Published — April 14, 2011 Updated — May 19, 2014 at 12:19 pm ET

Insurance brokers seek health reform change to safeguard profits


Like many Washington battles, the clash over a rule governing Medical Loss Ratio sounds more than a little obscure. But the import of a bill that would alter the so-called “MLR” rule is perhaps more accurately measured by the powerful trade associations lobbying on it, or the hundreds of thousands of dollars contributed to the legislation’s many co-sponsors.

What’s at stake, depending on who you ask, are the fates of insurance brokers and agents nationwide or the future of one of the most consumer-friendly provisions of President Barack Obama’s health reform plan. Veteran Hill watchers say the legislation may experience tough sledding. But for now, the behind-the-scenes action is intense.

When Congress enacted the landmark Patient Protection and Affordable Care Act — Obama’s health reform bill — in early 2010, it included a provision aimed at forcing health insurers to spend the vast majority of their funds on actual medical care.

Known as the Medical Loss Ratio rule, this provision mandates that every health insurance company spend at least 80 to 85 percent of the premium money it takes in (80 percent for individual and small group markets, 85 percent for large group markets) on direct care for patients and improvements in the quality of their care. Only 15 to 20 percent of the premium revenue can go to administrative costs and profits. If an insurer fails to meet these goals, it will be required to give rebates to its customers.

The intent was to make sure the bulk of the premiums pay for doctors, hospitals, health information technology, medications, and the like. But, as with most legislation, the devil is in the details.

Exactly what counts as medical care and what counts as overhead is open to interpretation — interpretation that is now being furiously debated. As the law has been interpreted by federal regulators, brokers’ fees are included not in the 80 to 85 percent for medical care but in the 15 to 20 percent for administration.

For some consumer-oriented health care experts, that seems eminently logical.

Lynn Quincy, senior health policy analyst at the nonprofit Consumers Union, does not believe broker and agent fees were envisioned as “care” when the MLR rule was put into the health care reform law. “We can definitely say this is not what they had in mind,” she told the Center, and counting brokers as anything other than overhead “would effectively negate the MLR provisions in the Affordable Care Act.”

Insurance brokers and their advocates see things differently. Facing new caps on overhead, many insurance companies have cut payments to the agents and brokers they pay to help sell plans to consumers and employers.

House Bill 1206, introduced March 17, would change that calculus. Titled the “Access to Professional Health Insurance Advisors Act of 2011, the measure would exempt “remuneration paid for licensed independent insurance producers” from the administrative overhead calculations, effectively taking brokers and agents out of the equation. The bill is sponsored by Rep. Mike Rogers, a Michigan Republican.

According to Rep. John Barrow of Georgia, the lead Democratic co-sponsor, the brokers and agents “can help explain to consumers the many changes taking place in the health care world over the next few years, and so it’s important that our insurance agents are not hampered by provisions in the new health care law.”

By exempting that money from the calculus, it would mean that the roughly 6 percent insurers pay to brokers could instead go to other administrative expenses.

The bill has 48 sponsors so far, including eight Democrats. The Congressional Budget Office has yet to score the bill, though it does not appear to directly affect spending. And the Obama administration has not released a statement of administration policy signaling its view on the bill.

Brokers say they are already feeling the pinch of the rule.

B. Hyatt Erstad, who runs Erstad & Co., a health insurance brokerage agency in Boise, Idaho, employs four salaried professionals and three independent contractors. The big insurance companies whose plans he analyzes and sells to consumers and employers have cut payments to his company and others like it. “If it comes to a point where economically we can’t keep the doors open because we can’t be adequately compensated, it jeopardizes [our staff’s] employment,” he says.

Idaho’s three main insurers have already reduced payments to brokers as the result of the MLR rule by 40 percent, 48 percent, and between 10 and 38 percent respectively — what Erstad calls a “squeeze play” on brokers.

Erstad belongs to NAIFA, the 200,000-member National Association of Insurance and Financial Advisors, which has made the bill a top priority for 2011. The group’s president, Terry K. Headley, told the Center for Public Integrity that the MLR rule, while “well intentioned,” is “having disastrous effects on consumer service provided by licensed professionals.”

NAIFA will be putting its considerable muscle behind the bill. In 2010, the group reported spending more than $1.25 million on federal lobbying. And since the start of 2009, the group’s political action committee has distributed more than $1.8 million in campaign cash. Of those contributions, at least $130,000 went to 34 of the 48 lawmakers who have signed on as sponsors of the bill.

NAIFA is not alone in representing the industry. Headley noted that his group and the four other major trade associations representing other types of agents and brokers “are united in our efforts to advance the Rogers/Barrow bill.” The bill also has support from The Council of Insurance Agents & Brokers (CIAB), the National Association of Health Underwriters (NAHU), theIndependent Insurance Agents & Brokers of America (IIABA), and National Association of Professional Insurance Agents (PIA).

Combined, these five reported spending in excess of $5 million on federal lobbying last year on this and other issues (reporting for the first quarter of 2011 is due April 20).

And all told, their political action committees distributed about $500,000 to the 48 backers of H.R. 1206 from 2009 to the first quarter of 2011. All but six of those supporters received at least one contribution from one of the quintet of PACs. The chief sponsor, Rogers, took in at least $27,500 and Barrow received at least $22,500.

And earlier this year, the Council of Insurance Agents and Brokers hired lobby firm Navigators Global LLC which employs two former staffers for Rogers, according to lobbying disclosures.

But there is also a roster of powerful opponents fighting any MLR change.

The American Medical Association, the AARP, the AFL-CIO, the American Heart Association, Consumers Union, Families USA and a large array of other labor and health organizations oppose excluding agents and brokers from the MLR for various reasons. Claire McAndrew, a health policy analyst for Families USA, a nonprofit group that calls itself the “the voice for health care consumers,” says the bill would be “a real undermining of that guarantee of accountability consumers have been promised.”

And Sen. Jay Rockefeller of West Virginia, a Democrat who chairs both the Senate Commerce, Science, and Transportation Committee and the Finance Committee’s health care panel, notes government estimates indicate approximately $1 billion in rebates have to be paid by insurers back to consumers this year under the health reform law — an amount that could drop precipitously should the proposed exemption be added to the calculus. In a recent letter to a state insurance commisioners’ group, Rockefeller said the Rogers bill “would allow agents, brokers, and health insurance companies to retain the estimated $1 billion in benefits that American consumers will receive next year.”

Consumers Union’s Quincy objects to another little-noticed provision of the bill that would both expand the number of plans that can seek MLR adjustments and move the power to grant those adjustments from the Secretary of Health and Human Services to the individual states. “HHS has put in place a rigorous, balanced review process,” she says. And given the growing federal contribution to health insurance premiums, her group believes the federal government “has a legitimate role to play” in determining who can escape these rules.

The House bill has been referred to the Energy and Commerce Committee. No hearing has yet been scheduled, though supporters are optimistic that one will be. And they are hopeful that a Senate version of the measure will be introduced in the upcoming weeks.

But informed observers say the bill faces an uncertain future.

Timothy S. Jost, a consumer advocate at the National Association of Insurance Commissioners and a professor at Washington and Lee University School of Law, doubts that the legislation will be a priority for the leadership on either side of the aisle. “I don’t think Republicans are eager to fix the bill, or that Democrats are eager to change it,” he said.

Carl McDonald, a director at Citi Investment Research and a senior analyst covering the managed care industry, believes Obama would be unlikely to sign the bill even if it passed Congress. He agrees with Rockefeller’s assessment that should H.R. 1206 pass, removing broker commissions from the MLR calculation, the roughly $1 billion consumer refund would almost entirely disappear. And this, he believes, is unlikely to fly with an administration “counting on the rebates as something they can point to next year as a clear benefit of the legislation.”

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