For the NAIC, A Consequential Decision on the MLR

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Stephen Finan, Barbara Rea, Kimberly Calder, Timothy Jost, Bonnie Burns, Lynn Quincy and Elizabeth Abbott.

First published 5/09/11 on Kaiser Health News

The National Association of Insurance Commissioners (NAIC)The National Association of Insurance Commissioners is considering whether to endorse legislation that would remove broker and agent commissions from the medical loss ratio, a calculation that could give consumers valuable insights about the proportion of their premiums spent on health care costs compared with administrative expenses and salaries. Removal would have far-reaching implications for the reliability of the MLR as a measure of a health plan’s value, for the broader goal of improving quality and controlling costs, and for the NAIC itself.

Last year, the NAIC recommended that the Department of Health and Human Services adhere to the law’s requirement that brokers’ and agents’ fees be included in the MLR. That position resulted from a thorough process that included input from interested groups representing consumers, insurers, brokers and agents, and others. The recommendation represented an equitable balancing of numerous perspectives, and HHS adopted it virtually unaltered.

The brokers and agents responded by waging an intensive lobbying campaign urging the NAIC to endorse a bill by Rep. Mike Rogers, R-Mich., that would remove these payments from the MLR calculation. We were among the NAIC consumer representatives who strongly opposed such a move, arguing that the economic consequences for consumers and the government had not been adequately examined. The NAIC elected to study the issue further before making a final decision, which could come this month.

Numerous organizations representing consumers and patients believe that, for the MLR to be a meaningful measure of consumer value, broker and agent fees must be included in the calculation as an administrative expense. Excluding these fees would essentially hide a significant driver of premium costs and undermine an important opportunity to contain unnecessary administrative expenses. It would also dilute the law’s efforts to make health insurance more transparent and comprehensible, and to empower consumers to make informed decisions when choosing a health plan.

The medical loss ratio is one of the key ways that consumers can measure the value provided by health plans. The strict standard for calculating the MLR embodied in current law provides insurers with a strong incentive to be efficient in their marketing and other administrative services, and to maximize spending on health care. In this way the MLR could contribute to genuine cost savings and higher quality of coverage.

The upcoming NAIC decision will be closely watched by stakeholders throughout the health care system. The open and inclusive process that led to the NAIC’s initial recommendation earned the state insurance commissioners a large measure of goodwill and trust, and the move last month to delay a final decision on the Rogers’ legislation signaled a genuine effort by the commissioners to give this issue more thoughtful consideration. To sustain public confidence, the NAIC must ensure that its final decision reflects a balanced examination of the evidence.

This evidence must include an assessment of the effect on consumers, as well as a careful examination of the experience of states that have followed this stricter approach for many years. It should also explore why one aspect of broker compensation — their commissions — is proposed for exclusion, while other forms of compensation — bonuses and incentive payments — are not.

The NAIC has played a critical role in the implementation of several key aspects of the health care law, and the organization could wield considerable influence in the future over issues such as the new health benefit exchanges and the broader transformation of the health insurance market to a more consumer-friendly marketplace. If the NAIC bends to the brokers’ and agents’ demands without compelling evidence showing no adverse impact on consumers, its ability to weigh in on other important issues in a fair and equitable way will be called into question.

The authors are consumer representatives to the National Association of Insurance Commissioners .

One comment

  1. Stephen Finan, Barbara Rea, Kimberly Calder, Timothy Jost, Bonnie Burns, Lynn Quincy and Elizabeth Abbott. How these seven individuals cannot understand the issue of the broker compensation is mind boggling. To put the issue very simple independent brokers do not work for the insurance companies. Therefore broker compensation is not administrative overhead to the insurance company. Brokers work directly for the employer or the insured and their family members. Often the broker is hard at work navigating the health care system in an effort to give these insured the best possible health care possible. The broker’s work is usually between the insurance company and the medical provider for the benefit of the insured/patient.
    (A direct agent, is or can be employed directly by the insurance company. She can be a 1099 or w-2 employee, but this individual works directly for the insurance company and is captive representative. In other words, they can sell no other insurance plans other than those provided by their respective insurance company which employs them. These captive agents are directly insurance administrative overhead.)
    Now, it is the mere culture of the insurance licensing industry that requires appointments for each company the independent broker sells to a client. This is mostly a culture aspect of the industry and has little to do with true effective functionality of the insurance system. Once a broker is licensed by a particular state’s regulatory body she my sell insurance plans that will best serve her clients’ need. Her compensation is a pass through from the premium payer ultimately to her, the insurer keeps none of it. It is a pass-thru!
    Furthermore, our health care system requires trusted advisers and experts to help individuals and companies navigate their complex choices. There is particular concern that the HCR attempts to replace the valuable services of the independent agent/broker. Most of our agent/brokers are community leaders, members of our Rotary, Lions, and Kiwanis groups. We are board members of our local companies and organizations, leaders of school, church, and other civic groups. The thought that our federal and state governments interpret a duty to compete, or replace, the services performed by career professionals is a frightening concern for us all.
    Brokers want to be independent representative for the clients. Inclusion of the broker compensation into the MLR make independent brokers vulnerable to the insurance company as the insurance company is now in charge of the brokers compensation. If the insurance company has to select between the consumer having an effective broker to represent the insured’s best interests or the insurance company’s profit, which one do you think they will pick?
    I deeply wish the authors will reflect more on what the write and reconsider how the position will unintentionally harm consumers.

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