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Put 'Em Up: Why All the Discord and Confusion over the MLR at the NAIC?

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When the time comes again for the National Association of Insurance Commissioners to weigh in on federal matters, will it be taken seriously as an organization, and regarded as authoritative experts? At one time, the answer would have been an automatic and immediate yes. But today, after a series of unusual decisions and signs of infighting, the answer may not be so clear, leaving some to wonder if the organization is beginning to show the stress fractures that are bound to result when a group dedicated to state insurance regulation finds itself in an era of relentlessly encroaching federal oversight.

Take as an example the NAIC’s dealings with the juggernaut that is U.S. Department of Health and Human Services, which has been implementing the bulk of the Patient Protection and Affordable Care Act (PPACA). The NAIC and HHS have worked extensively together on matters of PPACA implementation, but when the NAIC made a controversial gambit last year to get the HHS to give health insurance agents a waiver on what the insurance industry considers to be one of PPACA’s more onerous requirements — the medical loss ratio requirement — HHS flatly denied the NAIC. Could things have turned out differently?

The answer depends on whom you ask within the ranks of the country’s insurance commissioners, but the result stemmed from the most divisive issue at the NAIC in years, which cut through the center of the organization just before the 2011 Thanksgiving holiday, to the consternation of regulators, consumer groups and Congressional lawmakers.

The medical loss ratio (MLR) is a PPACA mandate that at least $0.80 of every health insurance premium dollar must go to medical costs, leaving only $0.20 to cover insurers’ costs. Where this concerns agents is the possibility that carriers may cut into agent commissions in order to preserve current profit levels. Trade groups have so far lobbied unsuccessfully to get HHS to exempt agents’ commissions from the MLR, so by last autumn, the NAIC got involved by drafting a resolution that would formally request HHS to exempt agents and brokers’ commissions from the MLR.

This effort to support the agents and brokers community created division within the NAIC itself and created a public flap in Washington. Some felt the NAIC’s actions on this issue hurt its reputation before federal agencies while others felt it was a brave stand against a major health care reform mandate whose critics have challenged all the way to the Supreme Court. (Arguments over the Constitutionality of another controversial provision, the requirement that everyone must buy a minimum level of health insurance, will begin at the Supreme Court this month.)

The action under the NAIC’s new leader, Florida Insurance Commissioner Kevin McCarty, has drawn attention to the NAIC’s role in Washington and its methods at a critical time, when much of PPACA has yet to be implemented. The NAIC, experts point out, still needs to work with Congress and HHS, as well as with the Federal Insurance Office, the Treasury Department and the Federal Reserve on requirements and mandates emerging from the sweeping financial services reform package, the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The existing fault lines over the NAIC’s role in helping craft and implement PPACA’s medical loss ratio rule opened wide at the NAIC National Fall meeting in early November outside of Washington.

When insurance commissioners from across the states gathered in a room at the Gaylord National on the Maryland side of the Potomac River and opened their packets of agenda items for the conference, many noticed something they were not expecting: a drafted resolution on a matter on which they had toiled endlessly for months, but which had reached a dead end for further action. There had been no consensus on how what kind of stand, if any, the NAIC should take on the MLR.

But McCarty, the incoming president of the NAIC, a 501(c)3 organization which calls itself the U.S. insurance standard-setting and regulatory support organization, had not given up.

Inside each packet given to the commissioners was a draft NAIC resolution, a seldom-used statement of support consisting of a string of Whereas findings and concluding with “WE, THE MEMBERS OF THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS, THEREFORE RESOLVE THAT…”

The resolution seemed to come “from thin air,” Washington State Insurance Commissioner Mike Kreidler said on a public conference call before a deeply divided vote right before the Thanksgiving holiday. Kreidler is currently the longest serving state insurance regulator. A former U.S. House and state legislator, he has been in his elected commissionership position since 2000.

“It came as a complete surprise to everyone,” Kreidler later said. “I heard people asking questions: ‘Is this going to come before the full plenary?’”

Connecticut Insurance Commissioner Tom Leonardi, who is close with McCarty, also took issue with the process. “It came out of nowhere — a number of commissioners who did not even know it was in existence — first, it was to be introduced at plenary without discussion,” Leonardi said in an interview. “No one had told me of its existence.”

According to one commissioner at the meeting, Leonardi was outraged, and his good relationship with McCarty and strong stance against the amendment led others to feel safe enough to follow suit in protesting a vote on the issue.

“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,” California Insurance Commissioner Dave Jones stated on Nov. 22 on the nearly 90-minute plenary vote call.

Clearly, some regulators in the room at the Gaylord had already seen it and agreed to sponsor it. But when asked, no one would say exactly when they first found out about it, only that they were asked to sponsor it. McCarty wanted to push a vote at the Gaylord, some commissioners recalled, but met with so much opposition, that it was agreed they would revisit it in a couple of weeks. (When approached by National Underwriter, McCarty declined to comment for this story.)

One commissioner noted the MLR resolution had not even been raised in an Executive Committee meeting, and that the “total lack of transparency” of the NAIC at the Fall meeting, and the work “totally behind closed doors,” contrasts sharply with the very public, very open organization under former NAIC President Jane Cline, now in private practice in West Virginia.

But not everyone felt the MLR resolution was handled poorly. “When you are losing, you argue process,” said Kansas Insurance Commissioner Sandy Praeger. “We established the government relations liaison council to be able to respond quickly, so there are a number of ways, when we need to act, so we could act more quickly.”

Resolutions are relatively rare at the NAIC; only a handful have been issued over the last decade. More common are letters to Congressional committees, individuals or to the body itself, as well as federal agencies, all archived under the Government Relations function of the NAIC.

A recent one was also an agent protection resolution — the August 2010 Resolution To Protect the Ability of Licensed Insurance Professionals to Continue to Serve the Public, a resolution to protect agents’ roles while states are establishing standards for health care exchanges (online insurance-purchasing portals) under PPACA.

Resolutions found via the NAIC website prior to health care reform appear nonpartisan and do not support a particular regulated constituency, although an exhaustive list was not available from the NAIC.

Before that, was a 2004 formal resolution urging Congress to adopt a two-year extension of the Terrorism Risk Insurance Act, and one in 2000 committing “the state insurance regulatory organization to work toward fully implementing the technology and policy initiatives associated with the NAIC’s Gramm-Leach-Bliley financial services reform working groups and pursuing uniform regulation through technology.



Some say the push for a MLR resolution vote was both a tactical failure and an inauspicious start for McCarty’s NAIC presidency. Despite a 26-20 final vote, with five abstentions, to approve the MLR resolution, numerous commissioners felt that McCarty could have gotten even more votes and built more of a consensus around the issue had he handled it differently. Procedural maneuvers to strike portions or to table the resolution failed, and a vote to table the resolution by sending it back to a committee failed by one vote. The count was 26-25.

Texas Commissioner Eleanor Kitzman, and Montana Commissioner Monica Lindeen, who both declined to be interviewed but who issued statements regarding the resolution, have both embraced the role of the agent and the need for an MLR change, but they could not vote for the resolution as crafted by McCarty. Lindeen voted to send it back. Kitzman was the only one who abstained from the vote to table it as well.

Lindeen and Praeger had proposed an amendment to focus the resolution on the NAIC’s request to Congress, not including HHS in the demands. It failed with three no votes, 13 yes votes, and 15 abstentions – largely stemming from confusion over what the NAIC was really voting on.

The resolution itself was a formal request by the NAIC that HHS take immediate action to mitigate the adverse effects the MLR rule might have on agents and brokers – namely by exempting agent and broker commissions from any insurance carrier’s MLR calculations. The resolution asked that HHS place an immediate hold on implementation and enforcement of the MLR requirements relative to agent and broker compensation and that it classify an a portion of producer compensation as a health care expense.

HHS, as it turned out, does not even have the authority to make such a change; under PPACA, all HHS can do is approve state MLR adjustment requests (which, so far, it has universally declined to do).

HHS is there to interpret the law, said Washington & Lee law professor Tim Jost, an NAIC consumer representative knowledgeable on health care reform. There is no room in the statute to classify agent commissions in the MLR, he said.

“We were sympathetic to the concern that the agent was the easy target (for insurers looking to meet the tighter MLRs),” Praeger said. “I think we expressed that to HHS (back in 2010). We had our lawyers look at the parameters and we just didn’t think we had the authority that the agent commission be pulled out, and I think HHS was in the same box.” The end result, Praeger said, was that the NAIC resolution put HHS in an awkward position.

In a matter of days HHS, which has its own people on NAIC health-related conference calls, issued its final regulation on Dec. 7 in the Federal Register with nary a mention of the NAIC pre-Thanksgiving gambit. Steve Larsen, director of the Center for Consumer Information and Insurance Oversight (CCIIO) at HHS’ Centers for Medicare and Medicaid Services (CMS) agency, speaking at an industry conference in late January, finally referred to the resolution’s request by markedly noting, “we don’t see an avenue to modify or delay the MLR regulation; we don’t see a regulatory fix there.”

He acknowledged they undertook the review under pressure from the industry, and that the review was extensive. This included ongoing discussions with officials from the National Association of Health Underwriters and the NAIC, as well as a review by HHS in-house lawyers, he said.

“In the end, the NAIC also reached the same conclusions when they came to us with their recommendations regarding the MLR,” said Larsen, referring to methodology recommendations the NAIC made on the same issue a year before.

So why did NAIC go out on a limb over the objections of many, and vote on something that ultimately seemed to result in a fractious and unproductive political exercise? Praeger, who was at the helm of the NAIC as president during the AIG crisis, had no easy answers. She points out that the language of PPACA mentions the NAIC nine times, and that the organization is still looked to as a body of experts. Still, the MLR resolution raised concerns.

“It is important when we do send something that it is really important and completely accurate and doesn’t gloss over certain aspects,” Praeger said. “[PPACA] is going to remain very controversial for the next few years if it remains on the book and new want to remain being viewed as the experts so our credibility is very important here. We want Congress to continue to look to our state regulators every day, we want Congress and the administration to continue to look to those 10, 000 to 13,000 agents across the country for advice and expertise…and we all know when a reputation once damaged is hard to get back.”

Jost, the law professor and consumer rep, noted that he has not “seen any hard evidence consumers are being harmed” by the MLR, as the NAIC position now publicly asserts. “Agents and brokers are being harmed. They are getting less than they used to,” he said, but insurance companies were already beginning to cut commissions before PPACA passed — the MLR just gave them cover for doing so, Jost said.

Teresa Miller, the insurance administrator from Oregon who had announced just the week before the MLR resolution vote that she was leaving to work as senior advisor to Larsen, said during the call that vote itself jeopardized the credibility of the NAIC. “To the extent we weigh in on a political issue, and this is a political issue, we lose credibility,” Miller said. “Losing our objectivity will alienate the consumers we serve.”

Case in point: in March of 2011, McCarty’s Professional Health Insurance Advisors Task Force had charged Praeger’s Health (B) Committee’s health care reform actuarial working group with a study on the MLR. The working group’s work, adopted by the B Committee, was issued on May 19, detailing various options that would reduce factor agent commissions back into the numerator of the MLR. This, in turn, would result in a premium reduction for consumers, possibly leading to premium rebates in some cases. The report concluded that companies have not been systematically decreasing the percentage of premium provided as provider compensation, but did find that there had been a general decrease in first-year compensation in 2011.

The study also cautioned against making too many conclusions based on mixed, incomplete swathes of data. In July, consumer groups also noted that the actuarial study was inconclusive.

People appointed to represent consumer interests in NAIC proceedings sent the NAIC a letter expressing disappointment about the Task Force’s decision to support H.R. 1206 (the Access to Professional Insurance Health Advisors Act) — a separate and ongoing legislative effort to exempt agent/broker commissions from the MLR — using what they saw as a biased use of the study. Separately, Consumer groups noted in July that the actuarial study was inconclusive.

“There is no evidence that consumers are being hurt by this,” the consumer representatives to the NAIC stated in a letter opposing McCarty’s Professional Health Insurance Advisor’s Task Force to endorse H.R. 1206.

Regardless, McCarty’s November resolution used the controversial language again by asserting that the actuarial study found that “in 2011, a significant number of companies have reduced commission levels, particularly in the individual market.”

Praeger, head of the NAIC Health and Managed Care (B) Committee, had already noted on the plenary conference call that the incomplete use of findings culled from the May 2011 actuarial report by a subgroup of her committee made her concerned.

“I worry about our credibility,” Praeger said. “We 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.”

Kreidler was blunter. “The credibility of the NAIC was compromised,” he said to National Underwriter. “We put forward a very thoughtful recommendation on MLR and then we turn around and pass the resolution — not following the standard NAIC practices of doing something thoughtful, reasoned and well-justified.”

Leonardi and others cried foul because they felt only one facet of the report, without context, had been included. Moreover, they also felt there was not conclusive evidence that agent commissions were being compressed simply because of the MLR.

“This has been going on for 30 years,” Leonardi explained. “Agent commissions are decreasing from 20% to 30% to 2% to 3%, and if that is happening, it is hard to say it is the MLR, Leonardi said. “There’s not enough history so there is no way to prove one way or another how the MLR is affecting commissions on its own.”

Tom Considine — who was New Jersey’s banking and insurance commissioner until he left that post on January 30 to join the private sector—said his state already has the 20/80 MLR, although states calculate differently than the federal government. Considine supported the MLR resolution on its merits, but he noted that the issue took on an unexpected degree of hostility among NAIC members.

“In my two years as a member of the NAIC, and then 17 years before that as an interested party (at MetLife),this issue seemed to have the most animosity of any issue that I have ever seen, public or private,” Considine said. “That surprised me, because if you look back during the really passionate debate of the NAIC’s consideration of on issues around Obamacare on a substantive level, while there have been very strong feelings on both sides, I never felt any animosity on those issues on either side. So, I was surprised by the divisiveness of this issue, both substantively and personally.”

Nevada Insurance Commissioner Scott Kipper was asked at the Gaylord to co-sponsor the resolution, which he did. He says he feels passionately about the issue and the agent role, and does not feel the vote harmed the credibility of the NAIC.

“I personally wanted to make sure the awareness is not lost on policymakers in Washington, that it truly is a consumer issue…that this doesn’t get lost in all the noise,” said Kipper, who became Nevada insurance commissioner (again, after a stint ending June 2010) in late October 2011 but who has experience as a regulator or regulatory liaison in Louisiana, Wyoming and Oregon, and who also has served as senior regional director of state affairs for America’s Health Insurance Plans (AHIP), and health analyst for the NAIC. He also was an agent for a short period himself.

Kipper noted the commissioners’ debate did highlight the need for addressing the process. “We at the NAIC have not had a process for addressing resolutions like this. The NAIC will be working on a way to address issues commissioners may bring,” said Kipper.

Voss reflected on the vote two months later.

“I think you have to let everyone have an opportunity to say their peace,” said Voss, the immediate past president as of Jan. 1, 2012. She notes that the NAIC’s role was to have an open discussion and to do a resolution as a last resort, ultimately letting the chips fall where they may.

“We made a good faith effort, and that’s why you take a vote,” she said. “It is not going to change anything —but we had agreed to revisit the issue last year.”


A powerful driver of the MLR resolution situation is that the power of producers within each state is real, and although the NAIC may be a strong organization, it is ultimately comprised of regulators who are accountable to their home state constituencies.

Like his governor, Rick Scott, Florida’s McCarty is a vociferous opponent of the health reform law, and has long challenged its Constitutionality, along with other Republican states, all the way to the Supreme Court. McCarty continues to tussle with Centers for Medicare & Medicaid Services (CMS) and its deputy, Larsen (a former Maryland insurance commissioner), in regulatory requests, and reconsiderations after denials for MLR adjustments. (The CMS has rejected requests for MLR adjustments in several larger states already, including Texas, which you can read about in “Lone Star Blues” on p. 28). The regulatory criterion is “whether absent an adjustment to the 80% MLR standard consumers may be unable to access agents and brokers.” So far, no state has made the case that the MLR creates a lack of access.

McCarty many times has cited harm to agents and the individual market, and had submitted agent testimonials and supporting documents from major insurers, including Aetna, Humana and Golden Rule.

HHS rejected Florida’s own request for an exemption from the MLR provision of the healthcare law on Dec. 15th, a few weeks after the NAIC vote. HHS said it did not see harm to consumers and insurers are not up and leaving. Florida asked for reconsideration Dec. 30. It was again denied by Larsen Jan 19, who wrote a letter to McCarty stating again that there was no evidence that Florida consumers are being harmed by the MLR.

As for the NAIC’s MLR resolution, failed as it did, the effort did not go unnoticed by agents. “The Big ‘I’ applauds the NAIC for its recognition of the detrimental impact the MLR calculation has had on independent insurance agency small business owners, consumers, and their agents and brokers,” stated Robert Rusbuldt, president and CEO of the Independent Agents & Brokers of America. “If the MLR formula is not corrected soon, consumers will suffer the prospect of losing the professional, licensed guidance of insurance agents during this time of great change in the health insurance market.

Others, too, cheered McCarty’s actions as a champion for the state regulators and for agents.

“I was happy for the absurdly belated NAIC vote. Until McCarty forced them to do that, everybody gave lip service,” said one lobbyist. “But frankly, the compensation genie can’t be put back into the bottle. But what was maddening was all the lip service of regulators and the administration about how they really didn’t want to undermine our business model, so I’m grateful to Kevin McCarty for putting them on the record.”

Meanwhile, a separate effort in Congress on H.R. 1206, which also would carve out health agents’ commissions from the MLR, remains an open issue. The bill is being pitched as being about jobs for agents as small business owners, who as one ex-commissioner noted, are often viewed as a pillar of their community. The small business angle also has a lot more political pull than just about anything supporting the insurance industry.

H.R. 1206 has been mired for months in the House and has passed no House committees but now has 149 co-sponsors. At the National Association of Health Underwriters conference in January 2012, attendees were given an alphabetical list of the co-sponsors for an afternoon of lobbying on the Hill.

NAHU CEO Janet Trautwein said at the meeting that a companion MLR bill that will be introduced in the Senate, with Sen. Mary Landrieu, D-La., Sen. Ben Nelson, D-Neb., and Sen. Johnny Isakson, R-Ga., as sponsors.

“As Chair of the Senate Small Business Committee, Senator Landrieu is concerned that HHS’s interpretation of the health care law threatens the ability of insurance agents and brokers—many of whom are one- or two-person small businesses—to continue providing essential services to consumers who depend on them to assist with coverage or claims problems,” stated Amber McDowell, spokeswoman for Landrieu.

“Many brokers are being forced to reduce client services or close their doors altogether as a result of an unintended consequence of these regulations. Senator Landrieu is exploring targeted solutions to this issue, and we will have more details on her plan in the near future,” McDowell stated.

“It’s good to know that there is growing interest on Capitol Hill toward fixing the MLR provisions, which have dramatically squeezed compensation across the board with large and small plans. An opportunity is being lost, though, in not framing this debate about health insurance consumers,” said a national insurance benefits executive who requested not to be named.

“It looks instead to be about protecting small insurance agent jobs. MLRs are government price controls. The bigger an insurance premium is, the easier it is to make the 80% or 85% MLR. Over the long run, they are a disincentive for plans to cut the cost of health insurance. But the message instead seems to be one of protecting insurance agents,” the executive said. “Maybe that works politically, but it doesn’t look like it’s putting the health insurance consumer first.”

Be that as it may, if H.R. 1206 does succeed, then for all of the controversy and credibility cost of the NAIC’s denied MLR resolution, it will have achieved its goal of protecting agents’ and brokers’ interests against the MLR. But what then? Despite what happens to the MLR, the NAIC itself must still contend with the personal and professional acrimony it generated within its own ranks over how it pushed this resolution through.

It is an acrimony that could increase if H.R. 1206 fails, and even more so if the Supreme Court upholds PPACA and thereby defeats what many see as the last serious effort to overturn the healthcare reform law. In such a scenario, then the NAIC will have incurred deep costs to itself for nothing. And in an age when state regulation itself is under increasing pressure from federal agencies to step up its game, failed efforts like the MLR regulation are bound to be seen by many as Quixotic luxuries the NAIC can no longer afford.


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