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Insurance broker commissions: Medical treatment? Hmmm.

Posted by on February 9, 2012

 

Commissions are big money for brokers. And how do we know? That’s the primary pay structure for many brokers — the service they provide, in navigating customers to a policy they want, and navigating insurers to customers they want, results in a commission.

It’s not always clear who the winner or the loser is, because if you’re a customer steered to a mediocre insurer — or an insurer steered to a mediocre customer — then the value might not be there. But commissions are the way the market works.

So when the Affordable Care Act changed the rules of the game, people paid attention.

The  MLR (medical loss ratio) provision of the act is the one that insists that insurers must pay at least 80 percent of what they take in on medical treatment. Medical treatment does not include commissions that insurers pay to brokers, so that means the insurers must either cut commissions or put them somewhere else in their cost structure.But a new proposed law introduced in the Senate last week seeks to undo that, eliminating broker commissions from the 20 percent rule.

Put it another way: “So under the current rules, an insurer that takes in $100 million dollars in premiums must spend $80 million on paying for health care and those broker commissions are included in the remaining $20 million,” Chris Morran writes over on Consumerist. “But if this bill becomes law, those commissions — let’s just put a number of $3 million on them for this example — would no longer be part of the equation. That would mean the insurer would only have to spend $77.6 million on health care but would now have $22.4 million to use for its own purposes.”

When we asked over Twitter who knows what about this new bill, the ever-savvy Jeff Levy replied: “Broker commissions have been cut significantly to comply w 80% MLR. I think they would be biggest beneficiary of this Bill.”

While broker fees were a topic of debate before the regulations on the law were published in the Federal Register in December, they ultimately were not counted as part of the medical treatment, as Bruce Japsen explained in the Prescriptins blog over at The New York Times. “Some state insurance commissioners and health plan executives did not believe broker fees should be included as administrative costs because they said brokers help consumers choose quality coverage,” he wrote. But the fight’s not over yet.

Here’s the way the bill’s described on a sponsor’s site:

“U.S. Senator Mary L. Landrieu, D-La., chair of the Senate Committee on Small Business and Entrepreneurship, and Sen. Johnny Isakson, R-Ga., have introduced S. 2068, the Access to Independent Health Insurance Advisors Act. This legislation will ensure that health insurance agents and brokers can continue to provide essential counseling and advocacy services to consumers looking for the right health insurance coverage. Sens. Lisa Murkowski, R-Alaska, and Ben Nelson, D-Neb., are also cosponsors of the legislation”

Stay tuned.

 


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