An official at the Center for Consumer Information & Insurance Oversight (CCIIO) has described situations in which health insurers can exclude agent and broker compensation from minimum loss ratio (MLR) calculations.
The official, Samara Lorenz, acting director of the CCIIO oversight group, gives the guidelines in a bulletin criticizing insurers for what CCIIO believes to be improper efforts to exclude producer fees and commissions from the earned premium figures used in MLR calculations.
In the bulletin, Lorenz also answers a question about whether consumers who buy health coverage using Patient Protection and Affordable Care Act (PPACA) premium tax credits can get MLR rebate money.
CCIIO is an arm of the Centers for Medicare & Medicaid Services (CMS), which is, in turn, part of the U.S. Department of Health and Human Services (HHS). CCIIO is in charge of running the PPACA-related HHS programs that affect the commercial health insurance market.
The PPACA MLR provision requires insures to spend 85 percent of large-group revenue and 80 percent of individual and small-group revenue on health care and quality improvement efforts.
Agents and brokers have tried to get regulators to exclude producer comp from the MLR calculations. Producers and their groups have argued that producers serve the customers, not the insurers, and that insurers simply collect the producer comp payment from the customers as a courtesy to the customers.
See also: What happened to health broker comp?
HHS rejected that argument. It adopted a regulation stating that earned premium includes “all monies paid by a policyholder or subscriber as a condition of receiving coverage from the issuer.”
Insurers must include “agents and brokers fees and commissions” in their administrative cost total, because paying those fees and commissions is generally a condition of receiving coverage, Lorenz writes in the bulletin.
Some insurers have tried to exclude producer comp from earned premium by requiring “policyholders, as a condition of coverage, to sign a statement that the policyholder retained the agent or broker and negotiated the fee independently of the issuer, even where it appears that such statement was not factually accurate,” Lorenz says.
Lorenz lists seven conditions that insurers and producers must meet if insurers want to exclude producer comp payments from MLR earned premium.
To see the seven conditions, read on.
The seven conditions:
1. Under the law of the state in which the policy is issued, the producer is not a representative of the issuer.
2. The consumer is not required to use an agent or broker to buy insurance, and the consumer can buy the coverage directly from the insurer.