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.

Insurance companies battle health care reform regs

By Barb Rea

Editor's note: Barb Rea is Wyoming's consumer advocate to the National Association of Insurance Commissioners (NAIC). She is attending the NAIC quarterly meeting in Orlando, Fla. She also is volunteering on behalf of Consumer Advocates: Project Healthcare, a group of Wyoming advocates raising the consumer's voice in health care reform. The NAIC is crafting rules that will guide implementation of the the Affordable Care Act.


Health reform is not going to happen magically. The Affordable Care Act (ACA) established the framework for changing the system and now people are working hard to write the rules and regulations that will make it happen.

When you look at the details and the intent of the law, each piece is designed to move the insurance industry to change the way it does business. In exchange the industry will get more customers.

We are trying to move the insurance industry from making its money off risk selection (providing coverage only to healthy people) to one that competes on providing better value to its customers.

But it won’t be easy. For instance, one of the early reforms scheduled to begin Jan. 1, 2011, requires that insurance companies to spend more of your premium dollar on health care (80% in the individual market and 85% in the group market) and less on profit. This calculation is known as the Medical Loss Ratio.

And the companies have to prove they’re meeting the Medical Loss Ratio requirement. If they don’t reach this ratio, they have to give the money back to consumers in the form of a rebate. The law is requiring public transparency and accountability—new concepts in the insurance world.

The goal of this reform is not so much to get money back from the insurance company but rather to force the companies to price their products correctly.

Over the last 5 months the National Association of Insurance Commissioners (NAIC) has brought together consumer representatives, insurance commissioners and insurance company representatives to craft rules and regulations on the Medical Loss Ratio, as assigned to them through the new federal healthcare law. They have been conferencing sometimes daily to decide what numbers have to be reported and create a way to collect and report this information.

This week at NAIC’s quarterly meeting in Orlando, the final decisions on this topic will be made. As you can expect there has been considerable wrangling, with the industry trying to include as many items as possible in the medical expense side of the equation and as few as possible on the overhead side. The consumers won a good number of those battles but not all.

Now just days before this final vote, the industry is pushing for several last minute changes in the calculation of the Medical Loss Ratio. The changes essentially mean many companies would never have to pay a rebate (or change their pricing).

Here are the changes they seek:

• They want brokers’ commissions excluded from the equation;

• They want companies who sell in several states to be allowed to aggregate their numbers nationally, which would enable them to disguise high profits in one state by combining loss ratios from those states with loss ratios from other states where they may charge lower prices or pay higher health care costs;

• The industry also wants to change the actuarial formula previously adopted by the drafting group for evaluating compliance with the Medical Loss Ratio standard. Known as the “credibility adjustment,” the industry wants a change that favors insurance companies over consumers.

The implications are stunning. The industry can appear to be helping to transform the system but continues to try to get away with as much as possible to maintain “business as usual.” This is how they have made their fortunes and there is no reason to believe they won’t continue to behave that way.

Transparency and oversight are provided for in the ACA. To get this to work, we must be vigilant in monitoring the transformation of the health care system. If we don’t have citizens willing to take this job we are not going to move this to the finish line.

Health reform implementation

Health insurance reform moves to state policy arenas

The passage of health insurance reform certainly has stirred emotions here in Wyoming, where statewide candidates seem to be in a contest to see who can come up with the most frightening descriptions of it to justify their calls for repeal.

We see it as a major victory for Wyoming children and families.

The new law advances the financial security and personal health of Wyoming citizens. It delivers reliable coverage that won't disappear if they get sick or lose a job.

One of the chief advantages of the new law is the intent to cover everyone. The law prohibits insurers from refusing coverage because of pre-existing conditions and it enables families to keep their children on their policies through age 26.

The requirement that insurance companies spend at least 85% of their revenues on the health care of their customers likewise is positive and is representative of the law's intent to bring some sunshine into a system that for too long has been, shall we say, less than transparent. More transparency is critical to controlling costs and improving the quality of care.

Barb Rea, the ESPC's part-time development director, served on the Wyoming Healthcare Commission for several years as an appointee of Gov. Dave Freudenthal. That service and her own studies have given her a broad knowledge of the issues involved in reforming health care. We asked her to represent the ESPC on the National Association of Insurance Commissioners’ consumer liaison committee. The NAIC will be instrumental in designing the rules under which the states will implement the new health insurance reform legislation.

Rea recently attended the NAIC meeting in Denver and offered the following observations:

I have just returned from the spring meeting of the National Association of Insurance Commissioners (NAIC) as one of several new consumer representatives serving on consumer liaison committee. This organization and this committee will play an important role as we begin implementation of health reform legislation.

Wendell Potter, posts an excellent summary of this meeting and the role of the NAIC in the Huffington Post which you can read here.

The short version is that the states will be responsible for much of the work of implementing the new health reform bill. The law requires that many new regulations be written to govern the way health insurers do business. This work will fall to not only to the U.S. Department of Health and Human Services but also to the National Association of Insurance Commissioners (NAIC).

The NAIC exists to help state insurance regulators achieve five primary goals:

• protect the public interest;
• promote competitive markets;
• facilitate the fair and equitable treatment of insurance consumers;
• promote the reliability, solvency and financial solidity of insurance institutions;
• and support and improve the state regulation of insurance.
  

So, the NAIC will play an important role in developing standards that both protect consumers and promote uniformity throughout the industry. Many of these laws, regulations and/or rules developed on the federal level will then be modified and adopted at the state level to give states the authority to enforce them.

There is no time to waste – many need to be in place within the next 6-12 months. So much of our time was spent determining how to ensure that the consumer perspective was going to be represented as the NAIC moves forward.

The NAIC executive committee stated its intention to utilize its existing committees to complete these responsibilities. The role the consumer liaison committee will play is still not clear. The consumer liaison committee specifically asked the NAIC:

1. to create a publicly accessible “plan of action” developed with input from consumer representatives;
2. to fully incorporate consumer advocates into the NAIC health reform work plan;
3. to prioritize their tasks based on the needs of the consumers;
4. and to significantly expand consumer participation at the NAIC proceedings.
   

While we await a response from the governing board of the NAIC, the consumer liaison committee will begin immediately to assess our resources and organize into work groups around the most urgent issues:

• High risk pools;
• Grants for establishing ombudsmen offices to assist consumers in every state;
• Medical Loss Ratio (MLR);
• Rate reviews;
• New insurance policy requirements (e.g.) pre existing conditions, keeping young adults on parent policies, first dollar coverage for prevention.
  

Next steps for Wyoming and the ESPC
It was humbling to be among such knowledgeable and effective colleagues, many of whom have been working on reform for most of their careers. We certainly have a lot to gain as this process will provide both context and product for much of the decision-making that will fall to our legislature. It should make their job easier.

But, it soon became clear to me that the process of implementing anything at a state level here (or in any other state already fighting the intent of this law) was going to be more complicated than cutting and pasting good ideas into Wyoming law. Our first task will be to cut through the rhetoric and talk about how the new law addresses the health care access problems people are facing.