The Misguided War on Insurance Agents via the Nation’s Healthcare Law

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BY JANET TRAUTWEIN – The federal government recently announced that unemployment has barely budged in the last two months. More than 13 million people remain out of work. Yet several self-proclaimed “consumer advocates” are leading the charge in support of a provision of the federal health care law that could eliminate jobs throughout the country.

At issue is the law’s “medical loss ratio” (MLR), which requires insurers to spend 80 to 85 percent of premiums on claims. Fortunately, several lawmakers and the National Association of Insurance Commissioners are considering a job-saving tweak to the health care law that would exclude brokers’ commissions when calculating the MLR.


Without it, thousands of insurance agents and those who work at their agencies would be consigned to the unemployment lines — thereby depriving consumers of valuable advocates in the health care marketplace.

The MLR requirement is unpopular. Eight states have requested waivers from the new rules; Maine just received one. These states are concerned that the regulations will drive small insurers who can’t afford to comply out of business.

In Maine, one of the state’s three active insurers threatened to pull out of the market unless the state received a waiver. This would’ve left Mainers with just two choices for insurance — and by reducing competition, would’ve driven up prices.

The MLR rules may also disrupt state insurance markets by depriving consumers of access to agents and brokers.

Some insurers are starting to reduce agents’ commissions. According to a recent survey, nearly three-quarters of agents have reported reductions in their income because of the MLRs. More than a fifth of brokers have eliminated jobs at their agencies. A quarter have reduced services for their clients to  make ends meet.

That’s bad news for small businesses, who depend on agents to take care of their health insurance needs. The nonpartisan Congressional Budget Office (CBO) has reported that agents and brokers often “handle the responsibilities that larger firms generally delegate to their human resources departments — such as finding plans and negotiating premiums, providing information about the selected plans, and processing enrollees.”

Small firms also count on brokers to keep them in compliance with state and federal laws and informed of any opportunities to save money on their plans.

Individual consumers will also suffer if they lose access to agents. Most consumers are unfamiliar with the jargon in their policies — and thus rely on brokers to explain their benefits and serve as advocates should problems arise.

Proponents of the reform law’s MLR rules argue that broker commissions should count as administrative costs because they aren’t medical spending. But the truth is more complicated.

Broker commissions are separate from an insurance premium. They’re not revenue for an insurance company, as they simply pass through the insurer and go directly back to the agent. It’s a matter of convenience. Rather than writing two checks — one to the insurer and one to the agent — a person or firm writes just one.

Many lawmakers recognize that the MLR rules must be fixed. Reps. John Barrow (D-Ga.) and Mike Rogers (R-Mich.) have introduced a bill that would leave commissions out of the calculation. Their measure has attracted support from Republicans and Democrats.

The Obama Administration has called small business “the backbone of our economy and the cornerstones of our communities.” But the MLR rules undermine that claim. By driving scores of insurance agencies to the brink of bankruptcy — and killing small-business jobs in the process — the MLRs are making the health insurance marketplace even less accessible for everyone.

Janet Trautwein is CEO of the National Association of Health Underwriters.