Agent Commission Debate Continues as HHS Approves MLR Formula

NU Online News Service

Federal regulators established as federal law medical loss ratio guidelines that largely track the guidelines approved by the National Association of Insurance Commissioners on Oct. 21.

At the same time, the Department of Health and Human Services adopted some transitional rules that should help agents retain their role in the marketplace, according to a quick analysis by officials at the National Association of Health Underwriters (NAHU).

The new health care law stipulates that for individual health insurance policies, 80 percent of premiums must be spent on medical care and quality improvement activities, with administrative costs limited to a maximum of 20 percent. The cap for group health plans is 15 percent.

In seeking to implement this provision, the NAIC sent to HHS a narrow medical loss ratio (MLR) definition opposed by the industry.

Agent and industry groups argued for a broader definition of "medical loss," arguing that a narrow definition could adversely impact spending on such important health plan activities as case management, wellness, disease management, and fraud and abuse prevention programs.

Agent groups were also looking to exclude agent commissions from the 20 percent administrative cost restriction.

The NAIC had rejected special considerations for the agents in the MLR formula it forwarded to HHS because commissioners said they lacked the legal authority to establish such considerations.

But a subgroup of the NAIC Executive Committee was formed to lobby HHS to provide considerations for agents in any final MLR.

John Greene, NAHU vice president of congressional affairs, said HHS did not grant a "formal pass-through" for agents and brokers because, like the NAIC, HHS "remained uncertain as to their legal authority to approve it.

But the transition rules should allow most small groups to meet the MLR requirement, he said.

The interim guidance asks for comments on the approach taken in this regulation and on the issues related to agents and brokers' compensation during years leading up to 2014.

But the Independent Agents and Brokers of America (IIABA) said the HHS approach did not go far enough and that it will ask the new Congress to step in.

Charles Symington, IIABA senior vice president for government affairs, said the impact of the MLR on agent commissions "will have a devastating effect on the private marketplace and that consumers will be negatively impacted."

He said, "After hearing from various interested parties, if HHS does not fix this language before the rule is final, we hope that Congress will step in and revise the MLR formula through the legislative process."

Green said the new formula recognizes fraud and abuse detection programs as legitimate expenses and federal and state taxes can be deducted. Also, several other transition rules were adopted.

The only change from the formula crafted by the NAIC over a three-month period from July to October was guidance on the controversial so-called "mini-med" plans, which provide limited health care benefits to certain employees, such as part-time workers employed by large corporations

HHS said the agency will apply "a methodological adjustment" to the way the MLR is calculated for the mini-med plans that addresses their "unusual expense and premium structures."

NAIC President and West Virginia Insurance Commissioner Jane Cline said, "We are pleased to hear that the Secretary has certified the work product that was developed by the NAIC without significant modification."

Under the new regulation, if insurers don't comply with the new limits on administrative costs–which can currently go as high as 35 percent–the insurers will be required to provide a rebate to their customers beginning in 2012, the agency said.

HHS estimates that as many as nine million Americans could be eligible for rebates in 2012, totaling $1.4 billion. Average rebates per person could total $164 in the individual insurance market.

Also beginning next year, the law will require insurance companies to publicly report details of how they spend premium dollars.