Insurance Agents Try To Broker Deal on MLR

by Dan Diamond, California Healthline Contributing Editor

Section 2718 of the Public Health Service Act, part of the broader Patient Protection and Affordable Care Act, totals just a few hundred words.

But for the nation's half-million health insurance agents and brokers, that snippet of legislative language is an industry-shaking provision.

The section -- as part of PPACA's broader focus to reduce health care costs -- calls on insurers to spend at least 80% of their premium dollars on direct medical care. Under these medical loss-ratios, which took effect in January, brokers' fees are considered an administrative expense, prompting insurers to cut or reduce their commissions to the agents. Many brokers say they already are seeing steep declines in their business.

Acknowledging that brokers are facing a painful readjustment, some experts and consumer advocates say that the current MLR provisions are necessary to curb health care costs -- and that any attempt to rewrite them will undermine the reform law. At the same time, backers argue that brokers fill an essential role and are pushing to exempt agent and broker commissions from the MLR rules.

Understanding the Insurance Broker

Brokers have long performed an "important role" in the fragmented market for health insurance sold to small groups or individuals, according to Princeton University professor Uwe Reinhardt. Acting as middlemen for many transactions, the brokers "can harvest economies of scale in the gathering and structuring of pertinent information" -- and become expert in health insurance along the way.

Writing in Kaiser Health News, Jenny Gold notes that insurers tend to directly compensate brokers, usually by paying 6% to 8% of premiums in the plan's first year and between 4% and 6% of premiums in subsequent years. "But the cost of those commissions gets passed to everyone who buys insurance," according to Gold.

Washington & Lee University law professor Timothy Jost argues in Politico that in the individual market, first-year commissions can be even greater -- "as high as 20% of the premium."

Is it the Job-Killing Health Care Act for Brokers?

Reinhardt notes that all brokers, in all modern industries, are "forever vulnerable" to two developments that risk their livelihoods.

  • First, that the good or service may be standardized.
  • Second, that technology will aggregate information and do away with middlemen.

In these respects, the health law poses a clear threat to insurance agents. Specifically, the health insurance exchanges slated to launch in 2014 -- which will standardize insurance coverage and ease individual purchases -- could further marginalize brokers' role.

But the exchanges also might provide a windfall to the industry. Millions of uninsured Americans will be pushed to shop the exchanges to obtain coverage and are expected to need assistance. Meanwhile, brokers will be able to apply for "Navigator" grants under PPACA if they can prove that they are helping individuals and small business owners to negotiate their way through the exchanges.

For example, California projects that as many as four million state residents may shop for insurance coverage through the new Health Benefit Exchange. One of the first tasks facing the Exchange's board is "to design the [Navigator] program for effective implementation" in the Golden State, according to a primer on the Navigator program from the Increase the Uninsured Project and New America Foundation.

Can brokers wait until 2014? Many agents say that they are struggling now.

Insurance commission schedules that took effect this year sliced broker fees by as much as 50%. A recent National Association of Health Underwriters survey found that 21% of brokers have been forced to cut jobs, and more than 70% have seen their incomes decline because of the reform law. Forty percent of brokers also say that their clients have eliminated jobs because of health reform.

The changes come with brokers already grappling with several years of declining fees, and some suggest that other industry players are seizing the moment to ratchet up pressure on agents. Illinois Insurance Director Michael McRaith recently said that insurers may be using the MLR rules as an excuse to further trim commissions.

'Broker Bill' Could Shape Industry

Brokers' future may hang on legislative action.

The House is considering a bill (HR 1206) that would exempt insurance broker's fees from being classified as administrative costs under MLR rules. The bill could be the "next 1099," writes Politico's Sarah Kliff -- a legislative fix that "remedies a messily drafted piece of the health reform law and has the potential to gain wide-reaching bipartisan support."

Kliff notes that advocacy groups like NAHU and the National Association of Insurance and Financial Advisors have spent months laying the groundwork for the new legislative fight, in the wake of the MLR rules' release last August. NAHU also has hired the "powerhouse" lobbying firm Ernst & Young, according to The Hill.

Pushing back against the effort, consumer advocacy groups last week publicized the broker associations' political contributions, and health care stakeholders like the American Medical Association are lobbying HHS to keep the MLR rules as-is.

Yet the bill appears to be gaining momentum. After the legislation was introduced last month by Reps. Mike Rogers (R-Mich.) and John Barrow (D-Ga.), more than 50 co-sponsors have since signed on, including Democrats like Rep. Robert Andrews (D-N.J.), the ranking member on the Education and Workforce Committee's health subcommittee.

"It should surprise no one that even as Congress bravely talks deficit reduction, members push for special interest legislation likely to drive the deficit higher," Jost writes.

California Healthline will continue to monitor the battle over brokers, both in Congress and beyond. We'll be closely watching the National Association of Insurance Commissioners, which is expected to soon issue a crucial recommendation on whether brokers' fees should be exempted from MLR rules.

Meanwhile, here's what else is making news around the nation.

Scrutinizing the Overhaul

  • Three House members are questioning whether HHS Secretary Kathleen Sebelius has the authority to alter the Community Living Assistance Services and Support program, a long-term care initiative created under the federal health reform law. Last week, Reps. Charles Boustany (R- La.), Phil Gingrey (R-Ga.) and Daniel Lipinski (D-Ill.) circulated a "Dear colleague" letter to Sebelius, demanding that she provide written responses to questions about the program. In the letter, legislators write that Sebelius has "asserted considerable power to restructure the program," including changes to premium rates and whether those rates should be indexed to inflation (Norman, CQ HealthBeat, 4/15).
  • A Medicaid incentive program created under the federal health reform law is under scrutiny as the May 2 deadline for states to submit their final proposals to CMS approaches. The grant program offers states $100 million to reward Medicaid beneficiaries for making behavioral changes to improve their health, such as quitting smoking or losing weight. CMS will give states some flexibility in designing the incentive programs, but they will also provide a basic profile. The agency already has suggested that states provide rewards on a tiered basis for attempts at participation, actual behavior change and achievement of health goals (Miles, Kaiser Health News, 4/11).

Rolling Out the Reform Law

  • The Federal Trade Commission and the Department of Justice disagree over which agency should review whether accountable care organizations violate antitrust law. The outcome of the dispute could determine how much physicians and hospitals can collaborate before they violate antitrust law. The FTC sees a risk in that ACOs could allow too much consolidation and effectively permit health care providers to fix prices. Meanwhile, DOJ is more receptive to the groups because of the range of consumer benefits they will provide (Catan, Wall Street Journal, 4/12).
  • Democrats have formed two groups to lobby for the federal health reform law and protect the overhaul from repeal attempts. Last week, Massachusetts Gov. Deval Patrick (D) and former Wisconsin Gov. Jim Doyle (D) announced the "Know Your Care" campaign to promote the benefits of the overhaul. The second campaign, "Protect Your Care," would work to counter repeal attempts. Both groups are being advised by Paul Tewes, who previously led President Obama's 2008 Iowa caucus campaign, and Jim Margolis, a media consultant (AP/San Francisco Chronicle, 4/13).

Eye on Insurance Exchanges

  • Deductibles for minimum coverage in the state health insurance exchanges created under the federal health reform law could be substantial, according to a recent report from the Kaiser Family Foundation. The analysis was based on estimates developed by Actuarial Research Corporation, Aon Hewitt and Towers Watson. According to the analysis, deductibles for the lowest-cost individual plan could range from $2,750 with a 30% copayment once the deductible is met to $6,350 with no copays. Family deductibles could range from $5,500 to $12,700, the report found (Daly, Modern Healthcare, 4/14).
  • In related news, many states are encountering challenges in setting up online health insurance exchanges as mandated under the federal health reform law. HHS is expected to release regulations governing setup and operation of the exchanges in late spring. According to the reform law, HHS must certify state exchanges by Jan. 1, 2013, meaning states have little time to pass laws to create the exchanges following the release of regulations. In response, many states are moving ahead with legislation to develop the exchanges without full knowledge of the official guidelines (Feder, Politico, 4/12).

In the States

  • Last week, Oklahoma Gov. Mary Fallin (R) announced that her state is returning $54.6 million in federal grant money intended to help create an information technology infrastructure for health insurance exchanges under the federal health reform law. The grant, which was part of $241 million in Early Innovator Grants distributed by HHS in February, is the largest reform grant rejected by a state thus far (Kliff, Politico, 4/14). Oklahoma Insurance Commissioner John Doak (R) also announced recently that he will return a $1 million grant received by his predecessor for reviewing insurance premium increases (Barr, Modern Healthcare, 4/14).
  • The Maine Insurance and Financial Services Committee recently discussed various proposals that would promote purchasing health insurance from other states. Under the federal health reform law, states in 2016 will be encouraged to establish regional compacts. Opponents of the proposals are concerned that Maine residents who purchase insurance from other states would forfeit Maine Bureau of Insurance consumer protections (Haskell, Bangor Daily News, 4/12).
  • Last week, the Maryland Department of Health and Mental Hygiene began soliciting applications for board members or advisers for the state's health insurance exchange, created under the federal health reform law (Graham, Baltimore Business Journal, 4/14).

In the Courts

  • On Monday, the U.S. Supreme Court issued an order list that omits an appeal by Virginia Attorney General Ken Cuccinelli (R) for an expedited review of a federal judge's ruling in the state's lawsuit against the federal health reform law. In that ruling, U.S. District Court Judge Henry Hudson concluded that the reform law's individual mandate is unconstitutional (Stohr, Bloomberg, 4/18). According to AP/Google News, a possible reason for Monday's "silence" on the case could mean that one justice requested more time to assess the case or to write a short opinion that would accompany an order. The judges are scheduled to meet again on Friday to discuss pending cases (AP/Google News, 4/18).

In Public Opinion

  • Just 35% of U.S. residents support the federal health reform law, the lowest level since the overhaul passed last year, according to an Associated Press-GfK poll. The poll, which surveyed 1,001 U.S. adults between March 24 and March 28, also found that 45% of respondents oppose the overhaul, while 17% are neutral. It also found that 59% of elderly respondents oppose the overhaul, while 29% support it. Last week, CMS Administrator Donald Berwick said the public is in a "psychological trap, where nothing looks good," adding that the administration has been unable to convince the public that the overhaul will reduce costs and improve quality (AP/Washington Post, 4/12).

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