Most brokers are against the Affordable Care Act’s medical loss ratio formula because it reduces commissions, they say.  

The MLR requirements for insurance carriers, which took effect Jan. 1, 2011, mandate that no more than 20% or 15% of premiums collected may go toward “non-claims costs” — and brokers fall into that category.

As such, the MLR has adversely affected brokers — some insurers have cut commissions in half, according to the National Association of Insurance and Financial Advisors, which says 80% of its members surveyed have seen their commissions shrink since it took effect. Another recent study, however, found only slight decreases in broker expenses.

From 2011 to 2013, broker expenses fell just 0.2%, according to a paper written by Virginia Commonwealth University professor Michael McCue and Wake Forest University law professor Mark Hall. Broker expenses totaled $8.3 billion (2.7% of premiums) in 2013, down from $8.7 billion (2.9% of premiums) in 2011, according to the report, which was released by the Commonwealth Fund.

Brokers in the individual market saw the biggest drop, 0.6%, while expenses in the small-group market dipped 0.1% and the large-group held steady. “This issue is significant because some industry observers expect that increasing MLRs will cause insurers to reduce the role of — or compensation for — independent brokers,” according to the paper.

That’s something the House of Representatives wants to avoid. In February, the House introduced a bill — the “Access to Professional Health Insurance Advisors Act of 2015” — which would remove agent compensation from the MLR formula.

Also see: House revives effort to separate agent compensation from MLR

The bill, introduced by Reps. Billy Long (R-Missouri) and Kurt Schrader (D-Oregon), has plenty of industry support.

“The advice and services provided by health agents and brokers provide direct benefits to consumers, so agent compensation should not be considered administrative expenses under the Affordable Care Act," says NAIFA President Juli McNeely. “Many NAIFA members have seen their compensation decrease since the MLR rule went into effect, forcing some to scale back their services to health care clients or refocus on other lines of business entirely. This harms the consumers who rely on agents and brokers to obtain coverage and assistance in understanding the complex health care law.”

At least one Senate member agrees. Sen. Tim Scott (R-South Carolina) received applause when he spoke of MLR reform last month at the National Association of Health Underwriters’ Capitol Conference in Washington, D.C.

“The goal of health care reform was to provide affordable and quality health care to all Americans, and we must keep these goals in mind when developing important MLR guidelines,” says Janet Trautwein, CEO of NAHU. “While NAHU agrees with the goal of providing consumers with more value for health care dollars spent, the health reform law’s MLR requirements significantly and negatively impact access to health insurance agents and brokers by wrongfully including agent and broker commissions in with administrative costs.” 

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