The insurance industry is quietly pushing lawmakers to tweak a very wonky rule in the Affordable Care Act that could save them money and significantly reduce the amount consumers would receive in rebates each year.
At issue is the ACA’s medical loss ratio (MLR) which requires insurers to spend at least 80 percent of their revenue from premiums on health care related costs and no more than 15 percent on administrative costs for large groups and 20 percent for small groups. If insurers don’t meet the MLR, they are required to rebate the difference to their customers.
The new standards were intended to keep the cost of premiums in check by preventing insurers from incurring unreasonably high administrative costs. However, the insurance industry says the way the MLR is currently calculated is having a harmful affect on its bottom line, which may mean higher premiums for their customers.
“The unintended consequences of imposing an arbitrary federal cap on health plan administrative costs are likely to outweigh any benefit these rebates will provide to consumers,” said Clare Krusing, communications director for America's Health Insurance Plans.
Right now, the MLR includes payments to brokers and agents as part of insurers’ administrative costs. Industry trade groups want that changed. They say it would be easier to meet the standards if their payments to the middlemen were not calculated in the MLR.
In 2011, the first year that the new requirements were in effect, nearly 13 million Americans received rebates from their insurers (that didn’t meet the MLR) totaling about $1.1 billion. The following year, more insurers complied with the new standard, dropping the total rebates to $520 million, according to the Government Accountability Office. The GAO noted that two-thirds of insurers met the standards in 2012.
“The (MLR) requirements contained in the Patient Protection and Affordable Care Act continue to have a devastating financial impact on the country’s approximately half-million licensed professional health insurance agents and brokers, as well as on all of their employees and their millions of employer and individual clients,” Janet Trautwein, CEO of the National Association of Health Underwriters (NAHU), said in a statement.
However, according to a new GAO report, excluding the commissions and fees paid to brokers and agents from the MLR would significantly reduce rebates to consumers.
In fact, the auditors said in 2011 alone rebates would have plunged from $1.1 billion to $272 million. Likewise, in 2012 that would have dropped from $520 million to $135 million—reducing the average customer rebate from $58.50 to $15.21 per person.
Sen. John D. Rockefeller (D-WV), a proponent of the MLR requirement who requested the GAO report, has fought lawmakers and trade groups to keep the current formula—saying it saves consumers money.
Several lawmakers, on the other hand, have expressed concern for the middlemen and have offered legislation to exclude brokers from the MLR.
"Many brokers are being forced to reduce client services or close their doors altogether due to unintended consequences of these regulations," Senator Mary Landrieu (D-LA) said in a statement after introducing the Access to Independent Health Insurance Advisors Act. "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.” Sens. Lisa Murkowski (R-AK) and Mark Begich (D-AK) cosponsored the bill, which has since lost traction.
A report from the Commonwealth Fund concluded that agents and brokers suffered a $300 million loss in commissions in 2012 as a direct result of the MLR provision.
A recent GAO survey of eight insurers found that at least one admitted that the MLR was a “primary driver” in the change in how much it paid its brokers.
While health experts agree that exempting broker commissions from the formula would likely make it easier for insurers to meet the MLR standards without having to make significant changes to broker compensation, they say it could also lead to higher premiums and much smaller rebates for consumers.
That’s according to an analysis by the Kaiser Family Foundation, which looked at 2010 insurer filings, and found that on average, broker compensation accounted for 6 percent of insurance premiums in the individual market and 5 percent of premiums in the small group market.
The Kaiser study noted that the impact of the MLR requirement varies from state to state and insurer to insurer.
“Some plans appear to already be meeting the MLR thresholds, so exempting commissions in those cases would have little effect,” the analysis said. “But for the market overall, removing sales commissions from the equation would lead to smaller rebates for consumers and higher premiums over time.”
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