NU Online News Service, Dec. 2, 3:08 p.m.EST

The National Association of Insurance Commissioners' request foran exemption from the medical loss ratio provisions of thehealthcare reform law for insurance agents has been rejected.

The Obama administration did so today through a final rule andinterim final rule adopted by the Department of Health and HumanServices implementing the MLR provision of the Patient Protectionand Affordable Care Act.

It acted even though the NAIC narrowly adopted a resolution via conferencecall Nov. 22 asking HHS to take “whatever immediate actions areavailable” to release agents and brokers from medical MLRstrictures enacted under the 2010 health care reform act.

See the NAIC's resolution here.

The MLR limits administrative costs as a percentage ofhealthcare premiums to 15% for large groups and 20% for small groupand individual policies.

The MLR rules took effect Jan. 1, but today's final rule makesmodifications and provides certainty to how the MLR is calculated,HHS said.

The modifications are based on public comments solicited in anearlier version of the rule published by Centers for Medicare andMedicaid Services in the spring, HHS said in the final rule.

Robert Miller, president of the National Association ofInsurance and Financial Advisors, confirmed the implications of theHHS action in a statement.

“NAIFA is disappointed that the administration rejected the NAICrecommendation to take action that would ensure continued consumeraccess to professional health insurance agents in its final MLRrule,” Miller said.

He said, however, that NAIFA remains hopeful that Congress willjoin the NAIC in recognizing the harm caused to consumers and makethe necessary changes to the law.”

Miller's comment referred to two pieces of legislation beingconsidered by the House Energy and Commerce Committee.

One is H.R. 1206, which would exclude producer compensation frommedical loss ratio calculations. Another is H.R. 2077, which wouldrepeal the MLR entirely.

H.R. 1206, sponsored by Rep. Mike Rogers, R-Mich., and JohnBarrow, D-Ga., has strong support. The bill has 139 co-sponsors.But it has been mired for months in the House.

Tim Dodge, director of research and media relations for theIndependent Insurance Agents & Brokers of New York, Inc., saidthat the trade group was “disappointed that the final MLR rules donot include an exemption for agents' and brokers' commissions.”

Dodge said the lack of an exemption has caused insurancecompanies to reduce the compensation they pay to their agents andbrokers. Consequently, Dodge said, insurance producers are findingthat it might not make business sense for them to participate inthe health insurance market.

He said this “deprives consumers and businesses of the expertadvice they need to make informed decisions.” He noted the NAICresolution, adding “We continue to urge Congress and HHS to do justthat.”

On the other side, Ethan Rome, executive director of Health Carefor America Now, praised the Obama administration's decision.

“This is a great victory for consumers because it maintains theintegrity of incredibly important consumer protections that holdthe insurance industry accountable and because it puts money in thepockets of families who need it a lot more than insurance companiesawash in record profits,” Rome said.

The changes to the rule include making the rebate that insurerswill have to provide to consumers in 2012 if they don't comply withthe law tax-free.

However, a Government Accountability Office report releasedearlier this week said that most large and medium-sized insurersappear to be complying with the law, meaning that it is unlikelythat insurers will be required to make large payments to consumersnext year.

Specifically, the MLR rule will be modified under changesfinalized today. “Rather than having insurers send checks thatcould be taxed, workers in group health plans can receive rebatesin a way that is not taxable,” HHS said.

The new regulation also proposes that all consumers receive anotice, showing not just the amount of any rebate, but what theinsurer's MLR means regardless of whether there is a rebate, andhow the insurer's MLR has improved under the new law.

In addition, under the changes, data on the special types ofplans, mini-meds and expatriate plans will be publicly posted inthe spring, HHS said.

The final rule makes only a minor change to a qualityimprovement definition to promote insurer improvements in definingor coding of medical conditions for a limited window of time, HHSsaid.

The changes adopted today also phase down the specialcircumstances adjustment for mini-med plans.

HHS said that, in 2011, so-called mini-med plans received aspecial circumstances adjustment to their MLR in the form of amultiplier of 2.0 for 2011.

The final rule phases it down from 1.75 in 2012 to 1.5 in 2013to 1.25 in 2014. Mini-med plans will be banned by the prohibitionon annual limits in the Affordable Care Act starting in 2014.

The final rule, after reviewing data, keeps the expatriate planmultiplier adjustment at 2.0 due to their unique structure. It alsolevels the playing field between non-profit and for-profit insurersin states with premium taxes.

Also, the final rule does not impact existing waivers to the MLRgranted states, according to industry sources.

HHS has granted waiver requests to states like Iowa, where ithas allowed MLRs to be 67% and 75% in years 2011 and 2012respectively, with the final standard of 80% to be implemented in2013 and beyond. The adjustment was granted in recognition of theinability of some Iowa companies selling individual policies toremain in the market under the initial requirements.