Barking up the wrong tree on Medical Loss Ratio reform

The Affordable Care Act (aka ObamaCare) requires health plans to spend at least 80 or 85 percent of premiums on medical expenses and quality improvement –80 percent for small groups and individuals and 85 percent for large groups. This minimum Medical Loss Ratio (MLR) rule means that health plans must squeeze all their administrative costs and profits into the remaining 15 or 20 percent.

Health plans are making adjustments. Not surprisingly they are looking at ways to cut administrative costs, just as the law intends. One easy target is commissions for agents and brokers, and those commissions are in fact being cut. From LifeHealthPro:

“The (MLR) requirements contained in the Patient Protection and Affordable Care Act continue to have a devastating financial impact on the country’s approximately half-million licensed professional health insurance agents and brokers, as well as on all of their employees and their millions of employer and individual clients,” stated Janet Trautwein, CEO of The National Association of Health Underwriters (NAHU).

Trautwein explained that the MLR requirements significantly and negatively impact access to health insurance agents and brokers at the very time our economy is the weakest and health care consumers need the most help.

She noted that the Congressional Budget Office (CBO) reported that agents and brokers often serve as de facto human resources departments for many small firms — negotiating premiums, processing claims and enrolling employees.

Brokers are pushing to have the MLR rules exclude agent compensation and they’ve picked up some allies in the Senate.

I totally understand why agents are unhappy and why NAHU is pushing for this change, but I don’t believe a change is justified. The current compensation structure has brokers working on behalf of the health plans to sell coverage. If agents and brokers are really working as HR departments for small firms –as Trautwein contends– then those firms would be better off paying for such services directly rather than paying a health plan to pay a broker to do the work.

The easiest short term path for the broker community will be to keep pushing to change the legislation. But in the long term it will be healthier for all if employers rather than health plans pay for brokers’ consultative and HR services.


2 thoughts on “Barking up the wrong tree on Medical Loss Ratio reform”

  1. The last sentence says it all. Brokers need to develop an education, enrollment and service consulting fee arrangement. It’s contrary to everything the health care industry is doing to curtail costs to have brokers continue to be paid on a percentage of premium.
    Align broker incentives with “global payments” and efficiency, charge a consulting fee with bonus’s tied into saving the client premium dollars.

  2. The MLR is a distraction. Insurers do not care about the MLR they simply reserve premiums claim losses to equal and exceed the PPACA statutory requirements. So premiums can always be reserved exceeding 100% of premiums held for claims. Agents and brokers are for the carriers collateral damage that they are willing to live with so long as the insurers have alternative sales distribution outlets like the exchanges and consultants who create self insured groups. Large group plans will always be fee based and the individual market will end up in state or federal exchanges. So the challenge is what does the agent / broker do now? The answers are obvious to the agent who is willing to work securing the client’s health and using insurance as a tool, not the sole income producer.

Leave a Reply

Your email address will not be published. Required fields are marked *