Agents Push Hard For State Role As Health Reform Negotiations Pick Up

But, when asked about what the date of the address would be, Gibbs said only that, "We'll announce something soon."

The conventional wisdom is that the final bill will cost about as much as H.R. 3962, the House bill–$1.5 billion, but would rely on the taxes proposed in the Senate bill, including an increase in the Medicare payroll tax.

In a letter to negotiators sent last week as talks on reconciling the House and Senate bills began, trade groups representing agents who sell health insurance and life insurance and property and casualty insurers made clear they want a strong role for state regulators.

"As Congress begins the process of combining the House and Senate-passed comprehensive health reform bills into one piece of legislation, our members believe it important that the role of individual states be preserved and strengthened relative to health reform implementation," the letter said

The letter was signed by officials of the Council of Insurance Agents and Brokers; the Independent Insurance Agents and Brokers of America; the National Association of Health Underwriters; and the National Association of Insurance and Financial Advisors.

At the same time, the Blue Cross Blue Shield Association presented a paper to health care legislation negotiators contending that a national insurance exchange would not result in lower costs.

This was countered by a letter sent to the negotiators by the 11 Democratic members of the Texas House delegation. They argued in their letter that a national exchange is necessary to preempt states "with indifferent state leadership that are unwilling or unable to administer and properly regulate a health insurance marketplace."

The letter writers, led by Rep. Lloyd Doggett, D-Tex., contends that a "number of states opposed to health reform have already expressed an interest in obstruction."

Health care reform proposals in the House and Senate would create new health insurance exchanges for individuals and small employers.

The House bill would create a new federal agency to administer a Federal Exchange. The Senate bill would create state-based exchanges that must meet minimum federal requirements, and provide for the federal government to serve as a fallback if states fail to adopt exchanges that adequately meet these federal requirements.

However, the BCBS paper contends that the exchanges are not the "pool" legislative writers thought they were creating through the bill.

The exchanges are only a marketplace to purchase insurance products and do not assume risk, the BCBS paper contends, and "therefore [are] not 'pooling' individuals and small employers who purchase through this market."

For agents, a critical issue is the transition to the strong medical loss ratio (MLR) provisions contained in both the House and Senate versions of the legislation.

The provision was included as a means of reducing administrative costs, but insurance agents are concerned that its primary effect will be to drastically reduce their commissions, especially on the sale of health insurance to small groups and individuals, because they exceed current state-based MLRs, if any.

The House bill sets the MLR rate to at least 85% across markets (and gives the HHS Secretary authority to set it higher) and the Senate-passed measure sets the MLR rates at a minimum of 85% for large group plans and 80% for individual and small group plans, the trade groups' letter said.

The letter suggests that at least until the system is fully implemented in 2014 that states be allowed to lower the requirement to 75%, at least in the individual market, to allow an adequate transition period, which is the rate used by many states.

And that should happen only "if it is absolutely necessary to have a loss ratio requirement" in any final bill, the letter said.

That's because insurers will have all of the same expenses they have today, plus those associated with preparation for transition to the new systems outlined in the legislation, the letter explained.

The trades also said in the letter that states should have a role in defining and also in determining "if the MLR level is adversely impacting the functionality of each state's specific insurance markets."

Regarding exchanges, the letter said each state should have the ability to design and maintain its own exchange to accommodate the varying needs of its own population, as is allowed in the Senate-passed legislation, H.R. 3590.

"And in creating these state-based exchanges, it is crucial that Congress preserve state-based flexibility and utilize existing state-based regulatory authority through the nation's governors and insurance commissioners," the letter said.

"The federal regulatory functions of any exchanges should be focused on areas needed to facilitate the purchase of insurance by individuals and small employers," the letter added.

The letter notes that there are already provisions in both the House and Senate bills preserving a "continued role of licensed health insurance agents, brokers and consultants, and ensure continued oversight of our industry by the state departments of insurance."

However, the letter said that agents' groups believe these provisions should be expanded and clarified to ensure that all policies, regardless of the place of purchase be available for purchase through an agent or broker.

This should include plans offered through insurance exchanges and any new plans that may be created by this legislation, such as co-op and/or multistate plans, the letter said.

Moreover, all policies, regardless of place of purchase, should qualify for subsidy if the purchasing individual/family is eligible, the letter said.

"We believe that our nation's agent and broker community can play a constructive and effective role in signing up currently uninsured Americans who would be eligible for purchasing assistance under this legislation," the letter added.

In other health care reform legislation developments, sources close to the negotiations on a final bill indicate that the Senate is debating whether to accept the House language on cuts to the Medicare Advantage program.

And, labor leaders made clear in a meeting with President Obama on Jan. 11 that they objected to a levy on so-called "Cadillac plans," as a tax on the middle class, and suggested that the tax be dropped in favor of a tax on high wage earners.

Congressional sources indicated that a compromise is under consideration that would raise the threshold for levying the tax, and that the difference may be made up by applying the Medicare payroll tax to investment income.

The Joint Committee on Taxation estimated last month that the "Cadillac tax" would generate nearly $149 billion over 10 years.

Economists support the tax as a means of cutting health care costs.

Much of the savings from the tax would come from income taxes paid by workers, under the assumption that businesses would trim back health plans to avoid the new tax, then raise wages to make up the difference to their employees, the JCT said.

On Medicare Advantage, under the House bill, cuts to the program would be phased in over three years to those of the fee-for-service program under Medicare. Under the Senate bill, a competitive bidding system would be phased in over two years, with some minor cuts in 2011.

According to the sources, some flexibility would be provided under any compromise to any states with a high density of MA beneficiaries.