Insurance Agents a Casualty of ACA

Steve O'Keefe

Insurance Agents a Casualty of ACA

January 13, 2012

Insurance agents help businesses and individuals shop for health insurance, compare policies, and access care. They're often called upon to help with denied claims, disputes and medical emergencies.

Thanks to the Patient Protection and Affordable Care Act (ACA), however, front-line insurance agents have become front-line casualties in the battle to contain medical costs. The problem lies with the "medical loss ratio," or MLR--a subject we have looked at previously on the Health Care Compact Blog.

The ACA requires that small-group plan and individual-plan insurers achieve an MLR of 80 percent or better. That means 80 percent of premiums must go to pay for care or improvement in care. Plan administration, including marketing expenses and profits, may not exceed 20 percent. For large group plans, the MLR is set even higher: 85 percent.

While having the federal government dictate how insurance companies spend premiums may sound reasonable, for insurance agents, the result has been catastrophic. That's because agent commissions are included in the administrative overhead number. Their work is not seen as medically necessary.

In the Christian Science Monitor, Robert Miller notes that agents do a lot more than just sell policies:

They serve their clients, not the insurance companies, helping people when they have trouble getting surgical procedures and tests approved or claims processed. They provide corporate clients with individual enrollment assistance for their employees. They create and administer company wellness programs and often serve as the extended human resources departments for small business clients.

The National Association of Insurance Commissioners, a highly respected group of state insurance officials, has asked Congress to remove agent commissions from MLR calculations. In the meantime, agents everywhere are feeling the pain, Miller writes:

[Many] insurance companies immediately slashed commissions when the provision went into effect last January ... 80 percent of health insurance agents saw their commissions decrease, including 52 percent whose companies cut commissions by 25 percent or more ... many are finding that the cost of servicing clients now exceeds their income. They are cutting back on services to customers and laying off support staff. Some are leaving the health insurance business altogether, effectively reducing the competition that the health care law was supposed to foster. All of this is disrupting the marketplace.

PoliticoPro, a fee-based news service of Politico, reports the U.S. Department of Health and Human Services has clamped down on waivers to states that want more time to meet the MLR standards: "Five of the first six states that applied were given temporary relief; eight of the next nine were denied." Those that do not meet the MLR guidelines must issue refunds to their policy-holders for the difference.

Medical loss ratios aren't just hurting insurance agents. As we reported here earlier, they are causing insurance companies to leave markets they can no longer profitably serve, resulting in less competition, lower consumer choice and limited or no coverage available for hard-to-service populations such as small businesses.

Source: "Questions Continue About The Health Law's Future," Christian Science Monitor, Jan. 11, 2012.
Source: "HHS Reverses Early MLR Approval Trend," PoliticoPro, Jan. 10, 2012.
Image courtesy of sylvar used under its Creative Commons license.

Steve O'Keefe is a freelance writer, author, and book editor whose writing has appeared in numerous libertarian publications.