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NAIC's Refusal to Recommend MLR Pass-Through Sparks Commission Cuts

The refusal of the National Association of Insurance Commissioners to stand up for agents by recommending that agent commissions be removed from healthcare Medical Loss...
January 11, 2011

The refusal of the National Association of Insurance Commissioners to stand up for agents by recommending that agent commissions be removed from healthcare Medical Loss Ratio (MLR) calculations is now leading to commission cuts. The Washington, D.C. newspaper Politico, quoting documents it has obtained, says pay for health insurance brokers will be slashed by more than 50 percent in some cases because of new health reform rules. Politico cites documents from only two insurers.

Healthcare reform legislation passed by the Obama administration last year stipulates that for individual health insurance policies, 80 percent of premiums must be spent on medical care and quality improvement activities, with administrative costs limited to a maximum of 20 percent. The cap for group health plans is 15 percent.

The NAIC's Executive/Plenary Committee has approved a charge for a task force formed to ensure that licensed agents and brokers are fairly compensated for the services they provide in the wake of healthcare reform. The formation of this task force came after agents complained bitterly that the NAIC failed to put to a vote a proposal to exclude producer compensation from Medical Loss Ratio (MLR) calculations during an NAIC meeting in August. That proposal garnered support from 15 state insurance regulators.

"PIA was in that meeting, taking a copy of this proposal [for pass-through treatment of agent commissions] around to individual regulators, asking them to support it," said PIA National Assistant Vice President of Industry Affairs David Eppstein, who represented PIA. "It was odd. Every regulator we spoke with signed on. But as soon as the NAIC leadership got wind of this proposal, they hurriedly moved to shut it down and quickly held a vote on the MLR recommendations, without the agent pass-through proposal getting formal consideration or a vote."

Subsequently, the NAIC said that it "lacked the authority" to make such a recommendation regarding agent commissions. But there is no evidence that this is true. A similar rationale was then cited by the Department of Health and Human Services (HHS) when it accepted the NAIC's recommendation, closing the circle that now threatens to shut agents and brokers out.

What It Means to Agents: The NAIC missed an opportunity to protect agents' interests when it submitted its recommendations without an amendment that would have excluded agent compensation from MLR calculations. It failed to support agents and brokers - the same agents and brokers it said afterward are "indispensible" in health insurance.

Agents and brokers are waiting to see if the NAIC's formation of a task force and its resolution of support are more than just empty gestures and words. The NAIC should consider correcting its mistake by amending its recommendations to HHS, to urge that commissions on health insurance be exempted from MLR calculations.

Click here to read Reform Law Costs Insurance Brokers (Politico 1/6/11)

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