A new report confirms what agents and brokers have felt firsthand for the last two years -- that the Affordable Care Act's medical loss ratio provision has significantly hurt broker commissions.
A new brief by the Commonwealth Fund reveals that $300 million in commissions were lost in 2012 as a direct result of the medical loss ratio provision.
Since 2011, the Affordable Care Act has required health insurers to pay out a minimum percentage of premiums in the form of medical claims or quality improvement expenses -- known as a medical loss ratio (MLR). For large group plans, the minimum MLR is 85%. For small group and individual plans, the minimum MLR is 80%. Insurers with MLRs below the minimum must rebate the difference to consumers.
This leaves only 15%-20% for profit and administrative expenses, including broker commissions. To comply with the law, insurers have reduced broker commissions. As the brief shows, this has had a huge impact on producers (to the tune of $300 million) who now feel they have to work twice as hard for half the pay.
According to the brief, to meet the MLR requirement health insurers reduced profits and spending on brokers’ fees, marketing and administrative efforts by $1.4 billion in 2012.
Broker expenses (roughly 3% of premiums), fell by nearly $300 million in individual, small and large group markets.
Total rebates for 2012 were $513 million, half the amount paid out in 2011, indicating greater compliance with the MLR rule.
Commonwealth Fund researchers used data collected from the Centers for Medicare and Medicaid Services (CMS) as of August 1, 2013, for 2012 data and November 26, 2012, for 2011 data. Data were collected from health insurers in 50 states and the District of Columbia.
Since 2011 there have been various failed legislative efforts that would separate broker commissions from the MLR. However, many brokers feel like it is too little too late.
What do you think?