Health of Agents

The role of health insurance agents under the new federal healthcare law is under review, again, by state and federal policymakers.

Illinois Insurance Director Michael McRaith says the law’s medical loss ratio (MLR) requirement that insurers must spend 80 to 85 cents of every premium dollar on providing health care — or give rebates in 2012 — may result in as many as 25 percent of Illinois policyholders getting rebates next year.

But that same MLR requirement may be costing agents and brokers, whose commissions insurers must include in the 15 to 20 percent cap on administrative costs. Agents and brokers say that insurers are likely to reduce their commissions as a result of the mandate, and indeed some are already doing so. One Texas agent said some companies have already reduced commissions dramatically — as much as 50 percent. The situation is dire, she said. If commission cuts continue, agents will be unable to provide the services needed by health plan consumers, especially small businesses and individuals.

At a recent National Association of Insurance Commissioners (NAIC) hearing on the MLR, state regulators showed they are sensitive to agents’ concerns and see agents as valued partners in guiding consumers through the health insurance landscape. But they came to no conclusion on whether to change how agent commissions are treated in the MLR formula.

McRaith questioned whether the inclusion of commissions in the MLR is the real culprit behind the reduction in agent commissions or if it is just being used as an excuse by insurers to increase profitability. He said that commissions have been decreasing over the last decade, well before the advent of the new federal law.

Consumer advocacy groups argued that separating agent/broker compensation from administrative costs would cause premiums to rise.

Health insurers are supposed to report on April 1 to the NAIC on what they are paying agents in commissions. Commissioner Kevin McCarty of Florida, who chaired the meeting, said a status update based on that report and other data should be completed within four to six weeks.

As the commissioners were wrapping up in Austin, a new government report looked at what might happen if the controversial individual mandate is ruled unconstitutional or otherwise repealed. One of the findings was that agents and brokers could become even more important than they are now in helping the country get more people covered by health insurance. Indeed, even with the individual mandate, their role is critical, according to experts interviewed by the Government Accountability Office (GAO).

Stay tuned. Reports of the death of health insurance agents — and their commission —may be somewhat exaggerated.