Medical Loss Ratio Places Thousands of Insurance Brokers’ Jobs at Risk

“I have 100,000 licensed agents in my state alone and this is a serious threat to their livelihoods,” warns Louisiana Insurance Commissioner Jim Donelon of the impact of the proposed Medical Loss Ratio (MLR) regulation. Donelon and other state insurance commissioners wrote that, “[The proposed MLR regulation] is likely to have dramatic repercussions in our respective states and directly lead to the loss of thousands of insurance-related jobs at a time when our national economy continues to struggle.”

Insurance brokers receive up to 20% of first year premiums as a commission. Since the proposed MLR regulation only allows insurance companies to spend 15% of premiums on overhead and profit, the regulation is expected to have a devastating effect on healthcare insurance agents.

Understanding the magnitude of its potential impact, state insurance commissioners worked to get broker fees excluded from the MLR calculation. In October’s meeting of the National Association of Insurance Commissioners (NAIC), state commissioners considered an amendment to the proposed regulation that would do just that. In a letter to NAIC President Jane Cline, twelve state insurance commissioners wrote in favor of the amendment:

Insurance producers serve an incredibly beneficial purpose in the health care marketplace, and that role is placed in jeopardy by the draft regulation. Agents and brokers provide credible advice and trustworthy counsel to consumers who are confused or overwhelmed by the system and serve as advocates to those who confront problems and barriers. The enactment of health care reform ensures that consumers will need the assistance of agents more than ever in the months and years to come, and the NAIC should not enact standards and rules that discourage insurance buyers (whether individuals or small businesses) and insurers from working with agents. The proliferation of scam artists now attempting to sell fraudulent policies and take advantage of the ignorance of the average consumer highlights why competent, qualified, and accountable agents are so essential.

Excluding agent compensation from the MLR calculation would achieve several important results. First, the MLR mandates will almost certainly produce considerable disruptive effects in the marketplace unless some relief is provided, and the amendment above will avoid this near-certain shock effect. Second, unless action is taken, the important advisory and advocacy role performed by countless insurance agents every day will be jeopardized once the new requirements take effect.

But, perhaps concluding that the Patient Protection and Affordable Care Act (Obamacare), which charged them with drafting the regulation, did not give them the discretion to exclude broker fees, the amendment was withdrawn.

In its place, the NAIC voted to form a group to work with HHS to find a solution. Whether a solution can be found remains to be seen.