#4: Health Care Reform Becomes Law

After many months of wrenching debate, Democrats in March finally succeeded in getting health care reform legislation to the finish line.

On March 23, President Barack Obama signed the reform package–the Patient Protection and Affordable Care Act–into law. "Today, after almost a century of trying, today, after over a year of debate, today, after all the votes have been tallied, health insurance reform becomes law in the United States of America," he said during the signing ceremony.

But as the administration rolled out regulation after regulation to implement it–most crafted with input from the National Association of Insurance Commissioners–the bill continued to generate concern and controversy.

Insurance agents were successful in shaping many provisions to their liking during the legislative process, but once the bill was signed, some were left to worry that the implementation of the health exchange system in 2014 would curtail their ability to serve the individual and small group markets–key markets for small agents.

In the short term, they worked to moderate provisions dealing with so-called "mini-med" plans, which are defined as limited-benefit health plans that offer insureds $250,000 or less in total annual benefits.

In spite of repeated attempts, agents failed, however, to persuade Congress to repeal a provision that would require businesses that spend $600 or more with a vendor to file a 1099 form with the IRS starting in 2012. The Independent Insurance Agents and Brokers of America called the provision burdensome for small businesses.

After being denied an exemption from the so-called "medical loss ratio"–a provision that goes into effect in January and is designed to limit administrative costs of health care–agents groups have said they will seek legislation in the next Republican-controlled House that would exempt commissions from the provision. Agents do not want commissions to be treated as part of company premium revenue for purposes of establishing MLRs.

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

Producer groups fear that the MLR rules will put pressure on carriers to reduce their commissions. The current interpretation of the law is that commissions must fit into the 15- or 20 percent administrative cost window.

The Department of Health and Human Services did provide some transitional relief for 2011 in its interim final rule in November and is asking for comment on whether it has the legal authority to grant an exception and on the role agents play in the health care insurance process.

Summing up the agents' and brokers' overall reaction to the PPACA, Joel Wood, senior vice president of government affairs for the Council of Insurance Agents & Brokers, said: "We didn't get health care reform this year. We got health insurance reform, the product of demonization and vilification of the industry that will do virtually nothing to constrain the underlying costs of health care."

He said the MLR issue is the biggest concern to the brokerage community. "While aimed at being a federal price control, it is a perverse disincentive for plans not to cut costs," Mr. Wood said.

"Excluding agent/broker compensation from the MLR will be our top legislative priority for 2011, and we support broader Republican efforts to replace the Act altogether," Mr. Wood added.

The IIABA contends that agent commissions are passed 100 percent to third parties and therefore should not be included in the formula. "The IIABA is very concerned that the MLR provision of the new health care reform law will have a devastating effect on the private marketplace and that consumers will be negatively impacted," said Charles Symington, IIABA senior vice president for government affairs. "If, after hearing from various interested parties, 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," he said.

On the litigation front, challenges to the health care law continued throughout the year. On Dec. 13, a federal district court judge in Richmond, Va., ruled that the provision of the health care law requiring people to buy insurance in 2014 is unconstitutional. Judge Henry Hudson opined that Congress lacked any power to compel an individual to involuntarily engage in a private commercial transaction, as contemplated by the "Minimum Essential Coverage Provision" of the health care law.

The provision requires everyone to buy insurance in 2014, or pay a small penalty for not doing so. This provision "is neither within the letter nor the spirit of the Constitution," Judge Hudson wrote in a 42-page decision.

His ruling is certain to be heard by the 4th Circuit U.S. Court of Appeals. "As you well know, this is only one brief stop on the way to the U.S. Supreme Court," Judge Hudson said during oral arguments.

Healthcare for America Now, which supports the law, cautioned that 14 federal district court judges have rejected lawsuits seeking to invalidate the new law.

Meanwhile, property and casualty insurers writing commercial insurance coverages with medical cost and liability components are seeing mixed signals about the impact PPACA will have on their claims experience.

Ties between workers' compensation medical fee schedules and Medicare reimbursement levels are on the radar screens of workers' comp insurers, as are the potential benefits from a healthier population.

In the liability arena, some participants in the medical malpractice insurance market are prepared for the worst-case scenario of med mal suits emerging from a more error-prone, overburdened health care system. Others see the prospect of better or earlier care reducing claims severity and are scoping out opportunities for writing potentially growing classes, like physician's assistants and mobile clinics.