Featured Health Business Daily Story, Sept. 26, 2011
States May Take Lead on MLR Broker Issue As NAIC, Congress Turn Attention Elsewhere
Reprinted from AIS’s HEALTH REFORM WEEK
By Jennifer Lubell, Editor – September 12, 2011 – Volume 2 Issue 30
As the insurance regulator’s major professional group backs off on its push to exempt broker commissions from being treated as administrative costs in calculating insurers’ minimum medical loss ratios (MLRs), industry insiders suggest that some states will work around the parameters of federal regulations to pursue their own solutions to this issue.
Arkansas, for example, is mulling an alternative that takes the insurer out of the equation in compensating brokers. It’s a proposal “that could work in many states,” Alan Katz, past president of the National Association of Health Underwriters and a principal at the Alan Katz Group, a consulting firm in Los Angeles, tells HRW.
Alice Jones, spokesperson for the Arkansas Insurance Department, confirms to HRW that the state is considering a bulletin “which proposes to permit the agent or broker to collect a ‘compensation fee’ directly from the client/group as a consultation fee. We are seeking feedback and suggestions from health producers and brokers so the commissioner can decide what is in the best interest of Arkansas consumers.”
Jones stresses that the bulletin is “only under discussion at this time.”
Federal regulations that took effect Jan. 1 require health insurers to have MLRs of at least 80% in the individual and small-group markets and 85% in the large-group market (HRW 12/6/10, p. 1). Broker commissions must be included in the adjusted earned premium used in calculating the MLR, thus having the effect of increasing the denominator, lowering the reported MLR and potentially increasing the amount of rebates that the carriers would have to make to customers.
An Aug. 29 Government Accountability Office report found that most insurers were planning to decrease commissions to brokers, in an effort to increase their MLRs (see chart, p. 3).
In June, a task force of the National Association of Insurance Commissioners (NAIC) on broker issues voted to support a bill (HR 1206) sponsored by Rep. Mike Rogers (R-Mich.) to exempt broker commissions from the MLR calculation. Some commissioners had supported the bill, citing concerns about brokers’ livelihood in the wake of significant commission cuts by insurers, and the resulting potentially negative impact on consumers and small groups seeking help in purchasing insurance.
This issue, however, appears to have lost steam within the NAIC. In a recent conference call, NAIC President-Elect and Florida Insurance Commissioner Kevin McCarty, who chairs the task force and backed the bill, acknowledged that “while we may be supportive of the Rogers bill in the task force, we have to be realistic about the opportunity of it becoming law” (HRW 7/18/11, p. 5).
“I don’t think the NAIC is going to take further action on this unless something changes pretty dramatically,” Timothy Jost, J.D., a health law professor at the Washington and Lee University School of Law in Virginia and an NAIC consumer representative, tells HRW.
Jost says the broker issue had been left off of the agenda for NAIC’s canceled summer meeting, though he acknowledges that “there wasn’t a lot of health care business” scheduled for the meeting to begin with. “I think it’s fair to say that the main agenda was to start looking at 2014, looking at exchange implementation and new market regulations,” he says of the meeting’s planned health reform discussions. “There weren’t any big agenda items that were set for decisions; it was to start talking about how various issues were going to be dealt with.”
In light of the canceled meeting, McCarty spokesperson Jack McDermott tells HRW, “I do not think there have been any more developments on this.”
Jost was also skeptical that lawmakers in Washington would take up the broker pay issue, in either the Rogers bill or other legislative avenues.
The Rogers legislation, which has about 100 co-sponsors, has not yet been marked up in a House committee and is actively opposed by consumer groups and some prominent Democrats, including Sen. Jay Rockefeller (D-W.Va.). “If Congress decides this is a top priority, and they may try to attach it to a bill, the president would have a hard time vetoing and push it through — but right now Congress has so many other things on its plate, it’s hard for me to imagine this is a top priority,” Jost says.
If any action takes place on broker fees, it may be on the Senate side where Sen. Mary Landrieu (D-La.) said she was going to introduce legislation to exempt the fees from the MLR calculation, he continues. “I don’t know where that stands, but the last I heard, she was asking HHS if this is something they could do, and…the position from HHS is there is nothing they can do, they’re just implementing the law, and if Congress wants to change the law, it can.”
States May Try to Circumvent MLR Regs
Attorney Bruce Merlin Fried, a partner in the Washington, D.C., office of law firm SNR Denton US LLP, acknowledges that “the feds have decided how they’re going to handle the broker agent issue. And while there may be members of Congress willing to fight the good fight for the brokers and agents, at the end of the day Jay Rockefeller is not going to let this change.”
While Congress may have drawn the line on the MLR, it’s also important to note that states have the ultimate authority over brokers and agents, Fried contends. “In that respect, states could have a lot of sway” in addressing the matter of broker compensation in the MLR.
As an example, the states could “basically take brokers and agents out of the realm of insurance, so they aren’t acting as agents of insurers, but instead are acting as the agent of the purchaser,” to possibly circumvent the issue of counting their commissions as administrative costs in the MLR, he says. Under Arkansas’ proposal, for example, employer groups would pay brokers as consultants, and the insurance carrier essentially would act as a third-party clearinghouse, Katz says. In other words, the carrier would aggregate all of the broker’s fees into one lump sum, list that distribution fee as a separate charge on the employer’s premium bill, and then pay it out to the broker. This way, the fee never gets counted toward the administrative cost of the carrier.
“It’s the facilitation of the fee between the client and the broker,” and there’s no violation of the reform law in that, Katz explains.
Some, but not all, states may be looking at these types of options, he predicts.
It’s a more transparent arrangement, but as David Tuomala, director of actuarial consulting at OptumInsight, suggests, one that may not necessarily work in favor of brokers. They still could face reduced compensation, he tells HRW.
Specifically, brokers might find it more difficult to justify the compensation they’re getting for selling a product every month if it’s separated out as a line item, Tuomala says. Once employers know how much they’re paying brokers for their services, “they may want to ratchet that down if the amount is higher than they might like it to be,” or if they feel they’re not getting value for the amount of broker fees they’re paying, he adds.
The broker issue remains controversial and “isn’t just going to go away,” Joe Paduda, a former insurance executive who now is a principal in Health Strategy Associates, tells HRW. “It will wax and wane, but as pressure mounts on insurers and regulators, broker fees will come back to the fore as everyone tries to ensure their piece of the pie remains as big as possible.”
View the GAO report at www.gao.gov/products/GAO-11-711.
Range of Traditional MLRs Reported in the Individual, Small-Group and Large-Group Markets, 2009
|Notes: Excludes insurers with less than 1,000 life years in a market or where life years could not be determined, and insurers that reported negative values for premiums, claims, or number of covered lives. Life years refer to the total number of months of coverage for enrollees divided by 12. Large group includes plans participating in the Federal Employees Health Benefits Program.
aThe traditional MLRs in the individual market were more widely distributed than those in the small and large group markets. MLRs within one standard deviation above and below the mean ranged from 64.4%–105% in the individual market, compared to 69.4%–96.8% in the small group market, and 79%–97.9% in the large group market. The standard deviation is a measure of the amount of variation in the data from the mean — a larger standard deviation indicates more variability.
Source: Government Accountability Office analysis of National Association of Insurance Commissioners data.