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Broker Commissions: In or Out of Medical Loss Ratio Calculations?

Health Reform Update from the National Business Coalition on Health

The National Association of Insurance Commissioners (NAIC) is considering whether to endorse legislation that would remove broker and agent commissions from the medical loss ratio, a calculation that could give consumers valuable insights about the proportion of their premiums spent on health care costs compared with administrative expenses and salaries. Removal would have far-reaching implications for the reliability of the MLR as a measure of a health plan's value, for the broader goal of improving quality and controlling costs, and for the NAIC itself.

Last year, the NAIC recommended that HHS adhere to the law's requirement that brokers' and agents' fees be included in the MLR. That position resulted from a thorough process that included input from interested groups representing consumers, insurers, brokers and agents, and others. The recommendation represented an equitable balancing of numerous perspectives, and HHS adopted it virtually unaltered.

The brokers and agents responded by waging an intensive lobbying campaign urging the NAIC to endorse a bill by Rep. Mike Rogers, R-Mich., that would remove these payments from the MLR calculation. Some of the NAIC consumer representatives strongly opposed such a move, arguing that the economic consequences for consumers and the government had not been adequately examined. The NAIC elected to study the issue further before making a final decision, which could come this month.

Numerous organizations representing consumers and patients believe that, for the MLR to be a meaningful measure of consumer value, broker and agent fees must be included in the calculation as an administrative expense. Excluding these fees would essentially hide a significant driver of premium costs and undermine an important opportunity to contain unnecessary administrative expenses. It would also dilute the law's efforts to make health insurance more transparent and comprehensible, and to empower consumers to make informed decisions when choosing a health plan. (Source: NAIC consumer advisory group, May 10, 2011)

Posted by Cristie Travis at 3:17 PM

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