Medical Loss Ratio Reform: Barking Up the Wrong Tree

The Affordable Care Act (aka ObamaCare) requires health plans to spend at least 80 or 85 percent of premiums on medical expenses and quality improvement – 80 percent for small groups and individuals and 85 percent for large groups. This minimum Medical Loss Ratio (MLR) rule means that health plans must squeeze all their administrative costs and profits into the remaining 15 or 20 percent.

The Affordable Care Act (aka ObamaCare) requires health plans to spend at least 80 or 85 percent of premiums on medical expenses and quality improvement – 80 percent for small groups and individuals and 85 percent for large groups. This minimum Medical Loss Ratio (MLR) rule means that health plans must squeeze all their administrative costs and profits into the remaining 15 or 20 percent.

Health plans are making adjustments. Not surprisingly they are looking at ways to cut administrative costs, just as the law intends. One easy target is commissions for agents and brokers, and those commissions are in fact being cut. From LifeHealthPro:

“The (MLR) requirements contained in the Patient Protection and Affordable Care Act continue to have a devastating financial impact on the country’s approximately half-million licensed professional health insurance agents and brokers, as well as on all of their employees and their millions of employer and individual clients,” stated Janet Trautwein, CEO of The National Association of Health Underwriters (NAHU).

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Trautwein explained that the MLR requirements significantly and negatively impact access to health insurance agents and brokers at the very time our economy is the weakest and health care consumers need the most help.

She noted that the Congressional Budget Office (CBO) reported that agents and brokers often serve as de facto human resources departments for many small firms — negotiating premiums, processing claims and enrolling employees.

Brokers are pushing to have the MLR rules exclude agent compensation and they’ve picked up some allies in the Senate.

I totally understand why agents are unhappy and why NAHU is pushing for this change, but I don’t believe a change is justified. The current compensation structure has brokers working on behalf of the health plans to sell coverage. If agents and brokers are really working as HR departments for small firms – as Trautwein contends – then those firms would be better off paying for such services directly rather than paying a health plan to pay a broker to do the work.

The easiest short term path for the broker community will be to keep pushing to change the legislation. But in the long term it will be healthier for all if employers rather than health plans pay for brokers’ consultative and HR services.

(image: healthcare administration / shutterstock)