Sidelining Agents

The MLR does not protect agent and broker compensation.

In their zeal to control health care costs, federal policymakers may be pushing health insurance agents and brokers to the sidelines and potentially out of business. If this happens, they will be shortchanging the consumers and business owners who rely on agents and brokers for access, information and guidance on health insurance matters, now more than ever.

Agents and brokers may be sidelined as their health insurer partners look for ways to comply with the new medical loss ratio (MLR) requirement. The MLR rule is part of the Patient Protection and Affordable Care Act and requires health services providers and insurers to spend at least 80 to 85 percent of premiums on direct patient care claims beginning in 2011. The intention is to limit what insurers spend on profits and administration, including executive salaries, overhead and marketing.

Following advice from the National Association of Insurance Commissioners (NAIC), the Department of Health and Human Services (HHS) decided what should be considered direct care claims costs that fall within the 80 to 85 percent ratio and what should be non-claims costs that fall outside the medical ratio.

Insurance agents provide important services for consumers not only at the time of the sale but after the sale as well. Their role will be even more important as health reforms are implemented. They believe that their compensation should not be affected by any MLR formula. But the framers of the MLR formula did not listen. The proposed final MLR does not protect agent and broker fees and commissions; these payments are instead classified as non-claims costs.

The NAIC says it recognizes that some insurers may be particularly reliant on producers to sell their products and perform other duties. It also acknowledges that the MLR standard may put pressure on providers that have longer term compensation deals with agents and brokers. But the MLR regulation only says that the impact on agents and brokers will be a factor in considering a state’s request for an adjustment for a particular individual market.

Agents understandably fear that health insurers looking to stay within the MLR ratio will begin reducing, even eliminating, payments to agents and brokers. It wouldn’t be the first time insurance companies undervalued the role of the advisors who drive their customer relationships.

NAIC President and West Virginia Insurance Commissioner Jane L. Cline said that state regulators recognize the important role of health insurance professionals. “We must look at ways to protect their ability to continue serving the public as the new federal law is implemented,” she said.

Florida Commissioner Kevin McCarty has been among the dozen state regulators who have spoken out in support of agents and brokers. He will chair an NAIC task force to monitor the effects on agents and brokers but it is not clear what good this task force can do at this late stage. McCarty, Cline and other sympathetic state regulators may have missed their opportunity. Now some brokers are ready to ask Congress to intervene to protect their compensation. Running to Congress may not sit well with some political types, but for agents being forced onto the sidelines, it may be the only play that gets them back in the game.

Topics Agencies