For The NAIC, A Consequential Decision On The MLR (Guest Opinion)

May 09, 2011

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By Stephen Finan, Barbara Rea, Kimberly Calder, Timothy Jost, Bonnie Burns, Lynn Quincy and Elizabeth Abbott

The authors are consumer representatives to the National Association of Insurance Commissioners .

The National Association of Insurance Commissioners is considering whether to endorse legislation that would remove broker and agent commissions from the medical loss ratio, a calculation that could give consumers valuable insights about the proportion of their premiums spent on health care costs compared with administrative expenses and salaries. Removal would have far-reaching implications for the reliability of the MLR as a measure of a health plan's value, for the broader goal of improving quality and controlling costs, and for the NAIC itself.

Last year, the NAIC recommended that the Department of Health and Human Services adhere to the law's requirement that brokers' and agents' fees be included in the MLR. That position resulted from a thorough process that included input from interested groups representing consumers, insurers, brokers and agents, and others. The recommendation represented an equitable balancing of numerous perspectives, and HHS adopted it virtually unaltered.

The brokers and agents responded by waging an intensive lobbying campaign urging the NAIC to endorse a bill by Rep. Mike Rogers, R-Mich., that would remove these payments from the MLR calculation. We were among the NAIC consumer representatives who strongly opposed such a move, arguing that the economic consequences for consumers and the government had not been adequately examined. The NAIC elected to study the issue further before making a final decision, which could come this month.

Numerous organizations representing consumers and patients believe that, for the MLR to be a meaningful measure of consumer value, broker and agent fees must be included in the calculation as an administrative expense. Excluding these fees would essentially hide a significant driver of premium costs and undermine an important opportunity to contain unnecessary administrative expenses. It would also dilute the law's efforts to make health insurance more transparent and comprehensible, and to empower consumers to make informed decisions when choosing a health plan.

The medical loss ratio is one of the key ways that consumers can measure the value provided by health plans. The strict standard for calculating the MLR embodied in current law provides insurers with a strong incentive to be efficient in their marketing and other administrative services, and to maximize spending on health care. In this way the MLR could contribute to genuine cost savings and higher quality of coverage.

The upcoming NAIC decision will be closely watched by stakeholders throughout the health care system. The open and inclusive process that led to the NAIC's initial recommendation earned the state insurance commissioners a large measure of goodwill and trust, and the move last month to delay a final decision on the Rogers' legislation signaled a genuine effort by the commissioners to give this issue more thoughtful consideration. To sustain public confidence, the NAIC must ensure that its final decision reflects a balanced examination of the evidence.

This evidence must include an assessment of the effect on consumers, as well as a careful examination of the experience of states that have followed this stricter approach for many years. It should also explore why one aspect of broker compensation -- their commissions -- is proposed for exclusion, while other forms of compensation -- bonuses and incentive payments -- are not.

The NAIC has played a critical role in the implementation of several key aspects of the health care law, and the organization could wield considerable influence in the future over issues such as the new health benefit exchanges and the broader transformation of the health insurance market to a more consumer-friendly marketplace. If the NAIC bends to the brokers' and agents' demands without compelling evidence showing no adverse impact on consumers, its ability to weigh in on other important issues in a fair and equitable way will be called into question.