One of the provisions of the Patient Protection and Affordable Care Act (ObamaCare) requires insurance companies to spend 80% of premiums they collect from small employer groups on claims. The figure for large employer groups is 85%. All other administrative expenses must be paid out of the remaining funds, referred to as the Medical Loss Ratio (MLR).
On the surface this seems to make sense and can be viewed as fair to all participants of these health insurance plans. But as the saying goes “the devil is in the details”.
A major problem/issue is that the law requires agent compensation to be part of the MLR, classifying it as an administrative expense. In order to comply, insurance companies were forced to cut agent compensation. In some cases, these cuts were up to 50%.
Now this makes no sense because ObamaCare created so much confusion, agents were inundated with questions from clients which necessitated much research to find answers. I can attest to this from my own experience. So at the very moment the government created more work for insurance agents and brokers, they effectively reduced their compensation.
Tell me how this makes any sense?
Hopefully, relief is in sight!
Two Congressman have introduced legislation that would exclude agent compensation from the MLR. The bill, the Access to Professional Health Insurance Advisors Act of 2011 has support from both sides of the aisle. It has been introduced by Reps. John Barrow (D-GA) and Mike Rogers (R-MI).
The bill is one of several attempts to free insurance companies from being forced to include agent compensation in their administrative costs. There is, of course, no guarantee that insurance companies will increase agent compensation if the law passed but it is a step in the right direction.
ObamaCare did not specify how to classify agent compensation under the MLR formula. However, through the regulatory process agent compensation was included in the MLR formula and also included as part of the “non-claims costs” category.
“Agent compensation is passed through by the insurance company from the consumer to the agent and is collected as part of the premium as a convenience,” says Robert Rusbuldt, president and CEO of the Independent Insurance Agents of America. “This compensation is not insurance company revenue and therefore should not be part of the MLR formula and the Rogers-Barrow legislation is a crucial technical fix to correct this error.”
If this issue is not addressed it can only cause harm to the consumer. Separately, many other insurance trade groups have been appealing for exemptions from the MLR calculations.
Hopefully, members of Congress will realize the value of this bill as the “status quo” is just not acceptable. According to a recent survey of 520 insurance agents conducted by the National Association of Insurance and Financial Advisors, 13% of agents experiencing reduced commissions have laid off or reduced the hours of support staff. Another 23% have considered staff reductions.
More than 25% say they will be forced to reduce staff in the future if commissions remain depressed.
Once again, the Obama administration and Congress, in spite of the claims that they are doing things to create jobs, propose and enact legislation that does just the opposite!
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