Trade groups and individual independent agents have long argued that broker commission should be considered separately from the medical loss ratio provision of the Affordable Care Act, but a new report from the Government Accountability Office (GAO) suggests doing so may harm consumers.
According to the GAO, excluding the commissions and fees paid to appointed brokers from the MLR would have excised the $1.6 billion in carrier rebates to consumers in 2011 and 2012—by about 75%. In fact, rebates to consumers would have fallen from $1.1 billion to $272 million in 2011 alone.
In 2012, that figure would have been slashed from $520 million to $135 million, reducing the average customer rebate to $15.21 per enrollee—down from $58.50.
The MLR provision requires health insurance carriers to issue refunds to customers if those carriers spend less than 80% of the premiums they collect on individual and small group markets, or less than 85% of premiums in the large group market.
Many brokers have argued including their commissions and fees in the MLR has reduced their commission. A Commonwealth Fund report even put a figure on that effect. According to the group, agents and brokers suffered a $300 million loss in commissions in 2012 as a direct result of the MLR provision.
That has been damaging to business, brokers say.
“With the medical loss ratio, our commissions were cut almost in half overnight,” Boise, Idaho agency owner Scott Leavitt told Insurance Business in an earlier interview. “What you’re seeing is a lot less agents doing a lot more work for half the money they were earning before. We have to pick up more than two clients to make as much money as we were before.
Carriers surveyed by the GAO admitted to the effect, with one commenting that MLR was a “primary driver” in the change in broker compensation schedules, while three others say commission reductions have more to do with an industry trend of paying a flat fee per application.
The GAO found that more than 75% of carriers “met or exceeded” standards set in 2011 and 2012, with medial MLR at 88%. Carriers in the large group market paid the highest in rebate amount ($405 million) in 2011, while carriers in the small group market footed the largest bill ($207 million) in 2012.
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