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Better Value for Health Insurance Consumers?

Another aspect of the Affordable Care Act (ACA) will be going into effect next week.  Beginning 2011, health insurers must spend no more than 15-20% of their clients’ premiums dollars on administrative costs and business overhead with the remaining 80-85% on medical services and whatever else is necessary to improve health care quality.  Insurance companies that fail to meet this standard must reimburse the difference to their clients or go out of business.  The problem with this computation, known as the Medical Loss Ratio (MLR) is identifying what services contribute to health care and which are administrative in nature.

Of these, perhaps the most controversial question is how the role of brokers and insurance agents is defined.  Most state regulators, charged as insurance watchdogs by their legislators or the citizens who’ve elected them, view brokers and agents as integral to not only the purchase of health insurance, but also as support throughout the life of a policy. Trained and state certified, health insurance agents not only assist people in choosing the right insurance product, they serve as advocates when problems arise with insurance companies. Small business, in particular, benefits from agent interactions because agents help small business owners make the best insurance choices for themselves and their employees.  They also serve in a human resource role by enrolling new employees, adding dependents, and solving claim problems.  In effect, agents work for the consumer.  Because of this, most state insurance regulators, in calculating their state’s MLR standards for health insurers, don’t count the work of agents in administration costs.  Health and Human Services (HHS), however, the agency responsible for defining the federal MLR standard, has decreed otherwise and is moving agent commissions in with office overhead and administration costs.

As a result, in their efforts to keep what HHS has defined as administration costs to the required 15-20%,  the services that agents provide will be threatened.  Since these HHS rules were announced, many states’ officials have voiced protests.  Our own California state insurance commissioner, Steve Poizner, as well as insurance and consumer advocate groups see serious harm done if this becomes final and are appealing to HHS to reconsider.  In a letter to the head of HHS, Kathleen Sebelius,  Commissioner Poizner, decrying the 2-bucket MLR designation, points out that agents, while not directly providing medical care, are not like telephone operators, building maintenance or accountants.

Why would the federal government contradict most state insurance regulators and include agent commissions in the MLR calculations?  Cynics point out that by diminishing the role of health insurance agents, HHS is pushing individuals and small businesses into the Affordable Care Act’s mandated insurance exchanges which will be activated in 2014.   These exchanges, will be offering only a limited, number of government-specified health insurance policies with online ‘navigators’ to help with the system.  Incredibly, the HHS news release announcing the MLR rule states that the new rule “gives consumers better value for their insurance premiums”.

And, of course, unintended consequences lie ahead.  If the HHS decision stands and the insurance agent’s role is diminished, consumers and small businesses will be deprived of personal assistance in choosing the best health insurance for their needs.   They’ll also lose a knowledgeable resource for insurance information and a personal advocate if problems arise.  In the absence of agents, will insurance carriers resort to off-shore 800 numbers to provide health insurance information and support for its consumers?  OK; probably not.  But, in order to keep this necessary link between themselves and their clients, insurance premiums will rise providing yet another example of  government regulations raising consumer costs.

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