When Congress passed the Patient Protection and AffordableCare Act (PPACA) in March 2010, the law's language made it clearthat insurance agents should continue to deliver health insuranceproducts under the new system—thanks to heavy involvement at thelaw-drafting level by insurance associations. 

However, current regulations are making that difficult.

Under the law, as of Jan. 1, 2011, health insurers must spend atleast 80 percent of the funds they receive in health plan premiumsfrom the individual and small group markets—and 85 percent from thelarge group market—on a combination of medical care claims andactivities to improve healthcare quality. If a carrier does notmeet these ratios, rebates are due to the consumer, starting inAugust 2012. 

Read the sidebar "Hearings Set for Two MLRBills" by Arthur D. Postal and Elizabeth Festa.

The law's intention was to focus policyholder premiums onpatient service rather than overhead, marketing, executive salariesor other "administrative expenses" or "non-claims costs."Unfortunately, the law did not statutorily address how to classifyindependent agent compensation under the MLR formula.

Related: Read the article "Congress Gets NoRespect?" by Ted Besesparis.

Last December, the Dept. of Health and Human Services (HHS)issued regulations including agent compensation in the MLR formulaas part of the "non-claims costs" administrative category, which islimited to 15 percent or 20 percent of premiums.

Since the MLR regulation went into effect,many agents have seen their compensation from health insurersdecrease by as much as 50 percent, according to the GovernmentAccountability Office.

After studying the issue for a year, the National Assn. ofInsurance Commissioners (NAIC) finally endorsed a legislativeresolution that would preserve consumer access to agents andbrokers. NAIC also urged HHS to take immediate action to mitigatethe adverse effects the MLR rule is having on insurance agents. HHSsummarily dismissed the NAIC's recommendations.

Agent and broker organizations continue to lobby to have theirfees included on the medical care side and not counted asadministrative costs, and support the current legislation toclarify the issue.

 "Agent compensation is passed through by the insurancecarrier from the consumer to the agent and is only collected aspart of the premium as a convenience," said Robert Rusbuldt, IIABApresident and CEO. "This compensation is not insurance companyrevenue and therefore should not be part of the MLR formula, andthe Rogers-Barrow legislation is a crucial technical fix to correctthis error."

Related: Read the article "House Panel Could MoveSoon on MLR Issue" by Elizabeth Festa and Arthus D. Postal.

The ultimate result of the confusion will hurt individuals andbusinesses by limiting their access to agents and brokers who canassist them in claims processing and tailoring healthcare plans,said Charles E. Symington, IIABA senior vice president forgovernment affairs. "This damaging regulation has already been ineffect for almost three months and insurance agents and consumersare today, every day, feeling its negative effects."

However, HHS, led by Kathleen Sebelius, has refused to providean exemption for agent/broker commissions, and legislation has beenpending in the House for 6 months without flooraction. 

Last August's departure of former Pennsylvania and Oregoninsurance commissioner Joel Ario from his job at HHS supervisingthe building of health insurance exchanges was a major loss to theagents' cause as he appreciated the critical role they play in theprocurement of coverage. 

Meanwhile, efforts to counter the HHS rule are gathering steamin the states.

Ohio 

Lieutenant Gov. and Dept. of Insurance Director Mary Taylorrecently co-sponsored a resolution urging members of Congress andHHS to change federal law that would harm agents and brokers whosell health insurance. 

Florida

Insurance Commissioner Kevin McCarty—president of the NAIC thisyear—urged HHS to exempt agent commissions from the MLR lastDecember. HHS rejected the request a few days later. Working withagents in Florida, McCarty has formally petitioned HHS toreconsider. 

Maryland

A group tasked with implementing federal healthcare reform isrecommending that insurance agents and brokers continue to sellsmall-group health insurance when health exchanges begin operatingin the state. The recommendations were made by the Maryland HealthBenefit Exchange, which was set up under Maryland law to helpimplement the exchanges. The group said the council wants to "buildon the existing" system for small-group insurance becauseduplicating those services with unlicensed navigators would beexpensive and inefficient.

Related: Read the article "Senator Discusses Effort to Exclude SomeAgents from MLR" by Arthur D. Postal.

And the whole issue might be rendered moot if the U.S. SupremeCourt rules PPACA unconstitutional. The Court began hearingarguments against the law on March 26 and is expected to renderdecisions by late June.

The Obama Administration and reform law supporters say the courtmust uphold the law to ensure Congress can continue tacklingnational problems through comprehensive solutions. Opponents say itis a fundamental American concept that the federal governmentshould be restricted in what it can require of its citizens.