Health care reform
December 2, 2011
The Department of Health and Human Services issued final regulations in December for the Medical Loss Ratios (MLRs) mandated by health care reform. The final regulations count broker commissions as part of a health insurer's administrative costs, rather than allowing them to be paid from the benefits side of the budget, as brokers had hoped.
The MLRs define the percent of premium that health insurers must use for paying for actual medical care or health care quality improvements. If insurers do not meet these guidelines, they must issue rebates to consumers according to a formula established by the government.
The law requires health insurers to allocate premium dollars within these parameters:
According to the regulations, health insurers will have to pay any broker commissions out of the administrative portion.
Before the final regulations were announced, brokers and agents unsuccessfully tried to persuade the government to reclassify commissions so they would not be considered part of the administrative costs. They argued that the law would do more than reduce broker compensation, it could also decrease consumer and small business access to the expert health plan guidance that brokers provide.
The MLR guidelines were released by the Centers for Medicare and Medicaid Services on December 6, 2011. The final and interim regulations also:
See the government fact sheet for more details.
Impact on brokers — A report from the Government Accountability Office released in August 2011 shows that almost all insurers have already started adjusting commissions to agents and brokers to comply with the MLR requirements.1 The release of the final MLR regulations may result in additional adjustments to compensation.
The new requirements may accelerate a move to new models of broker compensation, such as fee-based consulting, and may compel more brokers to broaden their portfolios with other valuable, non-medical benefits.
Impact on employers — This could leave some employers without the broker guidance they count on to make educated health insurance choices in a complex and rapidly changing market. Some employers may choose to pay fee-based commissions to retain this valuable support.
One important note — Self-insured health plans are not “health insurance issuers” as defined by the Public Health Service Act. This means employers who self-insure their medical plans are not subject to the MLR regulations.
Impact on employees/individuals — This element of health care reform is intended to benefit consumers by assigning more of their premium dollars to actual medical care and health care quality improvements, and fewer dollars to administrative costs. If health insurers do not meet the MLR requirements, consumers can expect rebates. The first round of rebates must be issued by August 2012, based on 2011 MLR levels.