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Some Health Insurance Exchanges Embrace Free Market, Others Do Not

As some states move to create health insurance exchanges as mandated under the federal healthcare reform law, widely differing approaches to doing so are emerging...
March 22, 2011

As some states move to create health insurance exchanges as mandated under the federal healthcare reform law, widely differing approaches to doing so are emerging with implications for professional insurance agents and brokers. In some states, exchanges are being proposed that embrace free market principles. In others, the free market is actually being discouraged.

In some state legislatures, bills would give agents seats on the exchange board, which will set the operating rules. In Iowa, a bill that is getting national attention would require all consumers to use a broker when buying policies through the exchange and guarantee the broker at least a 5 percent commission. A bill pending before Minnesota lawmakers would require that anyone selling, negotiating or soliciting insurance for a health plan be licensed by the state.

Other places are moving in the opposite direction. Maryland and the District of Columbia, for example, are mulling bills that would bar brokers from decision-making positions. Many states, including Virginia, haven't set rules on brokers yet.

On the national level, PIA is leading an effort to make sure that agents and brokers don't get squeezed out of the health insurance market as a result of regulations being written by the Department of Health and Human Services (HHS) to implement PPACA. Preliminary HHS regulations counted producer compensation within medical loss ratio (MLR) administrative expenses limited to 15% or 20% under PPACA. Already, this has caused downward pressure on agent and broker compensation. The National Association of Insurance Commissioners (NAIC), charged with advising HHS in developing the regulations, pointedly failed to allow a vote on a proposal that would have removed producer compensation from the MLR calculations.

PIA Calls on NAIC to Act

PIA has been calling on the NAIC to step up and recommend to HHS that agents and brokers be exempted from MLR calculations when the department issues its final regulations. On March 1, 2011 PIA National turned up the heat by going public with its plea to NAIC in an article PIA wrote which was published in American Agent & Broker magazine. Since then, NAIC has been more responsive to our concerns.

A task force of the NAIC is reviewing draft legislation for Congress that would exempt broker commissions from medical loss ratio (MLR) rules. A bill exempting agents and brokers from MLR, the Access to Professional Health Insurance Advisors Act of 2011 (H.R. 1206), was introduced in the House March 17 by Reps. Mike Rogers (R-Mich.) and John Barrow (D-Ga.). 

Even some Democrats have criticized the MLR rule adopted by HHS as it relates to agents and brokers. Rep. Rob Andrews (D-N.J.), one of healthcare reform's staunchest supporters, said federal regulators misunderstood the purpose of insurance agents and brokers. "You're not a waster of time and money," Andrews told the National Association of Health Underwriters conference last month. "You're a saver of time and money."

Meanwhile, the NAIC's Task Force on Professional Health Insurance Advisors - which was set up last year after the NAIC failed to recommend to HHS that agent compensation be removed from MLR - will hold a public hearing March 27 during the NAIC's spring national meeting in Austin, Texas.

Read PIA's article: NAIC, HHS Can Still Do Right By Agents (American Agent & Broker 3/2011)

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