Brokers get hope on commissions

Health insurance brokers got a glimmer of hope last week that their fees might not get squashed by regulations coming from the 2010 health overhaul.

The National Association of Insurance Commissioners passed a resolution Nov. 22 that urges Congress and the Obama administration to exclude benefits brokers’ commissions from the new requirement that insurers spend only 15 percent to 20 percent of the premiums they collect on administration and profits. Any spending over that amount must be refunded by insurers to consumers.

Insurers’ efforts to reach that new goal, which is called a medical-loss ratio, or MLR, has led nearly all of them to squeeze commissions to benefits brokers. For example, Indianapolis-based WellPoint Inc. changed its commissions so that they no longer rise from year to year with premium increases, but only if a particular broker actually signs up more people to WellPoint’s health plans.

“Almost all of the insurers said they had decreased or planned to decrease commissions to brokers in an effort to increase their MLRs,” reported the U.S. Government Accountability Office in an August report on the issue.

The change has accelerated consolidation among brokers, particularly those that serve small employers. In Indiana, many brokers have sold their firms to Florida-based Brown & Brown Inc. Its net premiums written have soared from $190 million in 2006 to $915 million last year, according to IBJ research.

The Obama administration classified broker commissions as an administrative expense a year ago, largely following a proposal from the National Association of Insurance Commissioners. A year later, the organization has changed its tune, although the vote on the resolution was close, according to The Wall Street Journal. It passed by a vote of 26-20, with five commissioners abstaining.

There is support for removing brokers’ commissions from the MLR calculation in both Congress and the Obama administration. A bipartisan bill, H.R. 1206, is pending in Congress, which would declare broker comissions as neither a medical nor administrative expense.

However, the insurance commissioners noted that the bill is unlikely to pass in the bitterly divided legislative climate.

So the commissioners appealed to Obama’s Department of Health and Human Services to take action. HHS could approve state requests to remove broker commissions from the MLR calculation, order a halt to the implementation of the rule for brokers only, or reclassify broker commissions as an effort to improve health care quality, which would be counted as a medical expense, not an administrative one, under the rule.

The chances of the insurance commissioners’ recommendation being adopted are unclear.

In an August speech in Fishers, Janet Trautwein, CEO of the National Association of Health Underwriters, said Obama advisers in the White House worry that so many brokers will be forced out of business that it could undermine another key part of the health reform law: the health insurance exchanges that will serve as the main marketplace for individuals and small business to get health coverage. The exchanges will also be the place where consumers go to get subsidies for health insurance, one of the law’s key mechanisms for expanding overall health coverage.

Those exchanges are scheduled to begin operating in 2014.

“They actually want agents and brokers to remain part of the process,” Trautwein said of her contacts at the White House. “They worry that brokers and agents won’t be around in 2014 to enroll people in the exchanges.”