A new producer service fee arrangement introduced by Aetna looks to eliminate broker commissions on small-group business, a move advisers claim hurts their business, their clients and most likely doesn’t comply with the Affordable Care Act’s medical loss ratio regulations.

Beginning with July 1, 2015 effective dates, Aetna’s new “Producer Service Fee model will be the compensation model on all new and renewing group business with up to 100 lives,” according to an e-mail, obtained by EBA, from the carrier to an agent in Georgia.

The Producer Service Fee model requires brokers and their clients to negotiate a service fee that will be paid by the customer/employer to Aetna, and then paid out by Aetna to the broker.

“We're simply the administrator passing it through as a service,” the insurance carrier says in the e-mail announcing this new arrangement. Attached to the e-mail is a billing and collection agreement that must be signed by the agent, customer and Aetna.

“They are specifically angling to say that we do not represent them, that we would be engaged by the customer and that therefore they have absolutely no obligation to pay us,” says Elena Merino, president and CEO of the Meridian Group.

According to Ronnell Nolan, president and CEO of Health Agents for America, agent members of HAFA have received the new contracts from Aetna in several states already.

Matthew Wiggin, a spokesman from Aetna, confirms the insurance company is introducing the producer service fee model in "a portion of the markets where we offer small group plans," including Florida, Georgia, and New Jersey.

“Our main problem with that method of payment is that the premiums are not reduced to accommodate the loss of the commission,” says Nolan. “Therefore, the commissions we would have been paid prior are then kept by the insurance companies. We are forced to ask consumers, who are already paying for rate increases, to then pay for our services. While they definitely feel our service is worthy, can they afford to pay us? And if not, how do we stay in business?”

She adds, “We believe the new contracts are taking the partnership of client, agent, insurance company one step further and severing it.”

“I can’t think of any other business, say a manufacturer for example, where the manufacturer doesn’t have to pay any money to the people who sell their product for them,” says Jeffrey Miles, an independent agent with The Miles Organization, based in Marina Del Ray, Calif.

The arrangement obviously benefits the carrier in two ways, he says:  1) They take all the money, and 2) They take away the representation for the consumer.

That’s problematic, he says, because, “Most people will walk away from questionable claims if they don’t have somebody to fight for them.”

MLR regs

The carrier directs brokers to choose service fees as either a percent of premium or a per-subscriber-per-month amount. The billing and collection agreement clarifies that the producer and the customer acknowledge and agree that Aetna has no involvement in providing the services or determining the amount of the service fees.

The agreement also clarifies “the service fees are neither consideration for nor a condition of receiving insurance coverage from Aetna.” Still, Aetna may include the service fees in the same bill it sends to the customer to collect insurance premiums.

“I am convinced that this violates basic contract law,” says Merino, adding that it also “appears pretty clear that it would violate the conditions in the CMS bulletin.”

Samara Lorenz, acting director of the health insurance oversight group at CMS, said in a May 27 bulletin that the agency is aware some issuers had been seeking ways to exclude agent and broker fees and commissions from premium in order to increase their medical loss ratios and reduce or eliminate rebates.

The ACA mandates that at least 80% of small-group premiums collected by the carrier must be spent on claims payments and “health care quality improvement.” The restriction means no more than 20% may go toward “non-claims costs” such as profits, advertising, administrative costs, etc. If a carrier does not meet these ratios, they must issue rebates to the consumer.

Similar to Aetna’s new fee model, Lorenz said some issuers have been trying to assert that payment of agent or broker fees or commissions is not a condition of coverage, and that the policyholder owes these amounts directly to the agent or broker, while issuers merely pass these amounts through.

“In some cases, issuers have required policyholders, as a condition of coverage, to sign a statement that the policyholder retained the agent or broker and negotiated the fee independently of the issuer, even where it appears that such statement was not factually accurate,” she said.

The bulletin outlined seven very specific criteria that must be met for issuers to exclude broker fees and commissions from premium for MLR reporting purposes.

See also: The 7 criteria that will exclude agent fees from MLR

“We have not received clarification that the new Aetna producer contracts comply with the new CMS rules released regarding removing commissions from MLR,” says Nolan.

Aetna's Wiggin says the carrier is reviewing the updated CMS guidance and will communicate to brokers and agents directly any effect the guidance may have on Aetna policies.

CMS did not return calls and e-mails for comment on the matter by press time.

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