The national health-care reform law‘s unintended consequences have been well catalogued. This month marks a year since President Obama’s Affordable Care Act, sometimes called Obamacare, put into play one of its lesser known, but most damaging provisions.
If you’ve never heard of the law’s medical loss ratio (MLR) provision, you’re certainly not alone. This simple calculation has had the effect of radically reducing what health insurance agents earn. That, in turn as greatly restricted their ability to help million of Americans navigate the maze of approvals needed for medical procedures and processing claims. It has also had a devastating effect on these agents’ businesses and is disrupting the insurance market.
At the end of last year, state insurance commissioners took a big step to undo some of the damage done by the Patient Protection and Affordable Care Act. The National Association of Insurance Commissioners approved a resolution urging Congress to remove health insurance agents’ compensation from the law’s medical loss ratio provision. In the meantime, the association wants the Obama administration to what it can to mitigate the negative impact of the provision.
So what does that mean?
The MLR provision states that insurers must dedicate at least 80 percent of individual and small group premiums they receive to medical- or quality-improvement expenses. The figure goes up to 85 percent for large group policies. Because agents’ compensation counts against the MLR (along with such items as marketing expenses and corporate profits), many insurance companies immediately slashed commissions when the provision went into effect last January.
Insurers having to put such a high portion of the premiums collected toward these expenses meant that agents – on the frontlines of helping customers – made less and had to cut services to compensate.
A November survey by the National Association of Insurance and Financial Advisors found that 80 percent of health insurance agents saw their commissions decrease, including 52 percent whose companies cut commissions by 25 percent or more, since the health-care law went into effect last January. A report by the Government Accountability Office confirmed this, stating that “almost all of the insurers said they had decreased or planned to decrease commissions to brokers in an effort to increase their MLRs.”
If it sounds like it’s a tough time to be an insurance agent, it is. Their median annual income was less than $50,000 before the law went into effect. Many are small business owners who can no longer afford to pay their employees.
But the problem is much more serious than that. It’s getting tougher to be a consumer in the market for health insurance, too. Unlike agent compensation, premiums have not gone down. And while removing compensation from the MLR would not cause premiums to increase, there have been a slew of unintended consequences from leaving it in.
Agents do much more than sell insurance. They serve their clients, not the insurance companies, helping people when they have trouble getting surgical procedures and tests approved or claims processed. They provide corporate clients with individual enrollment assistance for their employees. They create and administer company wellness programs and often serve as the extended human resources departments for small business clients.
As agents deal with the consequences of the MLR, many are finding that the cost of servicing clients now exceeds their income. They are cutting back on services to customers and laying off support staff. Some are leaving the health insurance business altogether, effectively reducing the competition that the health-care law was supposed to foster. All of this is disrupting the marketplace.
That’s why I applaud the efforts of the National Association of Insurance Commissioners. The commissioners are well respected and have a long history of protecting consumers and ensuring the stability of the insurance market. Their opinion rightfully carries weight among decisionmakers in Washington.
Congress and the president certainly never intended for the law to limit consumers’ health-care choices or reduce the quality of their coverage. As President Obama has acknowledged, “Anything can be improved.” Treating agents’ compensation as a pass-through item and thereby removing it from the MLR equation would be a huge improvement and a first step toward ensuring that Americans continue to have access to the essential support and customer service that professionally trained and licensed agents provide.
Robert Miller is president of the National Association of Insurance and Financial Advisors, based in Falls Church, Va. NAIFA comprises more than 600 state and local associations representing the interests of 200,000 members and their associates nationwide.