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What are the Legal Implications of an MLR Exemption?

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The resolution seeking an exemption for agents from the medical loss ratio by the National Association of Insurance Commissioners is unlikely to get the issue to the finish line for insurance agents any time soon.

According to a healthcare industry analyst and the California insurance commissioner, the Department of Health and Human Services has no legal authority to exempt agent commissions from the MLR, as the resolution suggests.

Ira Loss, a healthcare analyst at Washington Analysis, which advises institutional investors and hedge funds, said the change would need Congressional action because the statutory definition of MLR does not allow those commissions to be exempt.

In a statement after the vote, Dave Jones, the California commissioner, saying HHS “lacks the authority to take to take action,” and that it would require Congress to make changes to the federal law to modify the MLR standard as laid out by PPACA. Doing so, Jones noted, would increase the cost of health insurance.

And, in statements in September on the issue, Steve Larsen, director of the Center for Consumer Information and Insurance Oversight said that he believed insurance companies are taking advantage of the MLR to do what they wanted to do anyway: cut producer commissions.

Larsen made these comments in testimony before the House Energy and Commerce Subcommittee on Health.

He said requiring health plans to spend at least 80% of premiums on medical care costs “is a boon to consumers.”  He also cited studies from the U.S. Government Accountability Office and others indicating evidence of a reduced growth in insurance premiums.

Industry officials said the key impact, if any, of the resolution would be on congressional action. The E&C panel is considering two related bills, H.R. 1206, which would exclude producer compensation from medical loss ratio calculations and H.R. 2077, which would repeal the MLR entirely.

H.R. 1206, sponsored by Rep. Mike Rogers, R-Mich., and John Barrow, D-Ga., has strong support. But it has been mired for months in the House.

According to officials of the National Association of Insurance and Financial Advisors, the bill has passed no House committees but now has 139 co-sponsors.

In statements on its website placed earlier this year, NAIFA officials said that H.R. 1206 would likely pass the House, but is unlikely to pass the Senate any time soon.

That was made even more clear late yesterday when Sen. Jay Rockefeller, D-W.Va. and chairman of the Senate Commerce Committee, said in reaction to the NAIC vote that he had sent a letter to Kevin McCarty, primary sponsor of the resolution, Florida insurance commissioner and incoming NAIC president.

“I am disappointed that a small majority of insurance commissioners have lined up with special interests today rather than consumers,” Rockefeller said.

Rockefeller was a key driver behind including the MLR provision in the Patient Protection and Affordable Care Act, is a strong supporter and a senior Democratic senator.

He said that, “I find it hard to believe that the NAIC endorsed allowing the health insurance companies to keep this rebate money as profit and am hopeful this new effort to undermine consumer protections will not be any more successful than earlier efforts,” Rockefeller said.

Rockefeller said the NAIC’s own analysis showed that the exemption for agents and brokers fees will cost American consumers more than $1 billion in rebates they are due to receive in the Spring of 2012.

“This decision puts corporations ahead of consumers – taking money out of the pockets of consumers and putting it in the hands of greedy insurers,” he said. 

Rockefeller also said that, “Millions of individuals and small business owners are already paying too much for their health insurance; getting them some much needed relief should be our top priority.


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