Congress is like the late comedian Rodney Dangerfield. Sometimes it passes laws, only to have them interpreted into something different by the federal bureaucracy charged with implementing them. Considering this, it would be understandable if lawmakers were to complain that they "don’t get no respect." A few examples:
- Congress places language in the healthcare law stating that independent agents and brokers are to be included under the newly reformed system. But the Dept. of Health and Human Services (HHS) takes steps to ensure agents won’t be fairly compensated.
- Congress has not contemplated imposing price controls on the private sector. But the Federal Crop Insurance Corp. (FCIC) is now dictating how much private sector insurance companies can compensate their insurance agents.
- Congress wisely decided in 1981 that direct government sales of crop insurance are inefficient and producing losses, so it turned to private sector insurance agents to deliver crop insurance. The losses turned to gains and the program is making billions for the Treasury. Now, a union of federal employees is lobbying to turn the clock back 31 years and throw private sector agents under the bus, so the union members can immunize themselves from potential cutbacks.
Employees of the U.S. Dept. of Agriculture’s Farm Service Agency (FSA) are lobbying the USDA to be the sole agency to handle the processing of crop insurance claims and collecting acreage reports.
FSA’s employee union, the National Assn. of FSA County Employees, has asked its members in a bulletin to contact USDA and tell them that "FSA of the USDA should be the sole designated entity to take the acreage reports for all USDA purposes." Further, "agents have a motive for selling policies that are based upon acreages" and that "it does not make sense to pay a crop insurance agent to take the report on insured crops and FSA take acreage reports on all other crops."
With continued pressure to cut funding for farm programs, the FSA’s employees union has apparently decided it can protect its members’ jobs by attacking private sector crop insurance agents and taking over agents’ functions. Moving certain parts of the crop insurance program back to the FSA would set the program back three decades to a time when the program was inefficient, underused and administrative costs were significantly higher.
The union said, "the more involved FSA becomes in crop insurance functions, the greater the potential cost savings and efficiencies."
The public/private partnership that has developed over the years has been critical to the overall success of the crop insurance program. Removing functions provided by the private sector from the crop insurance program and replacing them with federal employees is poor public policy and risks increasing, rather than reducing costs.
It must come as a big surprise to members of Congress that the federal government is imposing price controls in the private sector. The last time this happened was when President Richard Nixon did it in 1971. It was quickly abandoned because it was a disaster. So why is the FCIC doing it now?
FCIC, which administers the crop insurance program, included arbitrary caps on agent compensation in the Standard Reinsurance Agreement (SRA) for crop insurance that it negotiates with private sector insurance companies offering coverage through the program. Prior to this, these companies had determined how best to compensate their insurance agents. But now, this federal agency is dictating caps on agent compensation to carriers in the SRA. This means that for the first time since 1971, an agency of the federal government is imposing federally mandated price controls on private sector insurance companies and producers. This is very bad public policy. On other lines of insurance like flood, the government suggests voluntary controls on agent compensation, but carriers are not obligated to adhere to them and can pay their agents more.
Over the last ten years, the Federal Crop Insurance Program (FCIP) has generated an unprecedented net gain of $3.9 billion that goes directly to the U.S. Treasury. The ongoing success of this program should be incentivized, not subjected to continued cuts that will jeopardize its proven success. FCIP is not a cost center, it is a revenue generator for the U.S. Treasury. Beyond that there is a philosophical question: should the federal government be dictating prices to private companies? PIA firmly believes the answer to that question is a resounding "no."
A De Facto Public Option by Fiat?
Grassroots opposition is building around the country to federal action that threatens the ability of agents and brokers to continue selling health insurance.
When Congress passed the healthcare reform law in 2010, agents succeeded in getting language inserted in the bill stating that agents and brokers will be full participants in the new system.
Under the new law, insurers must spend at least 80 percent of individual and small-group premiums and 85 percent of large-group premiums to medical costs, leaving the remainder for administrative costs. HHS then issued an interim regulation saying agent and broker commissions must be calculated as administrative expenses within the medical loss ratio (MLR), which is limited to 15 percent or 20 percent of premiums.
The upshot has been that many agents have seen their compensation from health insurers decrease by as much as 50 percent since the MLR regulation went into effect Jan. 1, 2011, according to the nonpartisan Government Accountability Office.
After studying the issue for a year, the National Assn. of Insurance Commissioners (NAIC) finally endorsed a legislative resolution that would preserve consumer access to agents and brokers. NAIC also urged HHS to take immediate action to mitigate the adverse effects the MLR rule is having on the ability of insurance producers to serve the demands and needs of consumers. HHS summarily dismissed the NAIC’s recommendations.
Resistance to agents and brokers remaining involved—and properly paid—under the health insurance reforms enacted in 2010 is coming primarily from HHS. But efforts to counter the HHS rule are gathering steam across the nation.
- Ohio: Lieutenant Gov. and Dept. of Insurance Director Mary Taylor recently co-sponsored a resolution urging members of Congress and HHS to change federal law that would harm agents and brokers who sell health insurance. She called attention to her action by issuing a guest column (http://www.insurance.ohio.gov/Newsroom/Pages/01092012AgentsRole.aspx) which is a ringing endorsement of the value of agents and brokers.
- Florida: Insurance Commissioner Kevin McCarty is continuing the work to free agent commissions from the death grip of the MLR. McCarty—who is president of the NAIC this year—got the NAIC in December 2011 to urge HHS to exempt agent commissions from the MLR. HHS rejected the request a few days later. Working with agents in Florida, McCarty has formally petitioned HHS to reconsider.
- Maryland: a group tasked with implementing federal healthcare reform is recommending that insurance agents and brokers continue to sell small-group health insurance when health exchanges begin operating in the state. The recommendations were made by the Maryland Health Benefit Exchange, which was set up under Maryland law to help implement the exchanges. The group said the council wants to "build on the existing" system for small-group insurance because duplicating those services with unlicensed navigators would be expensive and inefficient.
Congress made it clear that agents should continue to deliver health insurance products under the Patient Protection and Affordable Care Act (PPACA) when it included specific language in the law to that effect. But apparently this conflicted with the view of some at HHS who seem to think that consumers need only to be sent to a government-built website to purchase health insurance—and that the only assistance available to them should come from either an unlicensed "navigator" or an online FAQ.
The departure of former Pennsylvania and Oregon insurance commissioner Joel Ario from his job at HHS supervising the building of health insurance exchanges turned out to be a big negative, as Ario appreciated the critical role played by independent agents and brokers. Now HHS is left with people who, when they think of insurance delivery systems, seem only to think in terms of websites and geckos. It is conceivable that some in HHS may think they can ignore the will of Congress and lay the groundwork for an eventual de facto public option in health insurance through regulatory fiat. This could be brought about with regulatory steps calculated to reduce competition, driving smaller insurance companies and the agents who represent them out of business.
There is a common thread running through all of this. HHS is elbowing agents and brokers out of health insurance, federal employees are trying to eliminate agents from servicing crop policies and another federal agency dictates agent compensation. All of these actions are being undertaken by government employees who believe that the government is more efficient and effective than the private sector.
Congress already has gone on record saying it wants agents and brokers involved in health insurance, it supports private sector delivery of crop insurance, and it has not endorsed federal price controls. The problem is, bureaucrats tend to march to their own tune. That’s when lawmakers must repeat what they already have stated, so that the unelected will get the message and not attempt to undo what Congress has already done. It’s a matter of respect.