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A House Divided over Agent Commissions

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The NAIC doesn’t lobby in Washington, but a divisive action this week makes it look to some state insurance regulators as if it is doing just that. According to some key state regulators in a recent conference call, the NAIC is making a key healthcare reform issue a political football, while damaging its reputation before federal agencies and Congress, and hurting consumers.

Both during and after a landmark vote of state insurance regulators Tuesday evening by telephone to get both the Department of Health and Human Services and Congress to change the federal health care law for insurance agents and producers and their customers, many regulators took offense not only at the content of the resolution but the process that conceived it. Many from influential insurance states like California, Kansas, Connecticut and New York argued unsuccessfully that voting on a resolution for agent commissions would damage the NAIC’s reputation in Washington at a critical time of implementing federal laws through the states.

The NAIC voted 26-20 to urge HHS and Congress to change the medical loss ratio calculations under the Patient Protection and Affordable Care Act in order to better provide commissions for insurance agents. (For a copy of the NAIC’s resolution, click here.) This would be done by recognizing a certain amount of compensation as a sunken health care cost, not an administrative (overhead) cost – PPACA’s MLR provision requiresat least 80% of all health insurance premiums go toward medical costs, leaving just 20% for administrative costs, which include agent commissions. The NAIC’s call to modify the MLR would also call for holding off on enforcing the MLR, or approving state MLR adjustment requests.

Consumer protection provisions in the Affordable Care Act – the medical loss ratio (MLR) requirement that 80% of every premium dollar go into providing health care in the individual and small group markets and 85% in the large group market.

For some state regulators, it was a small business issue, for others an access to care issue which made them support the resolution. One commissioner, North Carolina’s Wayne Goodwin, gave the resolution “prayerful consideration” before going forward to support it, he said.

But a strong and sometimes vocal minority wanted no part of it.

California Insurance Commissioner Dave Jones expressed strong opposition to and disappointment with today’s narrowly divided (phone call) vote throughout the call late Tuesday.

“Consumers are ill-served by the proposal to lower the percentage of premiums that insurers are now required to put into medical care versus profits and overhead,” Jones stated. The net result of the resolution, according to Jones, would be to reduce consumer rebates by over $1.1 billion.

“I have been contacted by consumer organizations and thousands of individuals who have asked me to vote against this resolution. This resolution calls for actions that would allow insurers to spend more money on administrative costs and profits, while charging consumers higher premiums.”

He also strongly questioned the process, echoing another commissioner who said the resolution seemed to come out of thin air. 

“The specific resolution in question was never heard by an NAIC Committee, nor was there a public hearing on the resolution. It was first circulated secretly to only some commissioners as opposed to all of us. The lack of transparency, the failure to follow a process that would include committee review and a public hearing, the willful disregard of the evidence – all undermine the credibility of the NAIC’s vote today,” Jones stated.

He and others worried that the NAIC narrowly supported a resolution that calls on a federal agency to take action it lacks the authority to take and for the Congress to make changes to the federal law that would increase the cost of health insurance.   

Earlier this year, the NAIC’s Health Insurance and Managed Care (B) Committee had a number of findings that appeared to support a better transition to a new MLR than the resolution would have had HHS believe, according to state regulators who opposed the resolution.

The B Committee found, for example, that a significant number of companies have not reduced commissions in 2011, although others had. “The states with higher MLR requirements have not observed any problems with consumer access to insurance or to producers,” the Committee found.

NAIC President Elect Kevin McCarty, who championed the resolution and who has faced numerous challenges to Florida’s own health insurance marketplace, took the heat for the resolution but stood firm.

McCarty asked that the resolution not be tabled, and got a slim majority to follow him. “There is no luxury to hear this later,” he said. “Time is of the essence. Referring it back to the Committee will result in no action and HHS will be promulgating their rules without us,” McCarty warned.

The language of the resolution which was hotly disputed, almost tabled, and faced an unsuccessful but strong bid for a rewrite that would have provided information only backing up claims of harm to agents. It used testimony from its Professional Health Insurance Advisors (PHIA) (EX) Task Force hearing that reportedly revealed that the PPACA’s MLR requirements “have had profound detrimental marketplace effects for insurance producers and, more importantly, are adversely affecting the quality of service provided to consumers and the ability of insurance purchasers to access and rely on competent and qualified insurance advisors.”

It also states that “in 2011, a significant number of companies have reduced commission levels, particularly in the individual market,” without mentioning the flip side.

Commissioner Sandy Praeger of Kansas had noted on the call it is this half-use of findings which makes her concerned. “I worry about our credibility…we [the NAIC] were written into the law because we were trusted as experts on this. We are going so far here as to put as our credibility in jeopardy. The resolution has to be very careful not to overstate. The findings are incomplete… in the resolution, the resolution is incomplete,” Praeger said.

 This resolution “is based on anecdotes,” said Washington State Commissioner Mike Kreidler, a former legislator. “I have never seen a process like this,” he said. The resolution seemed to come “from thin air,” “doesn’t do anything in the state of Washington,” and “will help no one but the insurance companies themselves,” Kreidler said on the call.

“If you really wanted to do something, with reductions in producer compensation, mandate it to the insurance companies–that they pay a certain amount in commissioners and rebates,” Kreidler said.

“I strongly urge people to oppose this measure,” Kreidler said, adding that the way in which the NAIC had handled this measure was “unprecedented. The NAIC has a reputation for technical expertise, Kreidler said, and “we have a chance here of keeping that reputation intact by voting ‘No.’” 

Teresa Miller, the Oregon lead insurance regulator who is about to leave to serve as a senior advisor to Steve Larsen, director of the Center for Consumer Information & Insurance Oversight (CCIIO), said the resolution “jeopardizes the credibility of the NAIC. We are highly regarded for our technical expertise. To the extent we weigh in on a political issue, and this is a political issue, we lose credibility. Losing our objectivity will alienate the consumers we serve.” 

Connecticut Insurance Commissioner Tom Leonardi, a strong international issues ally and professed friend of McCarty, said that the resolution “puts HHS on the spot by asking it to do something it is not empowered to do.” New York’s deputy regulator, standing in for Superintendent  Ben Lawsky, agreed.

It is “addressed to HHS, but asks Congress to do something…As an organization, it will not win us any friends on the federal level. It makes us look very political and partisan. That won’t help us at all,” Leonardi said.

This resolution is supposed to be pro-consumer but (all the hundreds of millions of dollars rebates that would go away, he argued. “I have yet to hear one consumer group come out and support the resolution,” for a resolution that is supposed to be pro-consumer, Leonardi said.

Moreover, the information used in the resolution is “a mixed bag,” he said, referring to the partial data points out of the B Committee’s findings used in the text. 


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