 |
|
| Sample Newsletters | MarketPlace AIS Products & Services |
|
AIS's Health Business Daily
Featured Story, July 20, 2010 Medical Loss Ratio Floor for Individual Plans Already Is Affecting Insurers, Broker Commissions Reprinted from HEALTH PLAN WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans. By Steve Davis, Managing Editor (sdavis@aishealth.com) A rule that will require health insurers to maintain a medical loss ratio (MLR) of 80% for their individual and small-group products already has caused some health plans to restructure they way they pay brokers and agents. Other insurers have decided to scale back or exit the individual market. One health plan has said it will close its doors at the end of the year due in large part to the new rule, according to interviews and documents obtained by HPW. Other regulations, such as the exclusion of lifetime and annual benefit limits, also could have a negative impact on the individual and small-group markets.
Beginning on Jan. 1, health insurers must ensure that at least 80% of premiums for small-group and individual products go toward medical costs or activities that improve health care quality. The MLR floor is 85% for the large-group market. Health plans that don’t meet the minimum MLR will be required to pay a rebate to customers.
While the rules regarding how MLR will be calculated have not yet been released, some health plans already have made changes. The National Association of Insurance Commissioners (NAIC) says it will provide HHS with final recommendations for the new regulations later this summer.
The ratios could “potentially disrupt the availability of private health insurance,” Florida Insurance Commissioner Kevin McCarty wrote in a June 16 letter to NAIC President Jane Cline. In the letter, McCarty encouraged the association to study the public policy and legal implications of excluding agent commissions from MLR calculations.
An NAIC actuarial subgroup recommended that HHS adjust the MLR requirement in states where the percentage could “destabilize” the individual market. The subcommittee proposed that a three-year transition period be allowed in such states. By that time, individual policies are slated to be sold through state-run insurance exchanges. At a June 22 meeting between President Obama, health plan CEOs and state regulators, Kansas Insurance Commissioner Sandy Praeger suggested that the MLR rule be phased in for individual and small-group plans.
Small Insurer to Close Its Doors
Early this month, nHealth, a Virginia-based seller of account-based health plans, told employees that it will leave the health insurance market and will terminate all of its policies on Dec. 31. In a letter to brokers and agents, the two-year-old company placed much of the blame on the health reform law, which it said demands significantly higher capital as well as a much higher MLR “creating thresholds that run counter to the efficiencies built into our business model.” According to data filed with NAIC, nHealth had about 1,700 enrollees. The reform law, however, might not have been the sole contributor to the company’s demise. The two-year-old startup lost $5.6 million in 2008 and $4 million in 2009, according to the NAIC filing. In the first quarter of 2010, it posted a loss of almost $1 million.
The MLR rule “could lead to unintended consequences” in the individual market, says Robert Zirkelbach, a spokesperson for the trade group America’s Health Insurance Plans. C. Steven Tucker, founder and principal broker of Illinois-based Small Business Insurance Services, says he expects “huge” consolidation in the industry as small health insurers that deal primarily or solely in the small-group and individual markets close their doors or are acquired by larger firms. “This [law] is not going to increase competition….It’s going to create a monopoly. You’re going to have big companies left only,” he tells HPW. Large Insurers May ‘Absorb’ Business
Case in point: On June 9, Michigan’s Office of Financial and Insurance Regulation said it had taken action to protect approximately 42,000 consumers insured by American Community Mutual Insurance Company. A circuit court judge approved a transition agreement that will let enrollees transfer coverage to Golden Rule, a subsidiary of UnitedHealth Group, on a guaranteed coverage basis. The court’s order applies to enrollees in Michigan and 14 other states. Tucker predicts large health plans will absorb blocks of business from other small carriers that can’t comply with the upcoming ratios.
Illinois-based Guarantee Trust Life Insurance Company (GTLI) recently decided to discontinue and replace coverage for 1,907 of its 2,100 members covered by an individual policy. Individual and small-group policies make up a tiny percentage of GTLI’s business. The bulk of the company’s business is in selling niche insurance products, such as “marketing credit accident insurance,” which pays the balance of a car loan if the owner becomes disabled, says Marianne Eterno, assistant vice president of government relations. The company also sells Medicare supplemental, long term care and special sports risk coverage. The company has approximately 342,000 policies in 30 states.
GTLI’s affected individual insurance members will be moved into products that have more enrollees and better experience so that it will be easier to meet the MLR ratios.
In a May 1 letter to some members, the company explained that the replacement coverage has a $25,000 per person deductible for family coverage. For members now enrolled in a health savings account (HSA)-compatible plan, the new deductible would restrict them from contributing to the account. Tucker says the change forced him to move one client into the state’s high-risk pool. HSA-based plans can’t have annual family out-of-pocket expenses in excess of $11,600 for 2010.
Some health plans are beginning to restructure the way they pay their brokers and agents in an effort to reduce the percentage of premium dollars that go toward commissions.
Wayne Sakamoto, president of Florida-based agency Health Insurance Interactive, Inc., says some health insurers he works with have already sent letters explaining how commissions might be impacted due to the MLR rule.
Scott Leavitt, owner of Scott Leavitt Insurance & Financial Services, an Idaho-based insurance agency, says most carriers in his state have indicated that they intend to reduce agents commissions on individual policies later this year, but haven’t yet released details pending more information from HHS. Broker commissions could be “the biggest casualty” of the MLR rule, says Eterno. “When you’re talking about the non-claims piece of your payout, the biggest discretionary part of that is your agent commission,” she tells HPW. “It’s the piece that’s going to go first if you need to make a change.”
During a June 10 webinar sponsored by AIS, Donald Garlitz, benefit consultant at Utah-based FirstWest Benefit Solutions, said changes in commission rates can and do come at any time with proper notice — often 30 to 90 days depending on the contract. But he added that even if insurers stopped paying brokers entirely, which he does not envision happening in the coming exchanges, clients would pay because they recognize the value of brokers’ services.
Zirkelbach agrees and says people who have individual coverage don’t have access to a human resources department and rely on brokers to find the best coverage option.
Insurers Alter Individual Market Strategies
Here’s a look at several health insurers that are altering their individual product lines or to the way they compensate brokers:
|
| ||||||||
