NAIC Approves MLR Regulation—NAHU Scores Creation of Special Task Force to Consider Access to Agents/Brokers

The National Association of Insurance Commissioners (NAIC) approved a regulation yesterday governing how health insurance companies spend premium revenues.

The model medical loss ratio (MLR) regulation was unanimously approved by the NAIC at its fall meeting in Orlando, FL. It will now be sent to Department of Health and Human Services Secretary Kathleen Sebelius, who must certify it before it becomes final.

The NAIC was charged under the Patient Protection and Affordable Care Act (PPACA) with making a recommendation to HHS on how the medical loss ratio should be defined and calculated. Under the loss ratio requirement of PPACA, beginning in 2011, insurers must spend at least 85% of premiums on claims and quality improvements for large group plans, and at least 80% of premiums for small group and individual plans. If they do not, they must refund the difference to policyholders beginning in 2012.

In approving the model Regulation for Uniform Definitions and Standardized Methodologies for Calculation of the Medical Loss Ratio for Plan Years 2011, 2012, and 2013, the Executive and Plenary committee of the NAIC, which consists of the full 56-member organization, did not change the recommendation adopted October 14 by the group's Health Insurance and Managed Care (B) Committee.

NAHU CEO Janet Trautwein and staff were at the meeting all week, working with coalition allies and stakeholders to have an amendment sponsored to the NAIC’s draft MLR regulation to change the definition of earned premium, for MLR reporting purposes only, to exclude independent producer commissions.

Our belief is that commissions are merely a fee paid by the consumer and passed through 100% by the carrier to the producer as a customer convenience and have no impact on the carrier’s bottom line. We were successful in getting Commissioner Mike Bertrand of Vermont to sponsor the amendment and 14 additional insurance commissioners from NC, NV, OK, GA, FL, MS, AR, LA, KY, OH, CT, NM, AK and DE to join as co-sponsors.

Grass-top action on behalf of our top membership and legislative leaders played an enormous role in getting the amendment crafted, endorsed by the 15 commissioners, and filed. Though there was broad consensus that agent and broker commissions need to be protected and addressed, there was no consensus on whether the NAIC had authority under PPACA to act on commissions in this manner. Legal authority had been the main barrier to earlier action on this issue, and there was concern that if the NAIC exceeded the bounds of its authority in this area, DHHS might not certify their work on the MLR regulation.

As such, a compromise was crafted by key DHHS staff, some of the sponsoring commissioners, and commissioners on the NAIC Executive Committee. On Thursday, at the NAIC Executive Committee meeting, Ohio Insurance Director Mary Jo Hudson and Florida Commissioner Kevin McCarty proposed the establishment of a joint NAIC executive committee/DHHS working group to address agent compensation and the MLR. The MLR agent compensation amendment was then withdrawn by Commissioner Bertrand, though he asked that his amendment be the starting point of the working group's discussion. The NAIC leadership agreed to make the amendment the beginning of their work with DHHS, indicated that they would begin work immediately, and that there would be broad representation on the working group, which was something specifically requested by Commissioner Mike Chaney of MS.

While some of our members might be disappointed at what happened, this was actually a very positive outcome. The NAIC and DHHS, in the most public of ways, have acknowledged the problem and the value of our members and the need to preserve their future role in the system. In many ways, this action could be better than the amendment in the long run because it will force a legal solution to be crafted to address this problem. The amendment alone could have resulted in DHHS refusing to certify the NAIC’s work, or merely striking out the agent/broker protection language, leaving our membership completely exposed. The commissioners involved in crafting the compromise realized that was a likely outcome of the amendment on its own and opted instead to work with DHHS to find a regulatory path that ensures equitable compensation for the agent/broker community. None of these efforts to protect agents and brokers would have happened without all of NAHU staff and members’ work with commissioners on this issue, both in the states and at the NAIC meeting.

However, there is still considerable work to be done. A number of insurance commissioners have reached out, both directly to chapter leaders and privately to staff at the meeting, to stress that we need to urge immediate action by the task force with the White House, DHHS and NAIC leadership, since its work will impact 2011 commissions and rates, which are already being set. We also need to work with our insurance commissioners to ensure that there will be broad representation on the task force, with room for input from stakeholders like NAHU. NAHU will be working non-stop on these issues, and we will also be calling on you to work on these issues with your state insurance commissioners.

Your steadfast support and ability to quickly mobilize your connections are what have helped win the support and respect of the commissioners and achieve this progress so far, and we are confident that our continued hard work will enable us to create a pathway that preserves the role of agents and brokers in the health care delivery system in the future.

Agent and broker compensation was not the only MLR-related issue at the meeting. The NAIC rejected requests by the health insurance industry that large group plans be allowed to aggregate their loss ratios on a national basis. Instead, large group plans must calculate the ratio on a state-by-state basis, which will make it harder for some plans to meet the requirement.

In addition, the NAIC stuck with a “credibility adjustment” that will make it more difficult for plans with small numbers of policyholders to meet the loss ratio. The industry had wanted the NAIC to change the credibility adjustment to reduce the chances that rebates would have to be paid due to random fluctuations. The fewer enrollees a plan has, the more the plan is subject to random fluctuation, which can increase the chances it will have to pay rebates.

The taxation issue remained unchanged—carriers will be able to exclude most taxes paid from the MLR calculations. This finding is generally consistent with the text of the statute, despite a letter sent this summer by the Democratic chairs of the relevant congressional committees attempting to retroactively reinterpret the plain text of what Congress passed into law.

In terms of timing and further action, the NAIC said they would present their recommendations to HHS next week, at which point the administration will begin the process to “certify” the NAIC proposal. The administration will also have to consider state requests for waivers from the MLR thresholds—it has not previously indicated how it will proceed on this front. Already, three states have requested waivers from the new requirements, arguing that their immediate application will destabilize their states’ insurance markets. Additional states are expected to submit their own waiver requests in the coming weeks.

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HHS Secretary Sebelius Announces New Pre-Existing Condition Insurance Plan

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Of course CA has decided to run their own...I wonder where they will get the money....?