Pathetic Substitute
The MLR is a perverse disincentive for plans to reduce their costs.
Nobody's good at breaking bad news, though lobbyists might be worst of all. Amid all the post-election punditry, crickets were the only sound that could be heard on the subject of legislation that would carve out agent/broker compensation from the minimum medical loss ratio requirement under the Affordable Care Act.
If you’re looking to Congress to restore health insurance commissions to their pre-Obamacare days, you’re not going to be happy. Lobbyists can do much to influence the benefits marketplace for agents and brokers and clients, but rolling the president of the United States and the Senate majority leader aren’t on our can-do list.
Here’s the deal: Many provisions of the Affordable Care Act egregiously undermine the employer-sponsored health insurance market. None take such specific aim at brokers as the MLR ratio, which requires that health plans pay out most of their premiums for healthcare—80% for groups up to 100 employees and 85% for groups of more than 100. This means profits, administrative costs, and marketing costs all have to be contained within 15% to 20%. During legislative consideration of the act, some Democrats wanted the number to be 10%.
We and our allies within the agent/broker community went to work to exempt producer compensation from the MLR calculation. We found two excellent champions in the House of Representatives—Mike Rogers, R-Mich., and John Barrow, D-Ga.—to author legislation on the subject. In the Senate, we persuaded Mary Landrieu, D-La., and Johnny Isakson, R-Ga., to do the same. We lined up nearly 200 co-sponsors in the House. We created a perception that this was a winnable issue. After all, congressional Democrats may disdain insurance companies, but everybody tries to please insurance agents and brokers.
The effort, however, was predicated on the GOP reclaiming control of the Senate. This was a pretty good bet a year ago, as Democrats were defending 23 seats in the 2012 election and Republicans were defending only 10—in a lousy economy with a cranky electorate. When the dust settled on Nov. 7, though, Democrats had picked up two seats in the Senate.
Sure, it was a status quo election, but the Senate outcome was devastating—a combination of bad luck, political miscalculations, and a bevy of Tea Party–backed losers. Maybe the Lord was speaking to Todd Akin and Richard Mourdock, but He wasn’t leading them to victory.
Only two days after the election, the Congressional Budget Office released its estimate that removing agent/broker comp from the MLR would cost taxpayers (policyholders) $1 billion dollars over the course of 10 years. It was a stunning number, bogus on many levels. But if we are to pass the legislation, we’d most likely have to gore somebody else’s ox to the tune of a billion bucks.
Senate Majority Leader Harry Reid and the White House don’t like the legislation to begin with. With a nasty “score” from the CBO, there’s no chance they’ll let it advance to the Senate floor. Agents and brokers have plenty of influence in Congress, but the MLR is Exhibit A in the polarization in Washington on health benefits issues. The rubber hit the road in an October markup of the legislation in the House Energy & Commerce Committee. In a party-line vote, Barrow was the only Democrat to support the bill.
I’ve spoken to scores of audiences at Council member firms over the past couple of years, and the MLR issue is never the first issue raised. Council members are far more interested in the broader implications of the future of employer-sponsored health insurance. I can say with confidence that their paramount concern is their clients’ interests, not their cut of the health premium pie.
The compensation genie is out of the bottle. Plans are experimenting with fee arrangements that bypass the MLR. I hear from many brokers, too, that plans have used the MLR law as an excuse to reduce marketing costs regardless of the value of brokerage services. Even with all the uncertainty surrounding the Affordable Care Act, benefits divisions of Council member firms are busier than ever and often more successful than ever. The MLR hasn’t halted M&A activity by any stretch.
Perhaps in the context of broader reforms, there could be an opportunity to deal with the MLR, but it’s Pollyannish to predict it in the near future. Then-White House health czar (and now deputy chief of staff) Nancy Ann DeParle said it openly in a speech to the U.S. Chamber of Commerce in 2009: One of the reasons to pass healthcare reform is to incentivize disintermediation. This White House isn’t going to take its foot off that accelerator.
The better selling point on the MLR is that it, like so many other areas of Obamacare, is really nothing more than another government cost control—in the end, a perverse disincentive for plans to reduce their costs. After all, the bigger the premium, the easier it is to make the 80% or 85% numbers work. The MLR is a pathetic substitute for actually bending the healthcare cost curve.
