A federal bill has been proposed to exempt agent and broker commissions from the Affordable Care Act's medical loss ratio calculation. That would be a fantastic development for agents and brokers but what are the other impacts?
If the bill, which has bipartisan support, were enacted it could reduce the rebates paid back to U.S. consumers by more than $1 billion for those insurers that do not meet the MLR rules of 85% for group insurance plans and 80% MLR for small and individual plans. And those exemptions may not be warranted, according to A.M Best.
A.M. Best acknowledges that it may be difficult to assess the exact impact of commissions on the MLR, but the NAIC is contemplating whether and how to weigh in on the bill, which was introduced in March.
Since the passage of the Affordable Care Act, agents and brokers have criticized the MLR as some commissions have been reduced by as much as 60%. Some insurers have cited the MLR requirement as the primary reason they have been slashing administrative costs.
Insurance regulators have been sharply divided over what, if any, impact MLRs are having on producers and whether insurers are simply using them as an excuse to cut commissions. That's the conjecture in the industry, it will take time and quite a bit of jockeying to determine how much of that conjecture is actually true.
Jessica Waltman, senior vice president of government affairs for the National Association of Health Underwriters, told A.M. Best, if the MLR requirement is not modified, it could have a "detrimental impact" on smaller companies and regional carriers who often depend on agents and brokers to provide guidance and customer service capabilities to health insurance customers. She said the impact would be especially hard on younger agents and brokers who are just starting out in the field.
Data provided to the NAIC by 11 states that already had MLR requirement statutes on the books prior to the passage of health reform shows that in some states, producer commissions have been reduced in recent years. That data is telling and has agent associations worried particularly those in the individual market.
If the MLR requirement were applied to 2010 data collected by the NAIC, insurers would have paid a total of $1.95 billion in rebates to individual, small group and large group customers, according to the report. But if agent and broker commissions and direct sales salaries are excluded from the rebate formula, as is proposed by the bill, those rebates drop to a total of $680 million -- a decrease of roughly $1.3 billion.
According to Timothy Jost, a professor at Washington and Lee University School of Law who serves as a consumer representative for the NAIC, "Even in the case of the NAHU and Connecture data, it's hard to determine whether there is a problem at all. Both say that some have seen significant cuts and some haven't," Jost said. "And the data from the states with existing MLR requirements says it isn't a problem at all."
