One of the many ongoing battles over the Patient Protection and Affordable Care Act (PPACA) involves the federal minimum medical loss ratio (MLR) standards for private insurers. Under this provision, health insurance plans in the small group market are required to spend at least 80 percent of premiums on medical costs and no more than 20 percent on administrative costs (15 percent for the large group market). If a plan fails to meet the minimum MLR standard, the insurer is required to pay rebates to enrollees and policyholders.

One of the biggest points of contention is the requirement that insurers include agent and broker compensation as part of their non-claims costs. The insurance industry is fighting to get that changed, saying it would be much easier to meet the standards if payments to the middlemen were not calculated in the MLR.

GAO studies the issue, releases report

Given the ongoing battle, the General Accounting Office (GAO) was asked to review the effects of the MLR requirements on all stakeholders including insurers, brokers, and enrollees, and how rebates would change if agent and broker payments were excluded from the MLR. They recently issued their report, and here’s a brief rundown of what they found… 

• The insurance industry claims the current requirement is tough on their bottom line and could mean higher premiums for customers. They also warn that the requirements could cause some insurers to leave certain markets in some states, leading to instability in those markets. 

• Agents and brokers are also hoping for a change in the requirements, concerned that if insurers are required to count agent and broker compensation as a non-claims cost in calculating their MLR, those insurers could decrease broker compensation. According to a report from the Commonwealth Fund, agents and brokers took a $300 million hit in commissions in 2012 as a direct result of the MLR provision. That could seriously cut down on the number of agents and brokers available to help consumers choose a health insurance plan. 

• Consumer advocates prefer to keep the law as is, saying that the requirements have resulted in greater transparency in how insurance companies use premiums. They feel that the current requirements also provide an incentive for insurers to reduce their administrative costs. They also note that refunds to consumers will be significantly less if the commissions and fees insurers pay to agents and brokers aren’t included in the MLR formula. 

• Rebates. In 2011, the first year the new requirements were in effect, almost 13 million Americans received rebates from insurers that didn’t meet the MLR, totaling about $1.1 billion. In 2012, more insurers complied with the new standard, which dropped the total rebates to $520 million. The GAO says that had the commissions and fees insurers paid to agents and brokers been excluded from the MLR formula, these amounts would have decreased by about 75 percent, reducing the average customer rebate from $58.50 to $15.21 per person.

What lies ahead?

Clearly, this battle has yet to be decided. Health experts generally agree that exempting broker commissions from the MLR formula would make it easier for insurers to meet the MLR standards, but they feel it could also mean higher premiums and smaller rebates for consumers.

Brokers and employers alike should stay tuned for further updates on PPACA and the broker fee proposals. For the latest news, subscribe to our blog in the top right corner of this screen.