The issue of how to weigh the cost of paying insurance brokers under the new federal health care law is up for debate again, even though state regulators made their final recommendations last year.
In a letter to the National Association of Insurance Commissioners sent on Tuesday, Senator John D. Rockefeller IV, the West Virginia Democrat, expressed concern that the brokers would succeed in persuading regulators and lawmakers to change the health care law so that their commissions would not be included in the calculation of health insurer administrative expenses.
Under the law’s rules governing an insurance company’s minimum medical loss ratio, insurers must spend at least 85 cents out of every dollar they collect in premiums on the health care of their customers. While acknowledging the important role brokers play in helping people buy insurance policies on their own, the regulators included the cost of commissions in their calculation of administrative expenses.
The brokers and others, including some state regulators, are now actively lobbying to exclude commissions, and Senator Rockefeller said he is against the new treatment of these costs.
“I cannot support a proposal that would allow agents, brokers, and health insurance companies to retain the estimated $1 billion in benefits that American consumers will receive next year thanks to the health care reform law,” Mr. Rockefeller wrote to Susan E. Voss, the Iowa regulator who is now president of the association.
For brokers, the decision about how to count commissions is critical to determining how and how much they are going to be paid.
As Senator Rockefeller notes in his letter, some of the health insurers have already signaled they plan to cut commissions as a way of lowering their expenses to meet the new rules. Some brokers have also discussed moving toward more of a fee-based system of being paid, where the person or company buying coverage would pay a fee for the broker’s services.
In his letter, Senator Rockefeller emphasized that he expects “independent agents and brokers will play a crucial role in this new marketplace, and that they will benefit from these higher potential sales volumes.”
Like the insurers, he argues brokers may make less profit on each transaction, there should be many more transactions.
For its part, the National Association of Health Underwriters, which represents the brokers, is arguing strenuously that its members’ very livelihood is at stake. The new rules are “currently having a devastating financial impact on the country’s approximately half-million licensed professional health insurance agents and brokers,” wrote the association’s chief executive, Janet Trautwein, to Secretary of Health and Human Services Kathleen Sebelius in a letter last January.
“Many agents are seeing a net reduction of their business incomes of 30 to 50 percent. This means that fewer agents and brokers will be able to afford to stay in business, and many will have to begin reducing services to their clients and cutting jobs,” she said.
Expect more discussion in the coming weeks. A Politico story on Tuesday suggested the issue could gain some traction among lawmakers.
What’s your opinion on how brokers’ commissions should be treated under the health care law? Feel free to respond in the comments section below.
