Date: July 13, 2010
Subject: ACT NOW: Recognize Agent Commissions as "Pass-Through" for MLR Calculations

TAKE ACTION NOW

Reason Action Is Urgently Needed:  The National Association of Insurance Commissioners (NAIC) is required to develop a report establishing uniform definitions and standardized methodologies for calculating the medical loss ratio (MLR).

Beginning January 1, 2011, health plans are required to spend a minimum of 85% in the large group market and 80% in the individual and small group market of premium on medical claims and rebate any excessive overhead to enrollees.

We strongly support the goals of reducing health care costs, providing better value for consumers and improving health outcomes for patients. However, the MLR definition should recognize the wide spectrum of insurer activities that contribute to better health outcomes and care delivery efficiency.  The adoption of a narrow and static definition will adversely impact spending on certain important health plan activities including agent compensation. 

NAIFA and other industry groups met with a small group of regulators from Alaska, Kansas, New Hampshire and Florida who understand the cost-efficient role of the agent. These regulators recognize the commission paid to agents is a "pass-through" that should not be reduced or eliminated as a result of MLR calculation.

Contact your insurance commissioner, on behalf of your state NAIFA chapter, to encourage recognition of the agent commission as a pass-through item for purposes of calculating the MLR.

Suggested Talking Points  

• NAIFA-(insert your state) strongly supports the goals of reducing health care costs, providing better value for consumers and improving health outcomes for patients.
• As the NAIC crafts a recommended medical loss ratio definition, please consider the wide spectrum of insurer activities that contribute to better health outcomes and care delivery efficiency.
• The adoption of a narrow and static definition will adversely impact spending on certain important health plan activities including consumer services.
• Carriers today routinely collect funds that are passed-through to agents as an operational convenience to their members. For example, in the small business and individual market, health plans include commissions in their premiums, but pass 100% of these funds along to agents.
• This practice reduces the health insurance system's overall operational costs, eliminating the need for businesses and consumers to prepare mail and track separate payments to their benefit specialists.
• It would be counterproductive for the MLR provisions to eliminate this cost-saving administrative convenience which carriers provide to their members.
• Excluding pass-through commissions from the MLR calculation will:
  • Preserve existing cost-saving practices in current health insurance markets.
  • Advance the intent of the MLR provisions to reduce overall spending on administrative costs.
  • Preserve an important operational convenience for small businesses and individuals.
• A number of commissioners have recognized the benefits of excluding pass-through commissions from the MLR calculation. NAIFA-(insert your state) strongly encourages you to join these NAIC colleagues when defining the MLR calculation.