Agents Urges HHS to Reconsider MLR Rules

One of the most consequential facets of the Patient Protection and Affordable Care Act to the insurance industry was new rules regarding Medical Loss Ratio (MLR).

Effective Jan. 1, 2011, the law requires health plans to issue rebates to consumers when their “non-claims costs” exceed 15% of premium revenue in the large group market or 20% in the small group and individual markets.

The Independent Insurance Agents & Brokers of America (IIABA) has submitted formal comments to the U.S. Department of Health and Human Services (HHS) asking HHS to amend the final interim rule to exclude agent commissions from the MLR formula and also questioning the process by which the regulations were drafted. The letter, signed by IIABA President & CEO Robert Rusbuldt and SVP Government Affairs Charles Symington contends that non-claims costs should refer to internal expenditures such as executive salaries, advertising and administrative costs, and not costs passed to third parties such as commissions.

“The MLR calculation is intended to examine how health insurance issuers spend the premium revenue they receive, and producer compensation is not company revenue,” the letter states. “In reality, agent and broker commissions are pass-through fees. It is inappropriate and misleading to classify compensation paid to agents and brokers by their customers as revenue to the insurance company, and thus this compensation should not be part of the MLR formula.”

Moreover, the IIABA says HHS officials asserted undue influence as the National Association of Insurance Commissioners (NAIC) worked to develop the methodology to be used for calculating MLRs.

“Throughout the process of the creation of the MLR regulation, we urged HHS to exclude agent commissions because these commissions are passed 100% to third parties by insurers and therefore should not be included in the formula,” Rusbuldt says. “Unfortunately, HHS’s interim final rule included commissions as ‘non-claims cost.’"

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