Broker/Agent Commissions at Center of MLR Regulation Debate

Conflict is heating up relating to the Medical Loss Ratio (MLR) regulations and the impact on broker commissions.  A growing faction of advocates is encouraging key policymakers to remove the broker commission from the MLR formula altogether.  This blog offers a snapshot of likely events over the next several weeks.    

As of January 1, 2011, the interim final MLR regulations now require health insurance issuers to spend at least 80% of the funds they receive in health plan premiums from the individual and small group markets -- and 85% from the large group market -- on a combination of medical care claims and activities to improve healthcare quality. [1] 

Several organizations are currently seeking revision of the interim final rules.  At the heart of the debate is the potential impact of the MLR rules, established by the Department of Health and Human Services (HHS), on insurance broker commissions. 

NAIC WEIGHS IN

The National Association of Insurance Commissioners (NAIC) recently spoke out about the configuration of the MLR and how it destabilizes the critical role brokers play in the functionality of the state health insurance markets.[2]  A number of key insurance commissioners are now advocating that broker commissions be excluded from the MLR formula, which currently offsets broker fees against the administrative bucket.[3]  The NAIC is now investigating how the MLR will impact broker fees and vice-versa. [4]

Among other critics to the current MLR formula, the National Association of Health Underwriters (NAHU) is providing data that will support removal of the commissions altogether.[5]  The NAIC’s Health Actuarial Task Force, which is reviewing the NAHU data and other information, will hold a meeting in early June to reassess the situation.[6]  The objective is to provide feedback for HHS Secretary Kathleen Sibelius.

While a majority of insurance commissioners appears to be in favor of revising the MLR formula to remove the broker fees, a number of groups prefer maintaining the status quo.  For example, NAIC consumer representatives are unanimously opposed to any changes to the MLR formula and are joined by a vocal group of liberal state insurance commissioners.[7]  Powerful members of Congress, such as Senator Jay Rockefeller (D-WV), are also opposed to any amendments to the current MLR framework. [8]

ASSESSING THE MLR IMPACT:  AVOIDING DISRUPTION

The American Academy of Actuaries is predicting significant disruption in the state individual health insurance markets if the current MLR formula remains in place.[9]  Further, results of an independent study conducted by Alexander and Karaca-Mandic[10] state:

“For the calendar year 2009, using a PPACA adjusted MLR definition, we estimated that 29% of the insurer-state observations in the individual market would have MLRs below the 80% minimum, corresponding to 32% of the total enrollment.  Nine states would have at least one-half of their health insurers below the threshold.  If insurers below the MLR threshold exit the market, major coverage disruption could occur for those in poor health.” 

NAIC HANDOFF TO HHS:  WILL THE MLR FORMULA BE AMENDED?

The NAIC will continue to study the financial impact of the current MLR on broker and agent commissions over the next several weeks, and report its findings at an interim NAIC meeting next month.  Any recommendation then will likely wind its way through several NAIC committees until the group formally considers making a change at a Plenary Session.  Due to an influx of recently-elected Republican insurance commissioners, many are predicting the NAIC will recommend eliminating the commission fees from the MLR. 

Any final NAIC recommendation will be forwarded to HHS for final review, leaving the ball in HHS Secretary Sibelius’ court. 

Sibelius often has spoken of HHS’ willingness to work with the NAIC on issues that could potentially disrupt state health insurance markets. Under her leadership, HHS has approved state-wide MLR waivers for Maine, New Hampshire and Nevada,[11] while Kentucky, Florida, Georgia, North Dakota and Iowa—as well as the territory of Guam–have also requested MLR waivers.[12] Is this willingness to grant waivers an indication of her willingness to work with the NAIC on a more flexible MLR? Only time will tell.

CONGRESSIONAL UPDATE

Congressmen Mike Rogers, (R-Mich.) and John Barrow (D-Ga.) have filed the Access to Professional Health Insurance Advisors Act of 2011 (H.R. 1206), which would force states and the federal government to treat broker commissions as exempt from the MLR.[13]  The NAIC was poised to endorse this bill, but a last minute action by the organization’s consumer representatives and some of the more liberal insurance commissioners caused the organization to delay consideration pending the results of the study noted above.  If the data proves that the MLR is having a catastrophic effect on commissions, the NAIC likely will move to endorse H.R. 1206.  

At first blush, it appears that H.R. 1206 would pass the U.S. House of Representatives with the new found majority of Republican members, but even that is uncertain. Sarah Kliff of Politico.com notes that the politics of the issue may result in the Republicans preferring to leave the Patient Protection and Affordable Care Act (PPACA) intact, rather than attempting to retool specific parts of the legislation.[14]

In the Senate, H.R. 1206 would face a much chillier reception in the Democratic-controlled Senate.   Can supporters of the Senate version of the legislation peel off enough Democrats to ensure its passage? Given safe passage in the Senate, will President Obama even agree to sign the bill?  That is more doubtful, given the vocal opposition to this issue from the more liberal wing of his party. However, supporters of H.R. 1206 should take heart in the President’s expressed willingness to tweak PPACA.

One thing is for certain: If the President refuses to sign the bill, it is most doubtful enough votes could be gained in the Senate to overcome his veto.

Stay tuned to find out how the MLR debate plays out at the NAIC in June and in the future inside the Capital Beltway.  Please monitor www.BenefitMall.com and www.HealthcareExchange.com for further developments.