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Final Medical Loss Ratio Rule Rebuffs Insurance Agents

By Julie Appleby

December 2nd, 2011, 12:16 PM

The Obama administration issued a rule today that is sure to disappoint insurance agents: Fees paid to brokers and agents won’t count as medical care, under limits imposed on insurers in the 2010 federal health law.

Photo by Thomas Hawk via Flickr

That’s key because under the health law, insurers must spend at least 80 percent of their premium revenue on medical care and quality improvement – or issue rebates to consumers.  The target is 85 percent for large-group issuers.

Brokers had lobbied hard to have their fees exempted from the calculation of administrative costs, which also includes such expenses as marketing and executive salaries, saying that without such a move, commissions will be cut and agents could lose their jobs, leaving consumers without as much access to brokers who help them choose health insurance.

But consumer advocates fought the move, saying commissions are clearly administrative costs and removing them would make it easier for insurers to avoid paying the required rebates to consumers. Those rebates will go out next year to individuals and small-business policyholders whose insurers fail to hit spending targets this year. The rebates could come in the form of reduced premiums.

Under an earlier rule, rebates to employers would have been taxable, so the final rule says any rebates given for group policies should be in the form of lower premiums or “in other ways that are not taxable.”  It will then be up to the employer or group policyholder to “ensure that the rebate is used for the benefit of subscribers.” In addition, the rule requires insurers to provide notices of rebates not only to the employer, but also to the enrollees.

“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 CMS Acting Administrator Marilyn Tavenner, who is in her first day as chief of the agency. “This will bring costs down and give insurance companies the incentive to focus on what matters for patients – high quality health care.”

Late last month, the National Association of Insurance Commissioners adopted a resolution urging Congress to amend the federal health law to exempt broker commissions from the tally, known as the “medical loss ratio.” But the NAIC vote was closely divided, and the organization had raised no objection to inclusion of broker commissions a year ago when the draft rule was first issued.

The final rule does not explicitly address the plea from brokers and agents, instead leaving the calculation of administrative costs unchanged from the original draft.

Tim Jost, a law professor and a NAIC consumer advocate, says he is pleased that broker commissions remain in the administrative cost calculation. The overall requirement that insurers spend at least 80 percent of revenue on medical care “is a major benefit to consumers” and will help slow premium growth because “it will result in rebates from insurers who don’t bring down premiums.”

The National Association of Health Underwriters, the trade group that represents agents, said it is disappointed that the Department of Health and Human Services did nothing to mitigate the adverse effects the MLR rule is currently having on the ability of insurance producers to serve the demands and needs of health care consumers.

HHS did agree to phase out rather than abruptly halt special allowances for the administrative expenses of so-called “mini-med” plans that offer limited benefits to individuals or small groups.

Phil Galewitz contributed to this report.

Updated at 2:40 p.m.

23 Responses to “Final Medical Loss Ratio Rule Rebuffs Insurance Agents”

  1. Scott says:


    Obviously, you don’t understand HMO’s versus ACO’s. HMO’s paid physicians on a capitated basis, meaning the physician got paid a flat monthly fee regardless of whether he saw the paitient or not. The only additional revenue he received was the $10 or $20 copayment the patient paid. Translation….if the patient stayed healthy, the physician made money without seeing the patient. Sound familiar? Unfortunately, HMO’s got a bad rap when they refused to pay for expensive, sometimes experimental, life saving procedures. Sound like rationing? You don’t think that will happen with ACO’s? Hence the demise of HMO’s across the country, with the exception of a few large health system based plans that simply feed their hospitals and fill beds.

    In the words of my new liberal, tent occupying friend…”Think, dude! For once…THINK!”

  2. Tony says:

    Hey Scott, Sorry to bust your bubble…The HMOs of the past few decades are a complete joke. By all standards, they are a totally failed experiment. None of them ever functioned purely “on a capitated basis”. Not one! They were at best “hybrids”. A mixture of stale and leftover fee-for-service ideas being stirred into a stinking brew called health care. That’s why the entire idea is all but discarded and only the few neanderthal insurance plans are maintaining them. Providers negotiated with insurance companies regularly to water down the HMO rules. HMOs are a joke. The ACO model has rules that insurance companies and hospital groups and doctor groups must follow if they are to function as a sanctioned ACO. The difference is that the corrupt insurance companies aren’t setting them up. The federal government sets the rules that everyone must follow to the letter. No more end-runs to circumvent rules and standards like was routinely done with insurance company HMOs just to build more profits. ACOs will not be mixing in fee-for-service plans with capitated plans any longer. An ACO will function purely as is defined by HHS. Consumers will have a choice. They can stay with the broken fee-for-service model, or they can become a member of an ACO and enjoy a completely different and new model. A model that spends 100 percent of their time, resources, effort and planning on wellness and good outcomes and they do it as an organization of salaried professionals that has significant size. My guess, like my primary doctor, today’s private one-man or one-woman practices will dry up and blow away if they refuse to go with the flow. HMOs? Are you completely insane?

  3. Rich says:



    What Tony said!