Filed Under:Markets, Employee Benefits

CBO: Agent comp bill could add $1.1 billion to deficits

Agent Commission Chart from NAIFA Study, courtesy NAIFA
Agent Commission Chart from NAIFA Study, courtesy NAIFA

H.R. 1206 -- a bill that would get health insurance agent and broker compensation out of minimum medical loss ratio (MLR) calculations -- could cost the federal government about $1.1 billion from 2013 to 2022, according to budget analysts at the Congressional Budget Office (CBO).

The bill could increase federal spending by $447 million over that period, and it could cut federal revenue by $675 million, the analysts estimate in an H.R. 1206 budget impact report.

Holly Harvey, a deputy assistant director at the CBO, approved the estimate. The team that developed the estimate included members of the staff of the congressional Joint Committee on Taxation as well as members of the CBO staff.

The PPACA MLR provisions

The minimum MLR provisions in the Patient Protection and Affordable Care Act of 2010 (PPACA) now require health insurers to spend at least 85 percent of large group revenue and 80 percent of individual and small group revenue on health care or quality improvement efforts, or to make up the difference by sending customers rebates.

Health insurance agents and brokers say health insurers are responding to the limits on sales and administrative costs by slashing commission rates and cutting or eliminating other types of compensation.

Producer groups have argued that customers are the ones who really pay commissions, and that insurers simply collect the commission payments as a courtesy to the customers. The groups have argued that insurers should leave producer compensation amounts out of PPACA MLR calculations.

H.R. 1206

Rep. Mike Rogers, R-Mich., and Rep. John Barrow, D-Ga., introduced H.R. 1206 in March in an effort to get health producer comp out of the PPACA MLR formula.

Members of the House Energy & Commerce Committee approved the bill in September.

The elections held Tuesday left the House in the control of the Republicans but will increase Democrats' hold on the Senate. Analysts at Washington Analysis suggested earlier in the year that getting H.R. 1206 through the Senate could be difficult.

The list of producer groups fighting for passage of H.R. 1206 includes the Independent Insurance Agents and Brokers of America (IIABA), the National Association of Insurance and Financial Advisors (NAIFA) and the National Association of Health Underwriters (NAHU).

The CBO report

H.R. 1206 could increase health insurance premiums by 0.2 percent on average over the next few years and 0.1 percent in later years, the analysts said.

"Because MLR requirements would be easier to achieve under H.R. 1206, insurers would have less incentive to reduce administrative costs than under current law," the analysts said. "Both of these effects are expected to result in an increase in premiums relative to current law."

H.R. 1206 also could increase premiums by encouraging states to ask the U.S. Department of Health and Human Services (HHS) for waivers of the MLR requirements, the analysts said.

For consumers, the bill could cut rebate payments by 60 percent to 70 percent at the beginning and by about 40 percent to 50 percent later, the analysts said.

Because health insurance premiums would be a little higher, the federal government could end up spending a little more on PPACA health insurance purchase subsidies for low-income and moderate-income consumers, the analysts said.

H.R. 1206 could reduce federal income tax revenue by increasing the price employers pay for health coverage and increasing the amount of health insurance spending employers can deduct from their taxable income, the analysts said.

Diane Boyle, a vice president at the NAIFA, said in a comment on the CBO report that letting health insurance premiums rise an additional 0.1 percent to 0.2 percent would be a small price to pay for giving consumers access to help from licensed agents.

"The point of the MLR ratio was to ensure consumers received value for their premium dollars, not to offer a rebate," Boyle said. "Without a fix, the current law puts American consumers, businesses and families at risk. They will be left without advocates to assist with coverage or claims problems and without professionals to assist in the economical selection of benefits tailored to fit their needs."

Janet Trautwein, the chief executive officer of the National Association of Health Underwriters (NAHU), said she wishes the CBO analysts could have included the value of the benefits that agents and brokers provide as well as an estimate of the impact of H.R. 1206 on federal spending and revenue.

"Health insurers report that agent-placed health insurance business has better retention rates and fewer claims issues because of the help agents and brokers provide," Trautwein said. "With employers, agents and brokers help companies incorporate cost-saving programs like wellness plans, reduce compliance costs and negotiate savings at contract renewal time."

The new PPACA MLR requirements may end up increasing overall health care costs in the long run, because they are discouraging health plans from investing in programs that could lower the cost of care and improve the quality, Trautwein said.

Elizabeth Festa contributed to this report.

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