Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry.
Insurers have begun cutting commissions to agents and brokers in order to comply with the health reform law-mandated medical loss ratio (MLR) requirements that went into effect on Jan. 1, according to a Government Accountability Office (GAO) report released Aug. 29. And several agents and brokers interviewed by HPW say that their bottom lines have been squeezed as a result.
“Most of the insurers GAO interviewed were reducing brokers’ commissions and making adjustments to premiums, as well as making changes to other business practices, in response to the…MLR requirements,” according to the report, titled “Private Health Insurance: Early Experiences Implementing New Medical Loss Ratio Requirement.” Insurers were interviewed between December 2010 and July.
“Almost all of the insurers said they had decreased or planned to decrease commissions to brokers in an effort to increase their MLRs,” the report said. One insurer told GAO it started making reductions to commissions in the fourth quarter of 2010 in the individual and small-group markets to increase its 2011 MLRs in these areas.
The reform law requires insurers to spend at least 80% of individual and small-group premiums and 85% of large-group premiums on medical costs; otherwise they must issue rebates to members. Agents and brokers are directly impacted since their commissions fall into the 15% to 20% of premium revenue insurers can spend on administrative expenses.
The report seems to back up the warnings agents and brokers have been sounding that the MLR requirement will most directly impact them, and as a result, harm the level of service they provide to customers.
Insurance industry trade group America’s Health Insurance Plans also is concerned about the impact the requirement will have on consumers, says spokesperson Robert Zirkelbach. “The MLR regulation will inhibit innovation, put at risk the coverage families and small businesses rely on today…and reduce individuals’ and small business’ access to the guidance of a trusted and experienced health benefits advisor.”
Although he has yet to see any cuts in commissions, Bill Kite, Jr., who runs D&S Agency, Inc. in Roanoke, Va., says that soon will change. As an example, he tells HPW that on Sept. 1, Anthem switched its broker compensation method to a per-contract per-month system, “which basically gives them a way to lock in commissions from this point forward. Before, it was always based on 2% to 4% of the premiums that clients paid.
“For those brokers that were assisting clients with preventative care, COBRA, etc., they can’t afford to continue to do so with a reduced amount of revenue,” he continues. “A lot of agents won’t even talk to small-group employers since they” don’t feel it’s worth it.
Rick Bailey, an independent insurance agent in Woodstock, Ga., says his commissions already have been drastically cut. Commissions on first-year business have been reduced, he says, depending on the insurer, anywhere from zero to 50%, while on the renewal side, commissions have been cut by between 20% and 50%. He tells HPW that the decrease will have to be made up in other parts of a broker’s business, such as life or property and casualty insurance.
Scott Leavitt, president of Boise, Idaho-based Scott Leavitt Insurance and Financial Services, has had the same experience with declining commissions. According to a study he conducted, Aetna Inc.’s commission on some plans went from 20% to 7%, Assurant, Inc.’s went from 20% to 12% and Humana Inc.’s from 20% to 10%.
“Some people don’t understand the value and the role that an agent provides and are comparing them to buying a hotel room or an airplane ticket online,” he tells HPW. But with insurance, “the lion’s share of the work happens after the sale” with maintaining a policy and providing advice to clients.
Leavitt, who is a past president of the National Association of Health Underwriters, tells HPW that a joint memorial developed by the Idaho legislature was sent to Congress urging it to pass legislation to exclude agent and broker fees from the MLR calculation. The bill, introduced in March by Rep. Mike Rogers (R-Mich.), is called the “Access to Professional Health Insurance Advisors Act of 2011” (HR 1206). The GAO report could bolster the prospects for HR 1206, which now has 113 co-sponsors and is awaiting action in a House subcommittee.
“Another 40 or 50 are on the fence and they will likely become co-sponsors as well,” notes Kite.
However, Ryan Young, senior director of federal government affairs for the Independent Insurance Agents & Brokers of America, contends that HHS has the authority to exclude broker commissions from MLR calculations without congressional action.
“And if not, we’ve asked for a freeze of the enforcement of the MLR requirements as it applies to agents and brokers,” he tells HPW, adding that the MLR requirement “is the No. 1 health insurance issue for our guys.”
In its comments on the report, HHS defended the new MLR requirement, stating that it will provide greater transparency in the insurance marketplace and give consumers more value for their premium dollars, since insurers will be limited in the amount of money they can spend on items such as executive salaries and marketing.
The GAO report, which was requested by Rep. Robert Andrews (D-N.J.), ranking member of House Committee on Education and the Workforce Subcommittee on Health, Employment, Labor, and Pensions, is available at www.gao.gov/products/GAO-11-711.