Overlords

The reason why I bring all of this up is because as we all know, the passage of health care reform has brought with it some fundamental changes to how health insurance agents do business. Not the least of these is the medical loss ratio requirement, which essentially throttles how much profit can be made by selling health insurance. Between this and the mandate for health insurance exchanges, many agents rightly fear for their profession. By the time health care reform is fully implemented, health insurance agencies might be decimated, or have widened their practice to include other lines of business out of necessity.

The NAIC has been supporting an effort to craft some kind of exclusion for agents out of the MLR (as has NAHU), which is ludicrous, really, because the MLR was designed to facilitate the delivery of health insurance into the hands of all, and the exchanges themselves are a low-cost means of delivering simple coverage to the masses without any kind of intermediary making the process any more complicated or costly than absolutely essential. (Now, whether that is a good thing is something I am sure many readers here will dispute.) Be that as it may, the point of the MLR was to simplify the health insurance transaction, and to that end, any effort to get an exclusion for agents has always struck me as doomed to fail. It is tantamount to passing a law just so you can then turn right around and create the kind of loophole in it that defeats the very purpose of making the law in the first place. Such legislative contortions have no doubt occurred in Washington before. But it is recklessly optimistic to assume that one such contortion can be applied to a reform package that took so much political capital to make reality.

One cannot blame the NAIC for trying to fight a rear guard action against the MLR. After all, federal regulatory reform has, among other things, created a Federal Insurance Office that directly threatens the monopoly the NAIC had on nationwide insurance regulation. And to that end, fighting the MLR is one more front on which to fight federal insurance regulation itself. Fine. But in the end, such a fight is futile, and the NAIC knows it. They admitted as much when they threw in the towel on the MLR issue recently, much to the disappointment of many health insurance agents.

While the NAIC is looking to go to a Plan B on how to help agents resist the inevitable gravity of the MLR, and as NCOIL also enters the fray on behalf of agents, the truth is that this too is likely to be a losing battle. The truth is, for better or for worse, health insurance exchanges will become reality, there will most likely not be a special place carved out for agents, and that line of work will be either gravely diminished or eliminated altogether as professionals decide to apply themselves to lines of work not being overturned by government mandate.

What the NAIC has failed to take into account – or simply never had enough political pull to oppose – is the rise of parallel federal bodies laying their own groundwork for additional federal oversight of insurance. Case in point: the FDIC recently published final rules on orderly liquidation for insurers, as part of an overhaul for how insurance receiverships are handled. Perhaps the FDIC could always have managed its authority to cover this,
but the timing of the FDIC’s most recent rule-making is a clear signal that Washington, and not Des Moines, is where the future of insurance rule-making is most likely to be.

Meanwhile, the Financial Stability Oversight Council has emerged as what might very well be the most meaningful insurance regulator the industry has seen in many years. As it finalizes which firms are to be deemed as SIFI – systemically important financial institutions – the additional responsibilities that come with such distinction are the kind of thing that life/health insurers are not welcoming. But in the end, they seem to have little power to stop it. As Barney Frank puts it bluntly, the SIFI tag has got insurers running scared, and if there is one thing I have learned in covering insurance for some 20 years now, it is that the insurance world does not run scared easily or often.

Still, there are those, especially at the NAIC, who will insist that the state-based model of regulation is the best game in town, and that it still provides great consumer protection, etc. And I am sure that is a comforting refrain to those who want to hear it. But there is a much more pertinent refrain that anybody in insurance might as well begin rehearsing in their bedroom mirror, because sooner or later, they are going to have to utter it with some semblance of sincerity: “I, for one, welcome our new federal overlords.”