This week, the California legislature passed two bills to set up a health-insurance marketplace. This move comes after the health care reform bill, which was passed in March, directed states to set up their own health care exchanges, or else…
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With wildfire season looming in southern California, and an insurance company making news for failing to honor damage claims that resulted from a California fire, now might be the time to review what would happen to your home in the…
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This past week I received notice that I was again selected by my peers for inclusion in The Best Lawyers in America® 2011 in the field of “Health Care Law”.
In all, nine lawyers from Flaherty Sensabaugh Bonasso PLLC were selected for inclusion in The Best Lawyers in America® 2011. Congratulations to my partners, David Givens and Mark Robinson, who were selected for the first time this year in the category of “Medical Malpractice”.
Below is a list of all the 2011 FSB honorees:
Best Lawyers is based on an exhaustive peer-review survey in which more than 39,000 leading attorneys cast almost 3.1 million votes on the legal abilities of other lawyers in their practice areas. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”
The Sacramento City Council was set to vote on a controversial “crash tax” earlier this week, but it was removed from the council’s agenda hours before the vote was to have taken place. The crash tax would have charged individuals…
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People don’t like uncertainty. In times of change, however, the unknown dominates the landscape. For health insurance brokers, the new health care reform legislation has created uncertainty of gargantuan proportions. Chief among the questions as yet unanswered: will the medical loss ratio requirements contained in the Patient Protection and Affordable Care Act result in such severe reductions that brokers will need to leave the health insurance market?.
The import of this question is not a function of greed or avarice. Lots of people make a lot of money from health care. Mother Teresas are few and far between. America spends roughly $2.3 trillion on health care costs – roughly 16 percent of he nation’s GDP. Hundreds of thousands of people put food on the their tables, roofs over their heads, and keep up with the Joneses by earning their share of these dollars. There’s nothing wrong with that. And there’s nothing wrong with professionals earning a living by helping consumers find the right health care plan, navigate the system, advocate on their behalf when problems arise, and keep them informed of new products and changes to the industry that may impact them.
After all, we’re not talking about selling iced coffee here. Health insurance is complicated, expensive, shopped for rarely and both personal and critical to a family’s health and financial wellbeing. When it comes to making decisions on products or services like health insurance, consumers – whether buying for themselves or for their company and its employees – want and need expertise. And that expertise is best delivered by professional, licensed health insurance brokers. (While there are legal differences among the terms “agent,” “broker” and “producer,” I am using them interchangeably here).
Don’t take my word for it. A lot of Insurance Commissioners agree. The National Association of Insurance Commissioners just passed a resolution calling on federal policymakers to “acknowledge the critical role of producers and to establish standards for the exchanges so that insurance professionals will continue to be adequately compensated for the services they provide.” (NAIC Resolution “To Protect the Ability of Licensed Insurance Professionals to Continue to Serve the Public,” adopted August 17, 2010). The Commissioners are concerned that the creation of “Navigators,” as called for in the PPACA, to help consumers use the new health insurance exchanges to be available by 2014 “could provide an avenue for untrained individuals to evade producer licensing requirements and expose consumers to harm.” But their appreciation of the role played by brokers goes beyond the context of exchanges. The NAIC is saying that consumers – and regulators – benefit from the involvement of professional brokers.
Which brings us to the medical loss ratio provisions of the new health care reform legislation. By limiting the percentage of premiums carriers can spend on administrative costs to 20 percent for individual and small group policies (and 15 percent for large group contracts) broker compensation will, by necessity be reduced. The math is simple, especially as it concerns individual health insurance policies. Carriers with a decent block of business need 7-to-9 percent of premium for administrative costs. They would like to make (but don’t usually) 4-to-5 percent on this business. That leaves 6-to-9 percent for distribution costs. Given that in some states the first year commission on individual policies is 20 percent declining to 5-to-10 percent for renewals, we’re talking about a significant pay cut here.
Maybe. Because an argument can be made that commissions shouldn’t even be part of the medical loss ratio calculation. Here’s the theory:
The intent of the MLR requirement is to reduce non-medically-related costs in the health care system and to prevent carriers from reaping windfall profits when consumers are required to obtain health insurance coverage. Fine, but as applied to broker commissions, the minimum medical loss ratio requirements may actually increase overall administrative costs. Commissions are paid by consumers (whether individuals or employers). Today carriers collect these funds and pass 100 percent of them along to an independent third-party – producers. Health insurance companies don’t benefit from these dollars. They are providing an administrative convenience to their members and to their distribution partners – a convenience that reduces overall cost in the system.
Instead of consumers and business owners having to prepare, mail and track separate checks to brokers, carriers do the work. (Similar to how carriers aggregate claims owed to a hospital into a single payment as opposed to requiring each consumer to pay 100 percent of their hospital bill and then get reimbursed by the insurance company). And because of their infrastructure, carriers can accomplish this task more cost effectively. Brokers meanwhile receive one check for multiple clients, another administrative savings.
Given that the health plans are not benefiting from the commissions, but that having them collect the funds reduces overall costs, one could argue that commissions should not be part of the MLR calculation at all. As with some taxes, commissions should simply be outside the medical loss ratio calculation. And that argument is being made – and heard.
Several carriers found this idea intriguing, but it is the National Association of Health Underwriters that has spearheaded the effort to bring this concept to the attention of the NAIC. (The NAIC is responsible for establishing uniform definitions and methodologies for determining how medical loss ratios are calculated). And they have succeeded. As noted in the New York Times, “Some insurance commissioners seem sympathetic to the insurers’ arguments, including on the subject of how to treat broker commissions, which have historically been part of premiums. The insurers would exclude them from premium dollars, making it easier to meet the 80-cent minimum. The new standards ‘could potentially disrupt the availability of private health insurance, and do not take into account the integral role of health insurance agents,’ Kevin McCarty, the insurance commissioner for Florida, said last week in a letter sent to regulators.”
As noted in yesterday’s post, the NAIC has included broker commissions in the administrative cost section of the form they promulgated that will be used to capture the information used in calculating carriers’ spending on claims, health quality and administrative expenses. At first blush this would indicate that the NAIC has declined to exclude commissions from the medical loss ratio calculation. However, I’m told by people involved in the negotiations that the idea remains alive and could be included in future communications from the NAIC to the Secretary of Health and Human Services (who has to certify the NAIC’s medical loss ratio calculation proposal) when the NAIC provides the actual formula to be used.
Excluding commissions from the MLR calculation remains a long shot. That NAHU has pushed the idea as far along as it has is testimony to the respect with which the organization is held by Insurance Commissioners – and NAHU’s commitment to its membership. What’s significant, however, is that the idea has gained traction. As well it should. Because if commissions are cut too deeply, brokers will either abandon the market or negotiate separate compensation arrangements with their clients. Abandoning the market, as the NAIC resolution highlights, is not in the interest of consumers. And arranging for the payment of separate fees will result in greater administrative cost and more inconvenience for consumers. Far better, to simply remove producer compensation (which all the funds are paid to an entity completely independent from the carrier) from the MLR formula altogether.
Filed under: Health Care Reform, Healthcare Reform, Insurance Agents Tagged: Kevin McCarty, Medical Loss Ratio, NAHU, National Association of Health Underwriters, National Association of Insurance Commissioners 
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One of the most far-reaching elements of the Patient Protection and Affordable Care Act concern the requirement that carriers spend a specified percentage of premium on medical expenses and health quality improvement (large group carriers must spend 85 percent of premium while individual and small group carriers have an 80 percent medical loss ratio target). If carriers spend less than required on medical care it must refund a portion of the premiums collected to its policyholders. Which means what gets defined as medical and quality improvement, as opposed to being considered administrative expense, has a cascading impact on everything from premiums to commissions to innovation to technology adoption and so on.
The PPACA directs the National Association of Insurance Commissions to establish uniform definitions and methodologies for determining how medical loss ratios will be calculated. (Whether the Secretary of Health and Human Services has the authority to reject or modify the NAIC determinations is the subject of some debate, but it appears the only role of the HHS Secretary is to certify the NAIC’s decisions.) And during their meeting this week, the Commissioners took an important step toward providing much needed clarity on the issue.
The Commissioners approved a form (called a “blank”) that specifies the types of expenses, activities, fees, etc. that will be used in the calculation. The blank form has generated both praise and criticism, but the fact that it was approved by the NAIC on a unanimous vote from Commissioners across the partisan spectrum demonstrates the political strength of the decision. Additionally, the NAIC deliberations were long, open and inclusive, lending them enhanced credibility. This doesn’t mean they are non-controversial, however. America’s Health Insurance Plan, the carriers’ trade association, has criticized the financial template for failing to treat fraud prevention and detection as a claims-related expense, among other concerns. Their concern is that by treating such expenses as administrative costs, hamstrings carriers’ ability to control costs.
While the blank form is an important step, it’s important not to put too much weight on its impact. It is a first, critical step to bringing the health care reform legislation’s medical loss ratio provisions to life. Next comes determining further clarification the NAIC is expected to provide in the next two weeks (give or take). Among the issues expected to be clarified at that time: whether broker commissions will be considered in calculating the MLR and which taxes will be excluded from the calculations.
The tax issue is interesting, but for many readers of this blog the treatment of commissions takes a bit of precedence. Which is why my next post will focus on that issue.
Uncertainty surrounding how medical loss ratios will be calculated under the PPACA has been painful for a lot of folks. The rules take effect in 2011, which means decisions concerning premiums, commissions, and benefits are being made now. Without clarity carriers are making decisions with only partial information. Which, given the gravity of those decisions, means they are assuming the worst. The results: premiums may be set higher, and commissions set lower, than will be needed once the definitions surrounding MLR calculations are finalized.
By bringing clarity to this situation, the NAIC’s action this week are an important accomplishment. Their thorough review of the issue and successful consensus building is also to be commended. But 2011 is right around the corner. Now, the need to finish the process – and quickly – is paramount.
Filed under: Health Care Reform, Healthcare Reform, Insurance Agents Tagged: Medical Loss Ratio, National Association of Insurance Commissioners, Patient Protection and Affordable Care Act, PPACA 
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Beginning in January, high school baseball teams in California will be required to use new safety-tested metal bats. The new requirements were prompted by a 16 year old California pitcher who suffered a major head injury in the spring when…
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The meaning and intent of legislation is often in the eye of the beholder. That’s why they invented courts. And the courts are where the interpretation of the medical loss ratio provisions in the Patient Protection and Affordable Care Act are likely to wind up. What will make such suits especially interesting is that the new health care reform bill wasn’t passed by Congress in the usual way. As a result, statements of legislative intent are lacking.
The usual route of legislation is through a Congressional conference committee in which differences between the House and Senate versions of the bill are ironed out – and where formal statements of intent are drafted, debated and published. The path of health care reform was different. The legislation was headed for a conference committee when, in Senator Scott Brown, a Republican, was elected from Massachusetts. This gave the GOP caucus, if they stayed united, the votes needed to block any bill from coming to the floor. And on the PPACA, Republicans were united in their opposition. Democratic leaders worked around this legislative roadblock by having the Senate pass the House legislation (HR 3590) and then both chambers passing a reconciliation bill (HR 4872). This allowed Democrats to pass health care reform with a majority vote instead of the super-majority which would have been required had the legislation gone the more traditional route.
But now the Department of Health and Human Services has to promulgate regulations that implement the medical loss ratio provisions of the new health care reform law. These are the provisions that require individual and small group carriers to spend 80 percent of the premium they take in on claims and health quality expenditures (large group policies have to spend 85 percent of premium on these costs). What goes into the calculation of this percentage will determine the impact of this part of the law.
American Health Line is reporting that Democratic lawmakers are providing advice to the Secretary of HHS that, according to health plans, is reinterpreting the letter of the law. (The story was originally published by Politico). The issue is ostensibly about how certain taxes will be treated in calculating a carriers medical loss ratio. What’s interesting, however, is the attempt by the Congressional Democrats to provide legislative intent after the fact and outside the normal process for doing so.
What this points out is that unintended consequences occur not just in the content of the law, but from how the law is passed.
Filed under: Health Care Reform, Healthcare Reform, Politics Tagged: HR 3590, HR 4872, Patient Protection and Affordable Care Act, PPACA, Scott Brown 
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As discussed in my previous post, while some brokers spend their time venting about health care reform and others expend their energy ignoring it, prepared brokers are busy talking with their clients (and the clients of those other brokers) about decisions, challenges, and opportunities that need to be addressed now. that post used as an example the need to discuss the Grandfathered plan provisions with both individual and group employers. There are other pressing issues to address, too. Here’s a few more:
Dependent Children to Age 26: Most people are aware that starting September 23, 2010 all health plans will need to cover dependent children up to age 26 (and that most carriers voluntarily began offering this coverage weeks ago). But as anyone whose ever actually read an underwriting guide, it’s not quite that simple. Which is why reviewing the FAQ posted by HHS concerning coverage for “young adults” is a worthwhile expenditure of time. There’s a few interesting nuances you’ll learn. For example, the coverage is available to the member’s child regardless of that child’s marital status, financial dependence on the parents, residency, or school enrollment status. About the only circumstances which could result in excluding the young adult dependent is where a Grandfathered plan is involved and if the child has access to other employer-based coverage – and even this exemption expires for plan years beginning on or after January 1, 2014. Significantly, dependent coverage need only be extended to the child, not to the child’s dependents. So if the 24 year old son of a covered employee is married the parent’s carrier needs only cover the son, not the daughter-in-law.
Small Business Tax Credit: Help for some small businesses in paying health insurance premiums were among the first elements of the Patient Protection and Affordable Care Act to take effect. To qualify, firms must have no more than 25 full-time equivalents (which is a way of counting employees that takes into account part-time employees). As the IRS FAQ on the small business health care tax credit explains, the full benefit of the credit is available only to firms with up to 10 full-time equivalents. It’s also worth noting that the tax credit is calculated against the actual premiums paid for the small business’ coverage or the average small group premiums in the employer’s state, whichever is less. The IRS published a table indicating the average premium by state to be used for calculating this cap in 2010.
This table is interesting for answering other questions, too. For example, which state’s small businesses pay the highest average premiums? Alaska with an employee-only rate of $6,204 and Massachusetts with a family rate of $14,138 (which is enough to make one look forward to the 2012 candidate debates should both former Governor’s Mitch Romney and Sarah Palin both run for president).
Early Retiree Reinsurance Program: Much attention has been paid to the impact of the PPACA on individual and small group health insurance, but the legislation’s impact on larger groups shouldn’t be ignored. For example, the legislation sets aside $5 billion to help employers lower the cost of covering early retirees. Providing coverage for any retirees is rare in all but the largest groups, but for those enterprises that qualify this could mean a welcome reduction in health care costs. The reimbursements can be used to reduce the sponsor’s health benefit premiums or health benefit costs, the participants premium contributions or out-of-pocket costs, or a combination of the two. Eligibility and details surrounding how the early retiree reinsurance program works is available from the Department of Health and Human Services. Most importantly, for employers who qualify for the program, the reimbursements are available for claims dating back to June 1, 2010.
There are other provisions of the health care reform legislation taking effect in 2010. We’ll discuss them in future posts. But one takeaway should already be clear: there’s a lot to talk about with your clients. And the time to be talking with them is now.
Filed under: Health Care Reform, Healthcare Reform Tagged: Dependent Coverage, Mitch Romney, Patient Protection and Affordable Care Act, PPACA, Sarah Palin, small business tax credit, tax credit 
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