NATIONAL ASSOCIATION OF
PROFESSIONAL
INSURANCE
AGENTS
Local
Agents
Serving
Main Street
Americas"'
March 21, 2011
VIA EMAIL TRANSMISSION
c/o Tim Mullen
Kevin McCarty
Chair, NAIC Professional Health Insurance Advisors Task Force
National Association of Insurance Commissioners
2301 McGee Street, Suite 800
Kansas City, Missouri 64108-2662
Dear Commissioner McCarty and members of the Task Force,
On behalf of the National Association of Professional Insurance Agents (PIA), I am writing to
commend you on your efforts in defining Medical Loss Ratios (MLR) and the guidance that you are
providing to the U.S. Department of Health and Human Services (HHS). We were pleased with the
formation of the special Subgroup to work with HHS on this and we urge you to continue to
recommend that HHS exclude agent compensation from the MLR calculation.
We also appreciate you holding a hearing to examine the effect of the MLR requirements of the Patient
Protection and Affordable Care Act (PPACA) on health insurance agents and brokers, consumers and
markets. We believe the effect of removing commissions from what is defined as premium under the
MLR requirements will be substantial. During the legislative process, PPACA had at one time
specifically excluded agents from the marketplace. When the potential repercussions of this provision
came to light, agents were included. Agents were included because the legislators recognize the value
agents provide to consumers in helping make important decisions regarding their health risk
management. We don't believe HHS should be allowed to exclude agents from the marketplace
through regulation especially when the underlying legislation specifically included agents. The role of
the health agent is indispensable for many especially as a myriad of new options become available to
consumers.
As you know, PIA's member agents are an integral part of the healthcare system, delivering valuable
services to consumers. Serving as an advocate for their customers, independent insurance agents have a
particular interest in ensuring that affordable coverage options exist in the marketplace.
PPACA had a significant focus on cost- containment measures. Section 2718 requires certain health
insurance issuers to submit to the Secretary of Health and Human Services a report concerning the
percentage of total premium revenue that such coverage expends, among other areas, for activities that
improve health care quality.
PIA members are concerned that "activities that improve health care quality" may be defined so
narrowly as to render them meaningless. Activities, including, but not limited to wellness programs;
consumer education; care coordination; disease management programs; and other information directly
relative to an individual patient's care, can and do have a positive effect on improving healthcare
quality and reducing overall healthcare costs. We believe that the Congressional intent was that they
should all be broadly considered as "activities that improve health care quality" under the definition of
MLRs.
As you work with HHS, we hope that you will continue to advocate for a broad approach to MLR
definitions and flexibility for state regulators so we can continue to ensure healthy markets and
consumer choice and we join you in this effort. If there is anything we can do to help you secure more
flexibility in the program, please let us know.
What is likely to be the impact of removing commissions from what is defined as premium under
the MLR requirements?
The NAIC and NCOIL have passed resolutions explaining the value of agents and we appreciate this
recognition. If agent commissions are significantly reduced or eliminated, then we can expect that
there may be a significant reduction in the number of agents willing to sell and service health policies.
When there is a change in circumstance or when a consumer doesn't understand their health policy,
they can contact their agent who sold them the policy and receive sound advice from a licensed, trained
professional. If agents are cut out of the marketplace, who is going to replace them? Who will
consumers rely on for advice; insurance commissioners, legislators? We don't think it's too much of a
stretch to say that if agents are cut out of the health insurance marketplace, there will be much
confusion among consumers, especially those who are used to relying on agents. The relationship
between the consumer and the agent is largely based on trust. The consumer trusts the agent to give
them the best advice based on their situation. If the agent is cut out of the process, consumers are going
to demand the same information they received before from someone they can trust.
Have commissions been reduced since the passage of the federal law? If so, what is the impact of
present and potential future commission reductions? Will this cause access issues? Is it likely
agents/brokers will abandon health insurance markets?
We have begun to see attempts from certain insurers to reduce or alter their producer compensation
arrangements. Some are attempting to eliminate producer compensation altogether and instead rely on
the consumer to compensate the agent. As you know, such a payment system fundamentally alters the
relationship between the agent and the consumer and the agent and the carrier. Now, the agent is
typically compensated by the insurer and the compensation to the agent is already figured into the
premium calculation. If the consumer compensates the agent, then the agent is no longer an agent of
the company but acting in the capacity of a broker for the consumer. If agent commissions are paid by
the consumer, not the carrier, then we have essentially eliminated the independent health insurance
agent from the marketplace and replaced them with brokers. We do not think this would be a wise
decision because consumers would wonder why they suddenly have to pay for a service they used to
get for "free". It is likely many consumers may be tempted to bypass the service of a fee for service
broker and attempt to obtain health insurance on their own. For some people, this may be perfectly
fine, but for others who may have more complicated circumstances they may be setting themselves up
for financial disaster if they don't choose wisely. Purchasing health insurance is not like purchasing
other products and services. If you make a poor choice, you may not be aware of the consequences of
your decision until it's too late. Many consumers who will be most negatively affected by the loss of
licensed, trained health insurance agents are the elderly and small business owners who don't fully
understand all the options available to them.
While we have not heard any reports of health insurance agents leaving markets at this time, we have
heard reports of health insurance agencies holding off on planned expansion . Independent agents are
extremely concerned about the future of their agencies if their revenue source is eliminated or severely
restricted. Agency owners can plan for good economic times and can plan for bad economic times, but
uncertainty in the marketplace is the worst possible situation because there is no way to plan ahead.
What will be the impact of a legislative change that treats producer commissions in the same
manner as Federal and State taxes for purposes of calculating the MLR?
Therefore, we fully support the proposed legislation advanced by the NAIC that would essentially treat
producer commissions in the same manner as Federal and State taxes for purposes of calculating the
MLR. This solution would allow carriers to continue to pay their agents for selling and servicing health
policies. The optimal solution to balance health plan/insurer concerns, consumer interests and the
interests of agents and brokers would be for HHS to calculate agent commissions outside the MLR.
This action would immediately resolve the issue and provide clarity and certainty to agents, carriers
and consumers. If the NAIC and HHS are unwilling to take this course of action because of the
perceived lack of statutory authority, then we fully support the legislative fix proposed by the NAIC.
We are concerned that relying solely on this option may result in a delay that will lead to further
market disruptions as the marketplace begins to try to adjust to the new MLR rules as currently
interpreted by HHS.
What is your opinion on the optimal solution to balance health plan/insurer concerns, consumer
interests and the interests of agents/brokers?
Specifically, we would like the NAIC to recommend the following language be inserted in the MLR
regulation:
"For purposes of this regulation only, the term `earned premium' shall not include fees or commissions
included in premiums that are collected solely for the purpose of passing such fees or commissions on
to an unaffiliated third party insurance producer to the extent such fees or commissions are actually
paid."
This language is consistent with the new health care law because it was always contemplated by
Congress that independent agents would be a part of this new health care system and therefore should
continue to be compensated for their services. These discussions with HHS have a particular focus on
what the new definitions will mean to health insurance producers and the way they will be
compensated under the new rules and HHS is looking to you, the experts, for advice. In order to yield
the most positive results for the future of our healthcare system, we ask that the MLR definitions
broadly consider measures that will lead to increased quality of care for the millions of Americans that
it serves.
Thank you for your attention to our concerns and for the dedication you have shown to consumer
protection and the role of agents in the health care delivery system. We look forward to continuing our
work with you on this issue.
Sincerely,
David Eppstein
Vice President/Regulatory Affairs
400 N, VAdashington St, • Alexandria , VA 22314-2353 R main: 703/836-9340 • fcax: 703/836-1279 • e-mail: into pianet.org • ateb: % .pianet.corn