If the Affordable Care Act’s Medical Loss Ratio formula continues as is and insurance carriers continue to cut, and in some cases, eliminate, commissions, as a result, brokers who sell health insurance will be faced with a “disincentive” to sell the product, Sen. Tim Scott (R-S.C.) said last week at a breakfast briefing during the legislative conference of The Independent Insurance Agents & Brokers of America.

Sen. Tim Scott speaks at an IIABA event in Washington on March 14.
Sen. Tim Scott speaks at an IIABA event in Washington on March 14. Photo: Midori Olgesby/IIABA

The ACA established MLR requirements for insurance carriers that went into effect Jan. 1, 2011. The law mandates that at least 80% (individual and small group) or 85% (large group) of premiums collected by the carrier must be spent on claims payments and “health care quality improvement.” The restrictions mean no more than 20% or 15% 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.

Since the MLR forces insurance companies to look for administrative savings to meet thresholds, many insurance companies have cut agent commissions, calling it an “administrative expense.” However, Bob Rusbuldt, president and CEO of The Big “I,” believes commissions should not be considered an administrative expense.

“We believe there is a strong case to remove agent commissions from [the MLR provisions],” Rusbuldt says. “I’ll know [insurers] are cutting administrative expenses when corporate jets are cut out.”

Scott, who spent 25 years in the insurance business as an Allstate agent, said at the briefing in Washington that as a result of the elimination of agent commissions due to the MLR, there is a direct reduction of agents that go to homes and provide expert advice and an impact on hospitals.

“The state of affairs in the insurance industry, especially health insurance and P&C insurance, is getting more and more difficult on a day-to-day basis,” he said.

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"We believe there is a strong case to remove agent commissions from [the MLR provisions]. I'll know [insurers] are cutting administrative expenses when corporate jets are cut out."

There are other pressures that may affect agent commissions, too. Scott recently met with several insurance companies to talk about the globalization of insurance regulation “and how that could seep down into every facet of the insurance industry,” he said. By moving toward a European-style of regulation — which requires higher capitalizations for the insurers — the pressure to cut commissions will be ever-present.

As a result, Scott asked the audience of independent agents and brokers, who were going to lobby lawmakers on Capitol Hill, to “stay consistently engaged in the process of remind people like me that we work for you.”

“It’s interesting in Washington that we don’t realize that sometimes,” he said. “We need to be reminded that we serve the people, not lead the people.”

Preventing commission cuts

In June 2015, Sens. Chris Coons (D-Del.) and Johnny Isakson (R-Ga.) introduced the Access to Professional Health Insurance Advisors Act. The bill would clarify that agent compensation is not part of the MLR formula as enacted in the ACA. In February 2015, Reps. Billy Long (R-Mo.) and Kurt Schrader (D-Ore.) introduced an identical bill to the House of Representatives.

As a result of Washington’s preoccupation with the election and Supreme Court Justice nomination, the industry needs to increase its efforts to be heard by legislators about concerns with the MLR provisions, said Charles E. Symington, Jr., senior vice president for external and government affairs at The Big “I.” Cutting agent commissions, he said, takes away incentive to sell the product.

“Some of these commissions are being completely eliminated. Our members can’t sell if they can’t get paid at all,” he added.

While the discussions with lawmakers and regulators are ongoing, Symington said there is good chance legislation won’t get passed this year. “But that does not mean we can’t keep trying,” he added. “That is what our folks are doing today on Capitol Hill, trying to increase the co-sponsor list,” to the MLR bill.

“[Lawmakers] have the power of oversight and can talk to regulators and explain why this is happening,” he added. “Why are [they forcing] small businesses out of the marketplace?”

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