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MLR Final Rule Keeps Broker Fees as Administrative Costs

Margaret Dick Tocknell, for HealthLeaders Media, December 5, 2011

Broker and insurance agent fees will continue to be counted administrative costs when healthcare insurers calculate their medical loss ratios. That's the word from the Centers for Medicare & Medicaid Services, which released on Friday the final rule for medical loss ratio requirements under the Patient Protection and Affordable Care Act.

The healthcare law requires insurers to spend 80% to 85% of premium dollars collected on direct medical care. Health plans that don't meet the MLR threshold must provide rebates to their customers. The Department of Health and Human Services estimates that 9 million members could be eligible to share rebates worth as much as $1.4 billion.

"If your insurance company doesn't spend enough of your premium dollars on medical care or quality improvement this year, they'll have to give you rebates next year," said Marilyn Tavenner, the acting administrator of CMS, in a press statement. "This will bring costs down and give insurance companies the incentive to focus on what matters for patients— high quality health care."

The inclusion of broker and insurance agent fees in administrative costs has been the subject of much industry and political debate. At a June House committee hearing Janet Trautwein, CEO of the National Association of Health Underwriters (NAHU), said agents and brokers face a "desperate economic situation" because of the MLR requirement. She testified that because agents are mostly self-employed, their commissions shouldn't be considered as part of administrative expenses.

Just two weeks ago the National Association of Insurance Commissioners, in a controversial vote that reversed its initial support, asked HHS and Congress to amend the ACA to exempt commissions from the MLR calculations.

But consumer groups argued that the broker and agent fees and commissions are indeed administrative costs and to treat them any other way could potentially reduce the rebates due consumers.

In an e-mail statement, Ethan Rome, executive director of Health Care for America Now, called the final MLR rule "a great victory for consumers because it maintains the integrity of incredibly important consumer protections that hold the insurance industry accountable and because it puts money in the pockets of families. They need it a lot more than insurance companies awash in record profits."

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