WASHINGTON BUREAU – Insurance agent groups want the National Association of Insurance Commissioners (NAIC) to tell states to exclude agent and broker commissions from medical loss ratio (MLR) calculations.
The groups say in a comment letter that the NAIC, Kansas City, Mo., should adopt MLR calculation instructions that keep commissions out of the general and administrative expense category, because carriers pass 100% of commission payments on to other parties.
“Exempting pass-through fees from the MLR calculation would preserve existing cost-saving practices in current health insurance markets,” the producer groups say. “At the same time, it would preserve an important operational convenience for small businesses and individuals.”
The producer groups also are asking the NAIC to give carriers more time to adapt to the new rules, by creating a 2011 transition rule that would be based mainly on the current state minimum MLR rules.
The groups that sent the comment letter are the Independent Insurance Agents & Brokers of America, Alexandria, Va.; the National Association of Health Underwriters, Arlington, Va.; and the National Association of Insurance and Financial Advisors, Falls Church, Va.
The minimum MLR requirements are part of the Affordable Care Act, the new federal legislative package that includes the Patient Protection and Affordable Care Act (PPACA). The minimum percentage of revenue going to medical costs and quality improvement efforts is supposed to be 85% for large plans and 80% for individual and small group policies. Insurers and plans that miss the mark are supposed to compensate customers by providing rebates.
Regulators, consumer groups, insurer groups, producer groups and others are engaged in intense negotiations over every factor, definition and calculation method to be used in the minimum MLR and rebate calculations.
Today, the brokers that service large employers tend to have commissions that range from about 2% to 3% of premiums.
Agents in the small group and middle markets earn commissions of up to 20%.
Brokers that serve large employers often get the commission payments straight
from the employers.
Insurers tend to include commissions in the premium total for individual and small group customers, but they pass 100% of the cash on to the producers, the producer groups say.
“This practice is a health plan consumer convenience, eliminating the need for businesses and consumers to prepare, mail and track separate payments to their benefits specialists,” the groups say.
“We recommend that your instructions include the direction to remove fully-disclosed pass-through fees collected by carriers and represented in line 10.2 from the MLR calculation since 100% of these fees are passed along to the licensed health insurance producer as a service to the health insurance purchaser,” the groups say. “We also fully support disclosure of these fees to businesses and consumers. Such disclosures are common in the large group market segment, and expanding this practice to the individual and small group markets would be a straight-forward process.”
The producers also are recommending that the NAIC put transitional rebate guidance in the final MLR model for 2011.
The current draft does not do enough to help states phase in implementation of the MLR requirements, the producer groups say.
“This lack of a transition will be extremely destabilizing for the individual and small group markets in many states,” the producer groups say.
The producer groups want the NAIC to let most states stick with their current minimum MLR standards in 2011.
Many states already impose minimum MLR requirements, especially in the individual market.
States that already have small group minimum MLR rules could use those in 2011, and states that have no small group MLR rules could apply the individual minimum MLR rules to small group plans in 2011, the producer groups say.
States without individual or small group MLR minimums could use a minimum MLR of 65% as a starting point, the producer groups say.