The divide between the Obama administration and healthcare insurance agents over an exemption for agent commissions from the medical loss ratio is likely to remain for some time.
Absent congressional action, which seems unlikely at the moment, the consensus of analysts and others is that the Department of Health and Human Services (HHS) lacks the authority to exempt agents from the MLR even if it desires to do so.
Wes Bissett, senior outside counsel for the Independent Insurance Agents and Brokers of America (IIAB), contends that HHS the has the authority to provide such relief under the existing provisions of the healthcare reform law, the Patient Protection and Affordable Care Act (PPACA).
In comments after a divided NAIC voted 26-20 to support the agents on November 20, Bissett said that HHS can act pursuant to its existing authority by (1) recognizing, in the words of the NAIC resolution, “the NAIC’s finding that a significant portion of insurance producer activities are dedicated to consumer advocacy and service” and therefore (2) “classifying an appropriate portion of producer compensation as a health care quality expense for purposes of the [ACA].”
Bissett said that the NAIC “perspective on MLR issues is vitally important and relevant,” especially since the PPACA empowers the organization to determine (subject to HHS’s certification) how the MLR calculations should be performed.
Bissett said that over the last year, the NAIC gathered considerable testimony regarding the health insurance market and concluded that agent and brokers provide valuable advocacy and service in a manner that affects and improves health care quality.
He said that, “Although 100% of agent compensation is currently classified as a negative in the MLR equation, HHS has the authority under existing law to unilaterally provide relief and reclassify some percentage of producer compensation as a positive under the MLR formula.”
Bissett added that, “Whether they will elect to do so is a question that remains unanswered, but the nation’s insurance regulators have now gone on record and asked HHS to take ‘immediate action’.”
The resolution was approved by the NAIC in plenary session Nov. 22, 26-20.
It passed after a nearly 90-minute conference call, and two prior unsuccessful, yet strong, attempts to either amend it, mitigate its demands or to send it back to committee.
The resolution also says Congress “should expeditiously consider legislation amending the MLR provisions.”
But, almost half of state regulators participating in the conference call voiced opposition, with the most vocal ones stating the political gambit here by the NAIC would ruin its credibility in Washington.
According to a healthcare industry analyst and the California insurance commissioner, HHS has no legal authority to exempt agent commissions from the MLR, as the resolution suggests.
Ira Loss, a healthcare analyst at Washington Analysis, which advises institutional investors and hedge funds, said the change would need Congressional action because the statutory definition of MLR does not allow those commissions to be exempt.
Loss, a healthcare lawyer, later said he has talked with other analysts and lawyers who said he was correct.
Significantly, HHS said after the vote that it plans no immediate action.
“The Affordable Care Act works to put consumers first by establishing greater transparency and accountability in health insurance and ensures that Americans receive value for their premium dollar,” HHS said in a statement attributed to a spokesperson. The statement said that the MLR rule does just that.
The spokesman said that, “This new rule provides consumers with meaningful information on how their premium dollars are spent, clearly accounting for how much money goes toward actual medical care and activities to improve health care quality versus how much money is spent on administrative expenses like marketing, advertising, underwriting, executive salaries and bonuses. It is already saving consumers millions by changing the way that insurance companies set premium rates.”
Moreover, the spokesman said, “Agents and brokers play an essential role in the insurance marketplace and we have implemented the law in a way that has maintained consumer access to their services.”
He said HHS will review NAIC’s recommendations and continue to work with them as well as consumer groups and other stakeholders to make sure that consumers receive the full benefit of the medical loss ratio rule.”
And, in a statement after the vote, Dave Jones, the California commissioner, said HHS “lacks the authority to take action and for the Congress to make changes to the federal law that would increase the cost of health insurance.”
And, in statements in September on the issue, Steve Larsen, director of the Center for Consumer Information and Insurance Oversight said that he believed insurance companies are taking advantage of the MLR to do what they wanted to do anyway: cut producer commissions.
Larsen made these comments in testimony before the House Energy and Commerce Subcommittee on Health.
He said requiring health plans to spend at least 80% of premiums on medical care costs “is a boon to consumers.”
He also cited studies from the U.S. Government Accountability Office and others indicating evidence of a reduced growth in insurance premiums.
Many NAIC regulators said, both during the conference call and elsewhere, that they heard from producers whose commissions were cut by insurers in order to comply with the act. As a result, without a heftier commission structure, the producers said that they couldn’t provide the same level of care to clients as before, the regulators said.
Industry officials said the key impact, if any, of the resolution would be on congressional action. The E&C panel is considering two related bills, H.R. 1206, which would exclude producer compensation from medical loss ratio calculations and H.R. 2077, which would repeal the MLR entirely.
H.R. 1206, sponsored by Rep. Mike Rogers, R-Mich., and John Barrow, D-Ga., has strong support. But it has been mired for months in the House.
According to officials of the National Association of Insurance and Financial Advisors (NAIFA), the bill has passed no House committees but now has 139 co-sponsors.
In statements on its website placed earlier this year, NAIFA officials said that H.R. 1206 would likely pass the House, but is unlikely to pass the Senate any time soon.
That was made clearer when Sen. Jay Rockefeller, D-W.Va. and chairman of the Senate Commerce Committee, said in reaction to the NAIC vote that he had sent a letter to Kevin McCarty, primary sponsor of the resolution, Florida insurance commissioner and incoming NAIC president.
“I am disappointed that a small majority of insurance commissioners have lined up with special interests today rather than consumers,” Rockefeller said.
Rockefeller was a key driver behind including the MLR provision in the Patient Protection and Affordable Care Act, is a strong supporter and a senior Democratic senator.
He said that, “I find it hard to believe that the NAIC endorsed allowing the health insurance companies to keep this rebate money as profit and am hopeful this new effort to undermine consumer protections will not be any more successful than earlier efforts,” Rockefeller said.
Agent trade groups, including national groups and state trade groups, lobbied the regulators fiercely for their support.
After the vote, Robert Miller, president of the National Association of Insurance and Financial Advisors, said state insurance commissioners “took a big step in an effort to undo some of the damage done by last year’s national health care reform law.”
He said the NAIC resolution acknowledges that the MLR provision of the health care law has destabilized insurance markets and harmed consumers by hampering the ability of agents to act on their behalf.
“It’s now up to our leaders in Washington, either in the administration or Congress, to finally resolve the MLR problem,” he said.
Janet Trautwein, the CEO of the National Association of Health Underwriters, said the NAIC decision “makes great strides” in the battle to ensure all Americans have access to health insurance professionals as they navigate the complicated laws and regulations resulting from the PPACA.
“We hope HHS will heed this recommendation to ‘take whatever immediate actions are available to the Department to mitigate the adverse effects the MLR rule is having on the ability of insurance producers to serve the demands and needs of consumers and to more appropriately classify independent producer compensation in the final PPACA MLR rule’, ” Trautwein said.
In doing so, “HHS will prevent further economic hardships for health insurance agents and brokers so they are able to continue to help American families, businesses and individuals plan for a healthy, financially-sound future,” Trautwein said.
NAIC President Elect Kevin McCarty, who championed the resolution and who has faced numerous challenges to Florida’s own health insurance marketplace, took the heat for the resolution but stood firm.
McCarty asked that the resolution not be tabled, and got a slim majority to follow him. “There is no luxury to hear this later,” he said. “Time is of the essence. Referring it back to the Committee will result in no action and HHS will be promulgating their rules without us,” McCarty warned.
The language of the resolution which was hotly disputed, almost tabled, and faced an unsuccessful but strong bid for a rewrite that would have provided information only backing up claims of harm to agents. It used testimony from its Professional Health Insurance Advisors (PHIA) (EX) Task Force hearing that reportedly revealed that the PPACA’s MLR requirements “have had profound detrimental marketplace effects for insurance producers and, more importantly, are adversely affecting the quality of service provided to consumers and the ability of insurance purchasers to access and rely on competent and qualified insurance advisors.”
It also states that “in 2011, a significant number of companies have reduced commission levels, particularly in the individual market,” without mentioning the flip side.
Commissioner Sandy Praeger of Kansas had noted on the call it is this half-use of findings which makes her concerned. “I worry about our credibility...we [the NAIC] were written into the the law because we were trusted as experts on this. We are going so far here as to put as our credibility in jeopardy. The resolution has to be very careful not to overstate. The findings are incomplete.. in the resolution, the resolution is incomplete,” Praeger said.
This resolution “is based on anecdotes,” said Washington State Commissioner Mike Kreidler, a former legislator. “I have never seen a process like this,” he said. The resolution seemed to come “from thin air,” “doesn’t do anything in the state of Washington,” and “will help no one but the insurance companies themselves,” Kreidler said on the call.
“If you really wanted to do something, with reductions in producer compensation, mandate it to the insurance companies—that they pay a certain amount in commissioners and rebates,” Kreidler said.
“I strongly urge people to oppose this measure,” Kriedler said, adding that the way in which the NAIC had handled this measure was “unprecedented. The NAIC has a reputation for technical expertise, Kreidler said, and “we have a chance here of keeping that reputation intact by voting ‘No.’”