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.
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While this is initially good news for consumers, the jury is still out long-term. Since insurance companies will now have to include commissions paid to agents as part of their 20% overhead and profit, they will look to get that money back by slashing admin costs and not profit. This means slower claims processing, higher deductibles (fewer claims to process), etc. Consumers will need more than ever those who understand the system and can go to bat for them.
Maybe the poor insurance companies are going to end up with the likes of other service orientated industries and be judged by the service they provide. Oh the horror! To think that their enrollees can choose another company if their service merely sucks and that they are not hopelessly tied to them or any insurance company anymore! How will these companies survive? First they have to pay 80% of an enrollee’s premium directly toward their medical expense and now someone is going to start paying attention to the way they treat their customers. It sounds like a form of monetary enterprise………oh wait…..it’s capitalism! The way capitalism is supposed to work – with regulations – so the big companies cannot walk all over the little people.
Will someone please tell me what value a health care insurance broker offers consumers. In 2014, the exchanges will open up and anyone with a computer can go online to purchase a plan that suits their needs. Why do we need brokers after January 2014? In my view, they are just adding to the already outrageously high cost of health care that currently pushes over 50 million Americans out of the market and also made sure that another 25 million that are underinsured and don’t know what coverage they have until they go to use it and find out they’ve been seriously restricted. Face it folks, AHIP, the AMA and PhRMA have ruined America’s health care system. They had their chance to make things work for consumers and they chose profits ahead of consumers. Americans need Obamacare and, further still, they need a Robust Public Option included in every health care exchange. The sooner we make health care work for the consumer, the sooner we will take back control of America’s health care system.
These comments demonstrate American’s ignorance of the system. Doesn’t it seem odd that this admininstration is solely focused on the administrative costs of insurance, which represent 15-20% of the health care spend, rather than claims costs, which represent the other 80-85%. Their own Center for Disease Control has issued reports in the past that show 70% of all health care costs are directly attributable to lifestyle choices we make and nothing in this legislation makes us accountable for these choices. PPACA is designed to fail. It’s pure and simple. The goal of this adminstration is to dismantle 1/6th of the US economy and make it another entitlement program, thus creating bigger government and giving them more power. Look how well the single payor systems of Europe have helped their economy. Until you have the same economic suppy and demand factors in health care as you have in every other business, this health care crisis will continue. Americans are too insulated from the true cost of health care. Office visits don’t really cost $10. This problem is even worse under Medicaid, where the participants have absolutely no incentive to help control their costs as they get everything FREE. They overuse the emergency rooms and think they’re their primary care physician. In return, Medicaid pays the provider a fraction of what their services cost, thus resulting in a tremendous cost shift to the private sector.
I’m sure I’ve lost the previous commenters with my logic, so please allow me to show you an analogy that might make sense to you. If you only paid a $10 copayment everytime you filled up your gas tank, what to you think would happen to the price of gas? What incentive would Americans have to drive more fuel efficient cars? Who would bear the cost above the $10 copayment? The gas companies would be enriched more than they are already and you’d have something else to complain about. Don’t think that bigger government is the answer to all your problems. They can’t save us forever. We’re broke and the world we’re leaving for our children and grandchildren is unsustainable. We’re a victim of our own success. We’ve taken it for granted, no different than great civilizations of the past who thought it would last forever as well.
Be careful what you ask for with your “robust Public Option”. Look at the unfunded liabilities we have with Medicare and Medicaid. Once again, unsustainable. We can’t afford them yet we’re expanding the eligibility for Medicaid? Why is Medicare eligibility the same age while life expectancies have increased almost 20 years since the mid ’60′s? How do we pay for that?
I know…you tax the rich (sic!). Sorry, got to get back to my 70 hour work week so I can pay my “fair share”. You people are destroying this country by undermining all the fundamentals that have made it so great. God help this country!
I’m glad the status quo works so well for you! Too bad over 50 million uninsured Americans don’t agree. Too bad another 25 million underinsured Americans don’t agree. That’s nearly one-quarter of Americans that aren’t lucky like you and find themselves using the mandated health care that hospital ERs are forced to continue to provide. These are the marginalized 75 million Americans that don’t share in the health care system that America’s wealthy lobby groups, the AMA, AHIP and PhRMA are trying to keep going for the richest Americans. Designer Health Care for those who can afford it. As I read this tripe, I keep thinking that I’ve read it somewhere before. Gee, maybe it’s a cut & paste out of the AHIP field manual of talking points. News Flash! We aren’t drinking that brand of kool-aid any longer. Today, we have an Occupy Wall Street movement because of the abuses of the big Wall Street banks. Maybe soon we’ll have an Occupy Health Care movement because of the abuses of the health care insurance companies, the corrupt health care providers and a corrupt Big PhRMA.
The handwriting for insurance agents and brokers is on the wall. You’ve milked the cow dry! You’ve killed the goose that lays the golden eggs! You need to get into the used car business where you belong!
The willful lack of understanding & clear thinking (“D”) is breathtaking. I read comments like “…50 million uninsured Americans..,” when numerous studies have shown that @ 1/3 to 1/2 of those are uninsured because they either don’t want or don’t wish to pay for insurance, or “…aren’t lucky like you.” Luck? Perhaps for some folks, but most people make their own “luck” by working hard (at jobs) and make wise lifestyle choices (not smoking; getting exercise; stop eating junk food; etc., etc.).
I find it amusing that OWS was even mentioned. It’s pretty clear that most of those folks have had little interaction with the “big banks” (except, perhaps, for their massive student loans). Even the Democrats are now trying to distance themselves from OWS. I think the majority of protesters are expecting others to “care” for them (read the placards: free college education, forgiveness of college loan debts, free health care, etc. (As they IM & tweet on the iPhones & iPads, paid for by the “evil 1%” – Mom & Dad, most likely.))
While there are more than enough problems in this mess to go around, it’s clear that the gov’t (& especially the liberals) has little interest in reforming “health care” (ambulance-chasing trial lawyers, big Pharma, AMA, hospitals, clinics, & so on) because they contribute big $ to politicians. This is why they went after health insurance companies: most folks like their doctor (whom they see & meet with, however briefly), but don’t have a “face” to put with a drug company, hospital, or insurance company. This is why it’s easy (& understandable) why folks don’t like their insurance: those are the people who tell you that all that expensive health care is, well, “expensive” and that you have to pay for some of it (deductibles, copays, coinsurance, etc.). Who likes that news?
Health insurance used to work like car insurance … routine maintenance you pay for, not them; your age, “how” you use your car, where you live, and your driving record, etc. determine the cost of the insurance. Your car insurance doesn’t pay for oil changes, new tires, or that brake job – if it did, do you think your premium might go up? (Duh…) Most health insurance (like other insurance) helps pay for large, unexpected financial loss, but it also (now) pays for health “care financing:” I don’t want to pay $125 for an MD office visit, I only think I should pay $20; I don’t want to pay $100 for that prescription, I only think I should pay $20.
(I’m an old guy: I remember when a good health insurance plan costs $95/month for a family of 4. But, guess what? No doctor or drug copays, no coverage for “routine, preventive” care, etc. It helped pay for care IF you were actually sick or hurt, and then after a deductible that, for most of us, was roughly equal to week’s salary (@ $250 in those ancient of days, the 70s). Now? People expect to have all their health care covered and then complain because the cost is high . Perhaps that’s a tribute to our remarkable public education system.)
When you subsidize something you’re going to get more of it.
“Freedom isn’t free; free people aren’t equal; equal people aren’t free.”
Don’t tell me, let me guess…
Tea Party Patriot, right?
Hey old guy, if you Tea Party types just manage to somehow get Bachmann elected, can you at least tell all of us where we can buy a digital wristwatch that can tell time in the 18th century?
Ah, so now David has concluded tha that “Old” equals “ignorant”? Congratulations. You have clearly demonstrated everything that Arturo said was valid. Nothing like having your adversary make all your points for you.
You can pillory insurance companies all you want, but if you value diversity in the workplace, dismantling insurance carriers will set you back a century. Health Insurance Companies, contrary to popular belief, are not full of rich white men in suits. Turns out the opposite is true.
Here’s an example for you…..a real not-for profit BCBS plan, let’s call it BCBS of State X, has the following demographic makeup:
2000 employees
83% Female, 17% Male
52% minority workforce
These are good paying jobs that favor women and minorities, and frankly I’m offended that our government has decided that the work that we do is somehow evil or greedy. Nothing could be further from the truth.
But if this administration wants private insurance to go away, it surely will eventually. Then I guess we’ll all be looking for government work.
WR29
Who really cares about diversity at BCBS? Selling insurance is a profession that has lost its relevance in today’s world of instant online shopping for good and services. I purchase my auto insurance online. I have absolutely no broker helping me. I simply go to a web site, select the insurance plan that works best for me, put that plan in my shopping cart and check out with my credit card. What the heck is so hard about that? It’s not rocket science! I don’t need any salesman to help me do something so mundane. Usually, these web sites have a step-by-step guide to help you make the best selection for your needs and your budget. Even a computer illiterate can figure it out. With a commissioned salesman, the more costly of a plan they sell you, the bigger their commission. Imagine that! Like selling snow to eskimos! I say, end commission sales with regard to health care. Insurance, PhRMA, medical devices, anything to do with health care does not require any middleman that takes their fat cut and, in doing so, increases the final cost. Some of you morons need to move into the 21st century and stop trying to take us back to the dark ages like the Tea Party is constantly trying to do. In an age where everything can be done online, will someone please tell me why we still have insurance brokers? Please, explain the value they bring to the table. I see none! Please, tell me how they will make the health care exchanges work better in 2014. They won’t! These leeches are there for one thing. To take a cut while providing no value! Scam artists! They need to get into another line of work!
David, instead of giving us your “whoa is me and the government needs to save us” rhetoric, why don’t you give some thought to a health care model that is more cost effective and expands coverage. Better yet, why don’t you give some thought to an economic model that creates jobs, thus providing employer sponsored coverage to those who don’t have it. Nothing in life is free, particularly the greatest health care system in the world.
Glad to see you have wireless internet in your Occupy tent! Someone else paying the tab for you?
Hey David…
Curious to know what you do for a living??? Does your employer pay part/all of your health insurance premium? If you in fact have a solid employer/job… then you have some form of company provided health care, and maybe they dont pay for it all but they certainly pay for at least half of your personal policy. I’ve provided a simple analogy to help you wrap your mind around this…. Let’s assume that you work for a small company, say 5 full time employees, the health insurance premium is roughly $3000 per month for the whole group (1-family = $1400, 1-Employees spouse = $800 and 2 -Singles $400 each). Thats $36,000 per year in premium and roughly the same cost for a new car. Keep in mind this is approximately an $18,000 annual expense for the employer (assuming 50% contributions). The average Broker commission on such a group is roughly $18 per employee, $90 per month or just over $1000 per year, in all, approximately 3%. Now let’s look at what the Broker does to earn his $1000. About 5 hours office time requesting quotes and preparing spreadsheets to “shop the market”, a minimum of 3 one hour meetings and one enrollment group meeting for two hours, claims processing and handling assistance usually about 10 hours (2hrs per employee), billing addition and terminations >2 hours and approximately 2 hours fielding general questions/issues on insurance related issues. Also, any Broker worth his salt is assisting on state continuation and other “Government compliance”, to the tune of at least 6 hours annually. Total = <30 hours woth of work or $33/hour. Keep in mind that from that $33/hour, expenses must be paid for supplies, office, phone, computer, continuing education, etc… Maybe you should re-evaluate where you think the high costs of health care are coming from. You could investigate the cost of claims, and the costs of the insurance providers. For example, your Doctor probably charges $120 for an office visit that he has scheduled to only last one hour… if you pay your $20 copay, the insurance company is on the hook for the other $100. Who do you think pays for the OWS person who doesnt have coverage but uses the ER as his/her primary care physician when they get sick? What about the illegals using Hospital services? OK, OK, I get it the $8/hour citizen cant afford health insurance right? The Dr.'s and Hospitals will work out payment plans with no interest but guess what… the bills always go unpaid (driving up the cost of health care) The insurance company ultimately pays for it because the Dr/Hospital providers have had to raise their charges to cover those who use and dont pay… How about the morbidly obese and the smokers and the adult onset diabetes and the folks who also drive health care costs? The insurance company pays for their choices too, without recourse to cancel them like a bad driver might get cancelled from his car insurance. Aren't these the drivers of high health care premiums and not the Brokers commissions? The insurance company pays for it but in the end, we pay for it , David, you and I pay for it.
“why don’t you give some thought to a health care model that is more cost effective and expands coverage”…
I’m glad you asked. It’s pretty simple. At least for those who can think. Basically, we end fee-for-service health care in America. The Affordable Care Act is encouraging Accountable Care Organizations (ACOs) that hire health care professionals and pay them a salary. These ACOs are beginning to pop up all across America. In fact, my primary care doctor was made an offer to buy out his practice and move his patient base into a local hospital ACO. He’s go from fee-for-service to a salary. The big incentive for him is that the ACO pays his malpractice coverage. Basically, the difference with an ACO versus HMOs and PPOs and any other fee-for-service model is that wellness and good outcomes are rewarded instead of the volume of procedures, medicines and tests. Unlike fee-for-service where a packed waiting room at the doctor’s office means huge profits at day’s end. The ACO profits best when their waiting rooms are completely empty and when all of their patients are all as healthy as they can be and don’t need constant appointments for sick-care. ACOs get paid the same per capita dollar amount regardless of whether their patients are sick or they are healthy. Sorry! They can’t pick their patients since most would pick the most healthy people, just like the insurance companies do today in out currently broken system. These ACOs can’t refuse anyone and still participate as an ACO. That’s a rule. Again, the incentive is to keep their patient base healthy. Of course, it’s not a Republican idea. At least not since President Obama was sworn into office. However, Republicans loved the idea before Obama was President. I invite you to read some of Newt’s writings on the subject. Maybe read some of Mitt’s writings while you are at it. Both of these staunch Republicans loved the ACO concept and loved the mandated health care concept before Obama got these ideas passed an enacted into law. Now Newt and Mitt hate these ideas! Gee, I wonder why? Think dude! For once…THINK!
I am an insurance broker in Seattle, one perhaps remarkably in favor of HCR (although the ACA is a bit of a cluster.) I am supportive of and very much involved in the HCR implementation activities here in Washington State.
Insurance agents and brokers (now called “producers” – ugh!) do add cost but also add value. Largely, the value added is helping consumers and employers make sense of a very complicated market that operates in a very complicated regulatory environment. In addition, in the employer group market most of my kind have added HR, financial and regulatory services and support – services that are paid largely but not always though the commissions built into the premiums of the medical plans and other lines of coverage.
The Exchanges will probably make things easier for many consumers and small employers. But it’s more complicated than that. Exchanges will be operating in a larger market – carriers will not be required to offer policies in the Exchange unless a state makes them, and few states will. (Without proper market regulation the individual and small group markets will be unstable and maybe unsustainable.) In addition, outside the Exchanges bona fide associations will offer plans. The Exchanges will not take over – they will be a part of a much larger market.
Plans in the Exchanges may not be the best available, either because of cost or benefit structure. While the Exchange will have plans set at certain actuarial values, (gold, silver, etc.) the plans themselves will not be identical, so we will see a variety of plans offered in and outside the Exchanges – HMOs, PPOs, and hybrid plans from various carriers that offer different provider networks, drug lists, etc. HIPAA, COBRA, FMLA, USERRA, ARRA, GINA, CHIPRA, and other regulations will still apply. HSAs, HRAs, and cafeteria plans will still be available. This is not an exhaustive list, and most employers count on brokers to handle this for them.
You might reasonably argue that the market will change; many of these broker services can be done on a fee for service basis. But, and I know that some of you might not believe me, what we have now is a fairly efficient product distribution system, not only for the health plans but for purchasers, and the disruption of it will be very difficult for many.
I am not saying that this HCR change should not occur. But I will point out that people tend to see more clearly the upside while diminishing thoughts of the downside. I can promise you that there will be a downside and it might not be pretty.
David try analyzing what value you bring in your job (if you have one). I’m sure we could easily eliminate your services with automated online access and the process would run so smooth. Anyone whose shopped for anything online knows that it usually doesnt fit and after the sale, there’s nobody to help solve the simple problems. Health Insurance is sold online everyday but it there are no discounts for DIY (no Broker). People like you (so little in “the know) will always need an agent whether you like it or not. Fortunately you think you have it all figured out on your laptop and therefore, we dont have to help you. Employers will always need us to do the work and stay current on the compliance created by big government. By the way, agents are paid per employee on small group and capped percentage on large groups. In fact, the more employees, the less the commission percentage. Shouldnt you request that the current administration provide Auto and Home insurance as well? Oh I forgot, you still live in the basement at your Moms and borrow the car to get to your Occupy meetings. Grow up and accept responsibility for what you can control and stop pointing your girlish little fingers at those who work hard and earn more money than you.
Who made it so “complicated? The entire system was designed under the watchful eyes of PhRMA, AHIP and the AMA, right? Consumers have had absolutely no say! Members of Congress took payola from these lobby groups to make it as complicated as it is. Maybe it would be less “complicated” if we had a Robust Public Option in the exchanges like Medicare for all. Pretty simple, offer Medicare to those under 65 for a premium. Could AHIP live with that? Could PhRMA live with a Medicare that negotiates the absolute lowest drug prices like WalMart does? Could the AMA live with the rapid proliferation of big box ACOs and with their salaried professionals? I say we should bring WalMart in and get them into the competition. Put WalMart into the online health care exchanges! AHIP, PhRMA and the AMA had many decades to make health care work for the consumer in American, and what did they do? They chose profits at every turn and ignored the consumer. Fact is, you guys are scared! The handwriting is on the wall. The health care consumer has been hosed for far too long and it’s time to fight back!
David,
Why is State Farm the #1 auto insurance company (based on premiums written)? Could it be their business model that uses those highly service-oriented insurance brokers? State Farm doesn’t always offer the lowest rates, but many consumers will pay more to have a designated “point person” to meet with for personalized service.
Insurance companies use insurance brokers because they are effective and low-cost. The exchange may reduce, but certainly doesn’t eliminate the need for service reps. In fact the PPACA calls these reps “exchange navigators”.
Do you think using govt employees as “navigators” will be more efficient than using independent agents? Consider pensions, productivity, and incentives for delivering value to consumers.
We need to reign in the cost of health care. “Profit” is usually about 1-2% of every health care dollar. We need to improve the stewardship of the other 99% if we hope to bend the cost curve. Capitalism and free market exchange facilitates a more efficient use of limited resources than central planning. Your comments only reveal your ignorance of the health care industry, and economics.
I’m a 23 year old student at the University of Washington. I work full-time as an insurance broker in WA State. I really like what I do, but I’m young… I know that my career may change. If Obamacare eliminates the viability of health insurance brokers then I’ll go find something else in the private sector. No biggie
“David try analyzing what value you bring in your job (if you have one). I’m sure we could easily eliminate your services with automated online access and the process would run so smooth. Anyone whose shopped for anything online knows that it usually doesnt fit and after the sale, there’s nobody to help solve the simple problems. Health Insurance is sold online everyday but it there are no discounts for DIY (no Broker). People like you (so little in “the know) will always need an agent whether you like it or not. Fortunately you think you have it all figured out on your laptop and therefore, we dont have to help you. Employers will always need us to do the work and stay current on the compliance created by big government. By the way, agents are paid per employee on small group and capped percentage on large groups. In fact, the more employees, the less the commission percentage. Shouldnt you request that the current administration provide Auto and Home insurance as well? Oh I forgot, you still live in the basement at your Moms and borrow the car to get to your Occupy meetings. Grow up and accept responsibility for what you can control and stop pointing your girlish little fingers at those who work hard and earn more money than you.”
These are words coming from a very frightened little man who is protecting his turf at all costs and knowing full well that the end of his status quo world is inevitable!
“I’m a 23 year old student at the University of Washington. I work full-time as an insurance broker in WA State. I really like what I do, but I’m young… I know that my career may change. If Obamacare eliminates the viability of health insurance brokers then I’ll go find something else in the private sector. No biggie”
Point person? For what? Are you saying people are too stupid to go online to a health care exchange and figure things out for themselves? What? They need you to be their mentor? That’s pretty insulting, don’t you think? You say you’ll go find something else? That’s a pretty good attitude. If you really believe that, you’ll do fine! Word to the wise. The insurance game for the health care “point person” is rapidly coming to an end. In 2014, the online health care exchanges will open for business. Most employers that offer their employees health insurance have already developed their plans to provide links to their employer sites. The mass migration is inevitable. If I were you, I’d be looking for a new line of work, NOW!