When Congress passed the Patient Protection and Affordable Care Act (PPACA) in March 2010, the law's language made it clear that insurance agents should continue to deliver health insurance products under the new system—thanks to heavy involvement at the law-drafting level by insurance associations.
However, current regulations are making that difficult.
Under the law, as of Jan. 1, 2011, health insurers must spend at least 80 percent of the funds they receive in health plan premiums from the individual and small group markets—and 85 percent from the large group market—on a combination of medical care claims and activities to improve healthcare quality. If a carrier does not meet these ratios, rebates are due to the consumer, starting in August 2012.
Read the sidebar "Hearings Set for Two MLR Bills" by Arthur D. Postal and Elizabeth Festa.
The law's intention was to focus policyholder premiums on patient service rather than overhead, marketing, executive salaries or other "administrative expenses" or "non-claims costs." Unfortunately, the law did not statutorily address how to classify independent agent compensation under the MLR formula.
Related: Read the article "Congress Gets No Respect?" by Ted Besesparis.
Last December, the Dept. of Health and Human Services (HHS) issued regulations including agent compensation in the MLR formula as part of the "non-claims costs" administrative category, which is limited to 15 percent or 20 percent of premiums.
Since the MLR regulation went into effect, many agents have seen their compensation from health insurers decrease by as much as 50 percent, according to the Government Accountability Office.
After studying the issue for a year, the National Assn. of Insurance Commissioners (NAIC) finally endorsed a legislative resolution that would preserve consumer access to agents and brokers. NAIC also urged HHS to take immediate action to mitigate the adverse effects the MLR rule is having on insurance agents. HHS summarily dismissed the NAIC's recommendations.
Agent and broker organizations continue to lobby to have their fees included on the medical care side and not counted as administrative costs, and support the current legislation to clarify the issue.
"Agent compensation is passed through by the insurance carrier from the consumer to the agent and is only collected as part of the premium as a convenience," said Robert Rusbuldt, IIABA president and CEO. "This compensation is not insurance company revenue and therefore should not be part of the MLR formula, and the Rogers-Barrow legislation is a crucial technical fix to correct this error."
The ultimate result of the confusion will hurt individuals and businesses by limiting their access to agents and brokers who can assist them in claims processing and tailoring healthcare plans, said Charles E. Symington, IIABA senior vice president for government affairs. "This damaging regulation has already been in effect for almost three months and insurance agents and consumers are today, every day, feeling its negative effects."
However, HHS, led by Kathleen Sebelius, has refused to provide an exemption for agent/broker commissions, and legislation has been pending in the House for 6 months without floor action.
Last August's departure of former Pennsylvania and Oregon insurance commissioner Joel Ario from his job at HHS supervising the building of health insurance exchanges was a major loss to the agents' cause as he appreciated the critical role they play in the procurement of coverage.
Meanwhile, efforts to counter the HHS rule are gathering steam in the states.
Ohio
Lieutenant Gov. and Dept. of Insurance Director Mary Taylor recently co-sponsored a resolution urging members of Congress and HHS to change federal law that would harm agents and brokers who sell health insurance.
Florida
Insurance Commissioner Kevin McCarty—president of the NAIC this year—urged HHS to exempt agent commissions from the MLR last December. HHS rejected the request a few days later. Working with agents in Florida, McCarty has formally petitioned HHS to reconsider.
Maryland
A group tasked with implementing federal healthcare reform is recommending that insurance agents and brokers continue to sell small-group health insurance when health exchanges begin operating in the state. The recommendations were made by the Maryland Health Benefit Exchange, which was set up under Maryland law to help implement the exchanges. The group said the council wants to "build on the existing" system for small-group insurance because duplicating those services with unlicensed navigators would be expensive and inefficient.
And the whole issue might be rendered moot if the U.S. Supreme Court rules PPACA unconstitutional. The Court began hearing arguments against the law on March 26 and is expected to render decisions by late June.
The Obama Administration and reform law supporters say the court must uphold the law to ensure Congress can continue tackling national problems through comprehensive solutions. Opponents say it is a fundamental American concept that the federal government should be restricted in what it can require of its citizens.
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