenue on health care claims. This percentage has been steadily eroding and now some companies spend only 50% of premium revenue on healthcare. The rest goes into administrative costs (which include paying fees to salesmen called brokers) and profits.

This calculation is called the Medical Loss Ratio. It is interesting for consumers to note that companies consider what they spend on health care to be a loss.

To encourage companies to work more efficiently, more transparently and to provide more value in their products, one of the new provisions in the Affordable Care Act requires insurance companies to spend 80% (85% in large group markets) of premium revenues on health care and less on profits. If they fail to meet these guidelines, insurers will have to pay a rebate to their customers.

The National Association of Insurance Commissioners (NAIC) was in charge of figuring out how to calculate and monitor the MLR and last October, after seven months of very transparent work, the commissioners passed the details of how this regulation would work.

At the October meeting of the NAIC, the insurance industry came in at the last minute with requests for changes that would have effectively meant insurance companies could operate at a 63% MLR. The commissioners, who are clearly proud of their rigorous methods, stuck to the intention of the law and dismissed those last minute amendments – to the great benefit of consumers.

The NAIC is meeting again this weekend in Austin, Texas. A few days before the meeting, consumer representatives learned that brokers, those agents who help sell and service insurance policies on a commission basis, were requesting a vote from the NAIC that would endorse HR 1206, the Access to Professional Health Insurance Advisors Act of 2011. The bill would remove brokers’ fees from the Medical Loss Ratio calculation entirely.

The brokers contend that insurance companies will start paying them less in order to meet the MLR rules. This may or may not be true. We don’t know because these fees have always been invisible to consumers and to many regulators, too. There is very little data to determine how much brokers are being paid or how much impact this will really have on the market.

One thing is certain though, brokers’ fees were clearly on the administrative side of the MLR equation when the benchmarks were established. The solution to just eliminate fees from the equation altogether would effectively undo the intention of the law.

According to Prof. Timothy Jost, one of the NAIC Consumer Representatives, "This bill would effectively end the MLR as a tool for reducing insurer costs, would increase premiums by whatever brokers chose to charge, and would transfer a billion or more in rebates from consumers to producers(brokers)."

All sides of the healthcare reform debate agree that one of the major goals of the ACA is to bend the cost curve ---that can only mean that at some point, some people who are making money from the current system will make less.

By 2014, buying insurance will be much easier as other provisions in the ACA standardize insurance language and benefit packages so people can make apples to apples comparison when they shop for a new policy.

We will never achieve the real goals of reform if every time some stakeholder is going to lose money, they can simply write a bill to eliminate that part of the ACA. Brokers may be the first casualty of the effort to cut health care costs.

The MLR went into effect January 1, 2011. Insurers are submitting additional forms to their commissioners which will make all these numbers transparent for the first time. We will have ample information to see which companies and which states are having trouble meeting the MLR and where brokers’ livelihoods are indeed threatened. In the meantime, there is already a waiver process available to states that can demonstrate market instability. We don’t need a sweeping solution at this time.

Consumer representatives are asking that commissioners slow down, analyze the data and address these concerns on a state-by-state basis instead of hacking away at important consumer protections that can help reduce costs in the long run.