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December 29, 2009 at 07:00 PM
WASHINGTON–Insurance agents and brokers should focus on the medical loss ratio decided on by Congress during upcoming negotiations over final healthcare delivery system reform legislation, a healthcare law and policy expert says.
That ratio would determine their future commissions, says Bruce Fried, a partner in the Washington, D.C. office of Sonnenschein Nath & Rosenthal L.L.P. The Senate bill sets limits on the MLR, he says.
“And that means that insurers will be trying to reduce their administrative costs,” Fried says. “And one place to do that will be in their distribution system. All commissions are going to get squeezed. The final provisions dealing with MLR are going to be critical for agents and brokers. That is what they should focus on.”
The Senate bill would set up an 80% MLR for individual and small group plans and an 85% MLR for large group plans.
Medical loss ratios are the percentage of premium spent on actual patient care services.
According to the bill, certain nonprofit plans must meet higher MLR standards to be exempt from the annual fee on health insurers. The definition of small group follows current state law until 2014, when small group is defined as 100 employees unless a state limits the definition to 50 employees before 2017.
These requirements apply to health plans inside and outside of exchanges, including “grandfathered plans.”
The Senate bill originally set the level at 90% for large plans. But it was reduced by Senate Democrats after the Congressional Budget Office said the result of such a strict MLR–which means the percent of healthcare insurance premiums that must be sent on patients–would be so much federal intervention in the form of subsidies that it would backfire.
Before the bills, there had never been federal standards on MLR, according to several industry officials.
Fried says the impact of this bill would be far-reaching. “This bill is going to touch every aspect of the healthcare delivery system, including the distribution system of which health underwriters, agents and brokers are a part,” he says.
But the bill ultimately would be beneficial to them, because it would offer opportunities to sell insurance for up to 33 million new customers, Fried says. At the same time, introduction of healthcare exchanges through the legislation would not necessarily be a negative for agents and brokers.
“Nobody knows how many people will obtain coverage through these exchanges, but clearly they will be a new avenue for distribution and as a result will impact the agent and broker system,” he says.
