News & Events
NAIC Working Group Approves Report on Medical Loss Ratios
6/10/2011
Originally published: American Health Lawyers Association: Practice Group Email Alert
Related Attorneys:
Karen R. Palmersheim
Related Practice: Health Care
On June 7, 2011, the Health Insurance and Managed Care Committee of the National Association of Insurance Commissioners (NAIC) voted to approve the "Report of the Health Care Reform Actuarial (B) Working Group to the Health Insurance and Managed Care (B) Committee on Referral from the Professional Health Insurance Advisors (EX) Task Force Regarding Producer Compensation in the PPACA Medical Loss Ratio Calculation" (Report) outlining options to mitigate the impact of healthcare reform's medical loss ratio (MLR) requirement on agents and brokers. Section 2718 of he Patient Protection and Affordable Care Act (ACA) charged NAIC with establishing uniform definitions and standardized methodologies with respect to MLR. The U.S. Department of Health and Human Services (HHS) considered the NAIC's model regulation in issuing interim final regulations on December 1, 2010.1 The regulations note that instead of addressing special treatment for agent and broker commissions in its model regulation, NAIC opted to establish a working group to address the impact of healthcare reform on agents and brokers. NAIC's ultimate recommendation on special treatment for agent and broker commissions will likely be considered by HHS in making any changes to a final regulation.
ACA's MLR Requirements
MLR is the ratio of the dollars spent on paid claims plus loss adjustment expenses to the total premium revenue. Section 2718 of the ACA introduced a minimum MLR for health insurers, requiring that they spend at least 80% of premiums on medical claims and quality improvement for individual and small groups, and at least 85% of premiums for clinical services provided and activities to improve healthcare quality for large groups. If a health insurer fails to meet the MLR requirements, it will be required to rebate premium to each enrollee on pro rata basis.
NAIC Working Group Evaluates Options for Modifying MLR Regulations
The Report was prompted by concerns of health insurers' continued payment of agent and broker commissions in light of the new MLR requirements. Brokers have likewise expressed concern about the impact that commission reductions may have on their ongoing role in the health insurance market. Therefore, the NAIC Healthcare Reform Actuarial
(B) Working Group of the Health Actuarial (B) Task Force (the NAIC Working Group) was charged with:
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Collecting, analyzing, and reporting on relevant data regarding the level of commissions and/or payments to producers in the individual, small and large group markets, including but not limited to evaluating 2010 gross commission or fee payments as a portion of the denominator in the MLR; and
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Identifying options to modify the federal MLR regulations in a manner that would protect consumers (and the underlying public policy of the MLR requirements) while preserving the role of producers in the health insurance transaction and in the resolution of disputed health insurance claims.
The NAIC Working Group analyzed data reflecting payments to brokers and contacted eleven states with relatively high MLR requirements for comment. The resulting Report identified a variety of options for modifying MRL definitions, methodology,and/or numerical standards, such as giving special treatment to certain types of compensation (such as bonuses) or to certain types of producers, or increasing the numerical MLR standards (85% and 80%) to reflect the exclusions of commission. The Report was approved by a vote of 9-1 with one abstention.
It will next be forwarded to the NAIC's Professional Health Insurance Advisors Task Force, which will make a recommendation on what position the NAIC should take with respect to the broker commission issue under healthcare reform MLR requirements.
1 75 Fed. Reg. 74864 (2010) (to be codified at 45 C.F.R. 158) (December 1, 2010).