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MLR May Sting, but HIEs Could KO Health Insurance Brokers

By Jeff Elliott, for HealthLeaders Media  
   March 23, 2011

The debate over medical loss ratio and other health plan restrictions outlined in the healthcare reform package places big insurance companies and their financial interests front and center. As you well know, MLR rules demand that health plans in the large group market devote 85 percent of premiums (80 percent for those in small and individual lines) to medical care and quality improvement activities.

While health plans are largely opposed to this requirement, it's not anticipated to drastically affect the major companies, some of which claim to be operating within this range already. But there is another segment of the health insurance industry—health insurance agent and brokers—that will indeed feel the pinch from MLR rules to the extent that many feel their livelihood is in jeopardy.

That's why health insurance agents and brokers, some 500,000 strong, are applauding an Affordable Care Act amendment introduced by Reps. Mike Rogers (R-MI.) and John Barrow (D-GA), which would exempt broker commissions from the 80 percent rule.

According to the National Association of Health Underwriters, MLR rules classify agent commissions as an administrative expense, "even though agent commissions have never been part of an insurance company's actual revenue," said NAHU president Janet Trautwein.

While the legislation might be designed to preserve an at-risk industry segment, it may only serve to quell the bleeding that has already begun. NAHU says that more than half of brokers it surveyed report that some clients have dropped their coverage because of healthcare reform. The law has also caused employers to lay off workers or avoid hiring new ones, says NAHU "Forty percent of brokers state that their clients have eliminated jobs, and 57 percent have seen businesses reduce hiring."

While it can be debated whether or not agents and brokers are suffering as a direct result of the law or from the cumulative effect of several years of rising healthcare costs, it's clear that MLR rules are reshaping the health insurance industry with many companies abandoning personal insurance lines and reducing the amount they spend on other areas such as fraud prevention and claims management—two areas that insurers had lobbied to be included in the MLR rules.

But a change to MLR rules for agents and brokers isn't a slam dunk. It has some high-powered detractors, including Sen. Jay Rockefeller (D-WV) who insisted in a letter to the National Association of Insurance Commissioners that exempting this group from the rules is essentially a $1 billion windfall that should be funneled to consumers. Rockefeller is strategically lobbying NAIC—whose members include the 50 state commissioners—because individual states are taking up the issue with legislation that would offer protections for brokers and agents.

Regardless of what happens with MLR regulations, it might not deal the final blow for producers. That may come in the form of the health insurance exchanges that could effectively eliminate the need for agents and brokers.

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