Concerns over the Medical Loss Ratio (“MLR”), a key requirement under the Patient Protection and Affordable Care Act of 2010 (“PPACA”), were expressed at a House Subcommittee on Investigations, Oversight and Regulations (the “Subcommittee”) hearing in mid-December over how it will reduce competition among healthcare insurers and harm healthcare insurance agents and brokers. The Subcommittee is a subset of the House Small Business Committee.
Under the MLR requirement, individual and small group plans must spend no less than 80% of their premiums on medical care provided to subscribers and quality improvement activities. The remaining 20% is classified as administrative expenses and profits. Insurers with individual and small group plans whose MLR falls below the 80% threshold must rebate the difference to their enrollees beginning in the 2012 plan year. Under PPACA and its regulations as they are currently drafted, insurance agent and broker commissions are considered administrative expenses.
Insurance agents and brokers, many of whom are small business owners that serve other small businesses, contend that classifying commissions as administrative expenses will cause insurance companies to either (1) reduce the commissions that they pay to agents and brokers, or (2) increase the premiums they charge to policyholders. They contend that this will result in reduced levels of customer service and consolidation in the industry. Others believe that the opposite will occur, whereby enforcement of MLR requirements will ensure that customers receive the highest value for their premium dollars.
At the hearing titled, “Medical Loss Ratios: Increasing Health Care Value or Just Eliminating Jobs?” Representative Mike Coffman (R-CO), Chairman of the Subcommittee, stated, “We want quality health care and affordable insurance premiums,” but that “[t]he MLR is an incentive for insurers to increase, not reduce, premiums, because they will need to improve their medical ratio and forgo administrative tools that can ultimately save money.” Representative Coffman contended that this will deter small insurers from entering the market, force established insurers to exit the market, reduce compensation paid to insurance agents and brokers, and ultimately result in job losses. Further, to keep administrative costs low, Representative Coffman stated that insurers are likely to be dissuaded from “making investments in anti-fraud, anti-waste, customer service, and transparency tools because they are considered administrative.”
Representative Kurt Schrader (D-OR), the only Democrat on the Subcommittee, stated that while he is not so sure the MLR is a bad piece of legislation, he was concerned about the effect it may have on agents and brokers.
Mitchell West, an independent health insurance broker from Colorado, testified on behalf of the National Association of Health Underwriters. According to Mr. West, the MLR requirement has resulted in a 50% decrease in commissions paid to insurance producers by the largest health insurance carriers. Mr. West commented that many producers have already left the business as a result, even though they are most needed now due to the many complexities of purchasing health insurance. According to Mr. West, “the current situation is not sustainable in the long run.”
Other witnesses that gave testimony to the Subcommittee include Ms. Grace-Marie Turner of the Galen Institute and Professor Timothy Jost of the Washington and Lee University School of Law. Ms. Turner was particularly critical of how the MLR requirement will discourage low-cost, high-deductible plans as only the insurer’s payments for medical care count towards the MLR ratio. Conversely, Professor Jost supported the MLR requirement by claiming that had it been in place in 2010, about $450 million in rebates would have been paid to nearly 16% of small businesses and 23% of all employees.
To see a video of the hearing, click here.
To see the official hearing memorandum, click here.
To see Representative Coffman’s testimony, click here.
To see Mr. West’s testimony, click here.