NAIC Adopts MLR Rules; Agents' Commissions Still A Question

The National Association of Insurance Commissioners approved regulations for implementing medical loss ratio provisions of the new health care reform law and vowed to continue to work to resolve concerns agents and brokers have regarding the rules impacting their compensation.

At the close of the annual meeting in Orlando last Thursday, the NAIC decided against moving to exempt agents' commissions from the MLR formula in the MLR blank it approved for delivery to the Department of Health and Human Services.

MLR rules, under the Patient Protection and Affordable Care Act, require individual and small-market group health insurers to spend 80 percent of their premiums on patient care, and large group insurers to spend 85 percent.

Producer groups fear that the rules will add to the pressure on carriers to reduce commissions.

If an insurer fails to spend the required amount under the MLR, they are required to pay rebates beginning plan year Jan. 1.

A state may have a higher MLR requirement and its own rebate program "as long as it does not prevent the application of the federal program," according to a summary of the regulation.

The MLR for plan years 2011 and 2012 will be calculated using the experience of those years. The 2013 MLR will be calculated using a three-year average, including the previous two years.

The regulation establishing a uniform definition for MLR was approved on a voice vote before the NAIC's joint executive committee last Thursday morning.

"We all have an important decision before us," said NAIC President Jane L. Cline, insurance commissioner for West Virginia, prior to the vote, noting the months of deliberation and work that went into developing the rules.

Commenting on the creation of a carve-out for agent commission affecting the MLR, Commissioner Cline said an amendment on that would conflict with proposals already submitted to HHS and that there was uncertainty about whether the body had the authority to do that.

She said the NAIC has sent a letter of support to HHS underscoring the important role agents and brokers play in the sale of health insurance and educating policyholders.

"We are extremely committed to working with the agent community as we work to find a resolution. We all recognize the importance of the agent community to advise consumers and help them make informed decisions," she said.

During a press conference held after the vote, Commissioner Cline said the MLR rules will now go to HHS for certification, which is expected to happen next week.

There has been no indication that HHS has raised any objection to the rules the NAIC passed, regulators attending the news conference said.

Although the commissioners tabled a resolution that would have encouraged the HHS to allow special considerations for agents in any MLR, the NAIC did move to create a subgroup of its executive committee to work with HHS to accommodate producer compensation in the MLR. It acted at the request of Ohio Commissioner Mary Jo Hudson and Florida Commissioner Kevin McCarty.

In seeking support for her proposal, Commissioner Hudson said the NAIC has received assurances from HHS that they will begin discussions on this issue "right away."

The resolution that was tabled by the full commissioners in last week's plenary session had been agreed to a week earlier by the NAIC's Health Insurance and Managed Care Committee a resolution.

In the resolution, drafters stated: "As important consumer protections and assistance programs are implemented over the next four years, and as insurance markets evolve during the transition to Exchanges, the role of insurance producers (agents and brokers) will be especially important.

"We encourage HHS to recognize the essential role served by producers and accommodate producer compensation arrangements in any MLR regulation promulgated," the resolution continued.

During the press conference after the plenary session, Kansas Insurance Commissioner Sandy Praeger, who headed the health insurance committee, said the NAIC has been responsive to producers' concerns, establishing a working group with HHS to work on their concerns.

When asked what impact the MLR will have on agent commissions, Commissioner Praeger said it is not certain what, if any impact there may be. Like other aspects of the health reform initiative, it is a work in progress, she said. But it is an issue of concern to agents and needs to be addressed.

"It is very much a fluid process," she said, adding that "no one wants to see a disruption in the marketplace."

Nicole Allen, senior vice president of strategic resources for the Council of Insurance Agents & Brokers, said the CIAB was disappointed that the amendment to exclude producer commissions from the MLR was not offered.

"We very much appreciate the NAIC's continued support of the producer's role in the health insurance marketplace," Ms. Allen added. "We thank the NAIC leadership for its commitment to working with HHS to find an accommodation in the MLR formula for producer compensation. We look forward to working with the NAIC as they discuss this important issue with HHS, and to preserving our members' role in the markets," she said.

Speaking at the NAIC press conference, Ms. Praeger also addressed the effects of the new rules on companies. While large group insurers are expected to "some stringent requirements," she acknowledged that individual and small groups may have some difficulty.