Insurance broker fees must be counted as overhead, HHS says

The decision means insurers will be required to spend more premium dollars on actual medical care.

By Doug Trapp , Emily Berry — Posted Dec. 12, 2011

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The Dept. of Health and Human Services on Dec. 2 held firm on a final health system reform rule limiting health insurers' use of premium dollars to pay administrative expenses, continuing to prohibit insurance broker fees from being excluded from the calculation. If the policy had been changed, it would have allowed insurers to spend up to 20% of premiums they collect on administrative overhead in addition to what they pay insurance agents through commissions.

HHS amended the final rule but also left intact an earlier HHS decision to classify health insurer fraud reduction efforts as administrative expenses, despite lobbying from health insurers. But it allows insurers to count as quality improvement certain expenses associated with implementing the the new diagnosis code set known as ICD-10. These and other changes have made the regulation more workable for insurers, said Karen Ignagni, president and CEO of America's Health Insurance Plans.

The health reform law requires insurers to spend at least 80 to 85 cents of every premium dollar on medical care or quality improvement. When plans don't meet that minimum, they must pay members rebates the next year.

The medical-loss-ratio rule took effect in 2011, and many insurers say they expect to pay rebates in 2012 because of unexpectedly low medical spending. In its new final rule, HHS also reversed an earlier decision to tax the rebates for people with group health coverage.

The American Medical Association has defended considering brokers' fees as administrative expenses in the interest of seeing the largest share possible of every premium dollar spent on actual patient care.

"Patients deserve to get the maximum value from their health insurance premiums, and requiring that at least 80% of the patients' premium dollars be spent on medical care can help accomplish this goal," AMA President Peter W. Carmel, MD, said in a statement after the HHS clarification. "Classifying commissions to insurance brokers and agents as administrative costs is a clear patient victory that prevents the health insurance industry from undermining incentives in the health reform law."

Brokers argue that considering their commissions to be overhead will prompt insurers to reduce fees so much that many brokers would go out of business. Insurers already have been cutting the commissions, according to an analysis the Government Accountability Office released in August.

Although HHS has not changed its policy on brokers' fees, Congress might choose to authorize a change. But bills to accomplish this have not proceeded past the committee stage.

State insurance commissioners on Nov. 22 narrowly endorsed a recommendation by the National Assn. of Insurance Commissioners that the federal government exclude brokers' fees when it calculates insurers' medical-loss ratios. The recommendation was adopted by a 26-20 vote, with five commissioners abstaining.

The NAIC resolution asks Congress to pass legislation amending the medical-loss-ratio provisions of the reform law and HHS to mitigate any adverse effects the rule already is having on insurers. Consumer advocates and some commissioners were critical of the vote.

NAIC President and Iowa Insurance Commissioner Susan Voss acknowledged that "there is clearly not unanimous agreement on this issue," but said the group wants HHS to make sure consumers don't lose access to insurance brokers.

If the medical-loss-ratio minimums were applied to 2010 spending, consumers would have collected nearly $2 billion in rebates, according to estimates by an NAIC work group this year. If brokers' fees were excluded from administrative expenses, rebates would have dropped by more than 60%, to $762 million.

Seventeen states have applied for waivers that would make some or all health plans exempt from medical-loss-ratio minimums in an effort to prevent insurers from leaving the market and consumers losing access to coverage. The HHS Center for Consumer Information and Insurance Oversight has granted temporary exemptions in Georgia, Iowa, Kentucky, Maine, Nevada and New Hampshire. The office denied waiver applications from Delaware, Louisiana and North Dakota. The others remained pending as of early December.

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