MLR Final Rule Keeps Broker Fees as Administrative Costs

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."

The final rule doesn't address the controversy; it just maintains the calculation of administrative costs included in the interim rule.

In anticipation of this outcome, Rep. Mike Rogers (R-MI) and John Darrow (D-GA) introduced HR 1206, which would exclude agent and broker compensation from the MLR calculation. On Friday the NAHU issued a press statement asking Congress to pass HR 1206.

The bill has 140 co-sponsors and is assigned to the House Energy and Commerce Committee's sub-committee on health, which held hearings on the matter last summer and has been waiting for the final rule before taking any action. In an e-mail statement to HealthLeaders Media Rep. Joe Pitts (R-PA), who chairs the sub-committee, left little doubt where he stands. "The final rule does nothing to address the jobs crushing effects of the regulation on the agent and broker community. In addition, we've heard at hearings dire warnings of how the IFR (interim final report) will damage healthcare quality and promote fraud in our system. The final rule issued by HHS cements these flawed policies into law."

In addition to defining administrative costs the final MLR rule makes these modifications based on public comments:

• Requires that consumers receive an explanation of their rebate, including how it was calculated.
• Makes tax free any MLR rebate received by consumers
• Allows the special circumstances adjustment for so-called "mini-med" plans to be phased out rather than abruptly halted
• Bans mini-med plans starting in 2014.

See also:
Understanding MLR Waiver Requests
4 States Await Word on MLR Waiver Requests