A nonprofit consumer advocate group is criticizing efforts by health agents and brokers to amend medical loss ratio regulation.
The National Association of Insurance Commissioners drafted legislation (document provided by Consumer Watchdog) that would allow health insurance companies to pay commissions on individual and small-group policies without counting them as administrative expenses.
The medical loss ratio mandate under health reform law requires insurance companies to spend 80 percent to 85 percent of premium dollars on health care, with the remainder for overhead and profit. Broker commissions–up to 20 percent of premium in the first year of a policy and a few percentage points each year after that–have always been considered an overhead cost, Consumer Watchdog notes in a press statement released Thursday.
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The organization argues that if commissions were to be exempt from MLR calculation – as several agent groups have pushed for – "The result would be to cripple the cap on administrative expenses contained in the federal Affordable Care Act…If the commissions are removed from the cost equation, insurance companies will be free to ignore the original intent of the law, which was to force insurers to operate more efficiently, spending more on patient care."
"The insurance industry succeeded in killing any public alternative to private insurance," said Carmen Balber, Washington director of Consumer Watchdog. "Now the insurance sales lobby is trying to guarantee private brokers' excessive commissions by law, no matter how much it causes premiums to rise."
The group argues the broker system was losing relevance even before enactment of health reform, people purchase insurance online, unaware that they are paying for the broker fee whether they seek help for the purchase or not. States are increasingly demanding that brokers disclose their fee structures, including financial incentives that favor one insurer over others and appear to constitute a conflict of interest.
It is not the job of Congress, or of state insurance commissioners, to protect an archaic commission payment system for insurance brokers by decreeing that such payments are magically not administrative costs, said Consumer Watchdog.
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