The Patient Protection and Affordable Care Act (PPACA) and its regulations require health insurance companies to devote a minimum percentage of the premium dollars to health care services and activities that improve health care quality. This percentage is called the Medical Loss Ratio (MLR). Insurers must spend a minimum of 80 percent of the premiums of individual- and small-group market customers on medical claims and no more than 20 percent on administrative expenses, or pay rebates to their policyholders beginning in 2012.
Under PPACA and its regulations, insurance agent commissions are considered to be administrative expenses. Insurance agents believe classifying them as such will cause insurance companies to reduce their commissions to improve their MLRs.
Some have argued that the MLR requirements will ensure that customers receive the most value for their premium dollars. Insurance agents, many of whom are small- business owners and whose customers are often small businesses, believe that the MLR requirements may lead to lower levels of customer service and consolidation in the industry.
Mike Coffman, R-Colo., chairman of the subcommittee, in his opening statement said: “We all want quality health care and affordable insurance premiums. But the MLR is likely to deter small insurers from entering the market and hasten the exit of established ones. Instead of protecting consumers, the MLR may dissuade insurers from making investments in antifraud, anti-waste, customer service and transparency tools because they are considered administrative, and those costs must be kept low. The MLR is an incentive for insurers to increase – not reduce – premiums, because they will need to improve their medical ratio and forgo administrative tools that can ultimately save money. And, as a National Association of Insurance Commissioners’ resolution said, the MLR requirements ‘have had profound detrimental marketplace effects for insurance producers [agents and brokers]…’”
To view details regarding the committee hearing, visit ASA’s legislative website at www.TakingTheHill.com.
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