On one side are those advocating for consumers, who want to see the cost of health insurance premiums ease up and customers get rebates if their insurers spend too much on overhead and profits.

On the other side are insurance brokers like Spencer Houldin, who help people select insurance policies and handle claims, but say they’re getting squeezed out of business by a key requirement of federal health care reform.


Insurance Commissioner Thomas B. Leonardi

On Tuesday, a divided National Association of Insurance Commissioners voted to advocate for the brokers, following a contentious debate and objections from several state insurance regulators, including Connecticut Insurance Commissioner Thomas B. Leonardi.

At issue is a requirement that took effect this year that requires insurance companies to spend at least 80 percent to 85 percent of the money they collect in premiums on clinical care or activities to improve health care quality. The rest can go to marketing, overhead and profits. Companies that don’t meet the mark must pay rebates to customers.

The problem for brokers like Houldin is that the commissions that insurers pay them are included in the administrative expenses side. And they say that’s led insurance companies to slash their commissions, making them question whether it’s worth continuing to offer health insurance at a time when consumers could most use guidance.

Brokers have been lobbying to change the rules, and the National Association of Insurance Commissioners, or NAIC, which helped develop the original definitions of what counts as administrative expenses or clinical care and quality improvement measures, voted to back them Tuesday. The association passed a resolution urging the U.S. Department of Health and Human Services to take immediate action to mitigate the harm the requirement has done to insurance brokers. It identified options for addressing it including not implementing the requirement when it comes to insurance broker or agent compensation, and allowing their compensation to be considered part of the health care quality improvement costs.

North Carolina Insurance Commissioner Wayne Goodwin said insurance agents in his state were concerned about their ability to continue to counsel people about their insurance options.

“This is about making sure that there’s access to guidance and counseling on the ground, the grass-roots level,” he said during a conference call with other insurance commissioners before the 26 to 20 vote.

Louisiana Insurance Commissioner James Donelon, meanwhile, argued that the brokers’ counseling of customers improves health care quality, and should be considered a quality improvement activity under health reform, not an administrative expense.

But Leonardi and other opponents of the measure took issue with the process that produced the resolution and with its potential implications.

Leonardi warned that changing the way broker fees are considered could cost customers hundreds of millions of dollars in rebates. He said he had received hundreds of letters, phone calls and emails about the issue, but had not heard from one consumer group that supported the resolution.

“The resolution is very consumer unfriendly,” he said.

The percentage of premium dollars spent on medical care is known as a medical-loss ratio. Leonardi said the way health reform defines medical-loss ratio is already more favorable to insurers than the standard definition. Under health reform, insurers can deduct taxes – generally, about 4 percent – from their premium dollars in calculating the medical-loss ratio. They can also include not just medical claims but activities spent improving health or quality.

“A 75 percent loss ratio, all things being equal, becomes 85 percent,” he said.

He also noted that insurance brokers’ commissions have been falling for decades, since long before health reform. “This resolution isn’t going to stop that, no matter how well-intentioned it may be,” he said, adding that he was not opposed to agents or brokers or the value they bring.

Leonardi and other opponents of the measure also took issue with the process behind the resolution, saying it had not been through the proper committee review or public hearing before being passed. The association took up the issue in March before opting to instead establish a task force to study the issue.

Some commissioners also suggested that the resolution was unlikely to produce change since it asked the U.S. Department of Health and Human Services to address something only Congress could do, and said taking a political stance could hurt the association’s credibility.

Washington Insurance Commissioner Mike Kreidler warned that the resolution wouldn’t help insurance brokers since it did not require the insurance companies to increase the commissions they paid. The way to do that would be to require insurance companies to pay a certain level of commissions, he said, though he noted he was not endorsing that option.

“In the state of Washington, if the rules change at the national level for medical-loss ratio, it would have absolutely no impact on my producers because the insurance companies made a decision for business purposes to reduce their compensation,” he said.

The opponents of the measure were the most vocal, but the resolution ultimately passed.

Houldin, president of Ericson Insurance Services in Washington Depot, said changing the medical-loss ratio requirement is important for brokers.

“The bottom line is the Main Street agent is feeling tremendous pressure as it is,” he said. “When you start to put commissions inside the [medical-loss ratio], the insurance company has no choice but to squeeze that commission.”

Compared with other insurance products, health insurance requires more time helping customers and brings in lower margins, Houldin said. His firm is evaluating whether to continue selling health insurance, he said.

While broker fees had been going down in health insurance before health reform, Houldin said that law also had a clear impact. “Right off the bat, the commissions were being cut by 20, 30 percent,” he said, and insurers sent letters saying they had no choice but to cut the commissions because of the new regulation.

There are multiple ways to address the broker fees, including making them part of insurance premiums or separate fees, but Houldin said it comes down to making sure they get paid for what they do for consumers.

“The bottom line is that somehow the consumers have to pay for it, because everybody agrees that the agent has a role in selling health insurance, but they don’t agree that we deserve to get paid to do it,” he said.

And he warned that if insurance brokers aren’t there to advocate for consumers, the consumers will turn to the insurance department for advocacy. “And that’s a real threat,” he said.

Arielle Levin Becker covered health care for The Connecticut Mirror. She previously worked for The Hartford Courant, most recently as its health reporter, and has also covered small towns, courts and education in Connecticut and New Jersey. She was a finalist in 2009 for the prestigious Livingston Award for Young Journalists, a recipient of a Knight Science Journalism Fellowship and the third-place winner in 2013 for an in-depth piece on caregivers from the National Association of Health Journalists. She is a 2004 graduate of Yale University.

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