U.S. Senate Bill Aims to Remove Broker Commissions from MLR Formula

Love it or hate it, the Affordable Care Act has sparked a great deal of debate within the health care industry. One section of the Patient Protection and Affordable Care Act (PPACA) that has proven to be particularly problematic is a provision establishing Medical Loss Ratio (MLR) benchmarks for health insurance carriers. Several congressional bills have been filed in an attempt to remedy the situation. 

PPACA delegates the authority to determine the specific requirements of the MLR to the Secretary of U.S. Health and Human Services (HHS). On December 1st, HHS Secretary Kathleen Sebelius issued rules that designate brokers’ commissions as a “non-claims” cost, which is part of the “administrative” portion of the MLR formula. Depending on the size of the insured group, health insurance plans must spend 80-85% of their premiums on the provision of health care and must manage their overhead out of the remaining balance.

This inclusion in the “administrative” bucket already is having an extremely negative impact on brokers’ commissions, and compromises the ability of brokers to continue providing the services relied upon by many individuals and small groups. While certain PPACA provisions will undoubtedly help millions of Americans to obtain or maintain insurance coverage, the MLR issue remains problematic.  

Ever since PPACA was signed into law on March 23, 2010, many organizations have been working to have the brokers’ commissions excluded from the MLR administrative formula. By doing so, health plans would have a greater incentive to continue paying brokers and agents as they help individuals and groups secure the right coverage. 

Among others, members of the National Association of Insurance Commissioners (NAIC) have repeatedly expressed concerns to HHS that the current treatment of brokers’ commissions is having a negative effect on the ability of brokers to continue assisting small group employers and individuals in finding the best possible health insurance coverage at the most affordable price. Especially troubling is the impact that MLRs will have on the small group and individual markets in many states. National broker associations such as the National Association of Health Underwriters (NAHU) and the Independent Insurance Agents & Brokers of America (the Big “I”) have echoed NAIC’s concerns on this matter.   

Some progress in remediating the effects of the new MLR requirement was made last year when Representatives Mike Rogers (R-MI) and John Barrow (D-GA) proposed H.R.1206 entitled, “Access to Professional Health Insurance Advisors Act of 2011.” To date, the bill has attracted 172 sponsors, but has not been brought forward for a vote.   

One explanation why the bill remains in committee has been the lack of a companion bill in the Senate. On February 2, 2012, this concern was addressed with the introduction of S. 2068 entitled, “The Access to Independent Health Insurance Advisors Act.” The new Senate bill addressing the MLR issue was introduced by Senator Mary L. Landrieu (D-LA), chair of the Senate Committee on Small Business and Entrepreneurship, and Senator Johnny Isakson, (R-GA).  S. 2068 has been referred to the Committee on Health, Education, Labor, and Pensions. 

Senator Landrieu’s office and Senator Isakson’s office issued a joint press release on the submission of S. 2068. Both senators praised the bill as a bipartisan effort to protect brokers’ ability to continue assisting consumers. As Senator Landrieu said, "I am concerned that HHS's interpretation of the health care law threatens the ability of insurance agents and brokers — many of whom are one- or two-person small businesses —to continue providing essential services to consumers who depend on them to assist with coverage or claims problems. Many brokers are being forced to reduce client services or close their doors altogether due to unintended consequences of these regulations.” She elaborated further, “This is about strengthening the Affordable Care Act and ensuring that these small independent firms can stay in business and continue to provide critical services to consumers.”

These bills continue to meet with stiff resistance from groups purporting to represent the consumer’s interests; however, none of these groups have been able to explain how the proposed mechanisms in PPACA will be able to replace the assistance of brokers who alone have the training and experience to assist the small group employer and the individual in choosing optimal health insurance coverage.

Click here to read more about the Medical Loss Ratio.

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

The views expressed in this Legislative Alert do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.