NAIFA GovWatch

HHS Issues Medical Loss Ratio Regulation

Issue: Health Reform

Date: November 22, 2010

Action Taken: This morning the Department of Health and Human Services (HHS) has released its interim final rule on medical loss ratios (MLR). The MLR regulation outlines disclosure and reporting requirements, how insurance companies will calculate their MLR and provide rebates, and how adjustments could be made to the standard to guard against market destabilization. The new health law requires that large group plans spend 85 percent of premiums on clinical services and activities related to quality of care. Only 15 percent may be used for non-claims expense, such as administrative costs, agent commissions, advertising and profits. For small group and individual plans, it's 80 percent premiums and 20 percent other costs. If insurers fall short of the standards in 2011 they'll have to issue rebates for that amount in 2012. The regulation treats agent commissions as non-claims expenses and declines special treatment for such expenses in the MLR standard.

The preamble to the MLR regulation (pages 73 and 74) discusses agents’ commissions and acknowledges the potential impact of the MLR standard on agents’ and brokers’ merits recognition, and notes the impact of the MLR standard on agents and brokers will be a factor in considering whether particular individual markets would be destabilized. The HHS Secretary is allowed to adjust the MLR standard for a State if it is determined that meeting the 80 percent medical loss ratio standard may destabilize the individual market. The regulation establishes a process for States to request such an adjustment for up to three years – an effective State-based transition. In order to qualify for this adjustment, a State must demonstrate that requiring insurers in its individual market to meet the 80 percent MLR has a likelihood of destabilizing the individual market and could result in fewer choices for consumers.

Background: The Affordable Care Act required the National Association of Insurance Commissioners (NAIC) to develop uniform definitions and methodologies for calculating insurance companies’ medical loss ratio standard. Today’s regulation certifies and adopts the recommendations submitted to the Secretary of HHS on October 27, 2010, by the NAIC.

NAIFA and other industry groups actively pursued an effort to exclude agent commissions from the MLR calculation and advocated for a transition period to be adopted allowing companies the time necessary to modify their operations in a staged process in order to avoid significant consumer harm.

A NAIFA-backed amendment to exclude the agent commissions from the MLR calculation was signed by 15 commissioners (AK, AR, CT, DE, FL, GA, KY, LA, MS, NM, NV, NC, OH, OK, VT) during the NAIC Fall Meeting. While the amendment was ultimately withdrawn, commissioners unanimously passed a motion to create a group to work with HHS on the agent compensation issue and the MLR. NAIFA's claim survey was noted as important information that can be used in their dialog with HHS. NAIFA shared with HHS the claims data along with a brochure that highlights the valuable services NAIFA members have been providing for over 120 years. To learn more, view the NAIFA blog on the issue.

On October 13, the NAIC sent a letter encouraging HHS to recognize the essential role served by agents and to accommodate agent compensation arrangements in any MLR regulation promulgated.

In August, after hearing NAIFA testimony on the services provided by agents, the NAIC adopted a resolution to ensure consumers have access to licensed insurance professionals. The resolution was sponsored by 25 states (IL, ME, FL, KS, OK, LA, AK, NH, UT, SC, NC, NV, MT, OH, NJ, KY, MO, MI, CT, TN, WA, DE, CA, NY, ND). In addition to the resolution, the NAIC Health Committee adopted a new 2011 charge to “ensure appropriate producer participation in assisting employers and individual consumers making health care insurance purchase decisions for products sold inside or outside of health insurance exchanges.”

Next Steps: HHS seeks and NAIFA will provide comments on the approach taken in this regulation and on the issues related to agents and brokers during years leading up to 2014. NAIFA will also seek a legislative approach in the 112th Congress to ensure professional, licensed and regulated agents can be fairly compensated for assisting consumers.

NAIFA continues to discuss the MLR issues with news reporters, view NAIFA in the News to see our communication efforts.

NAIFA Staff Contact: Diane Boyle, Vice President - Federal Government Relations.

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