New Survey Shows Devastating Effects of Medical Loss Ratio on Health Insurance Agents, Consumers

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Most brokers see commissions reduced by 25 to 50% or more since implementation of medical loss ratio provision. Some are leaving the business, while others cut staff and client services to survive.

A new survey of members of the National Association of Insurance and Financial Advisors shows that the medical loss ratio (MLR) provision of the Patient Protection and Affordable Care Act (PPACA) is causing devastating consequences for health insurance agents and the individuals and small businesses they serve. While Congress enacted the MLR with the aim of ensuring consumers get good value for their premiums, the NAIFA survey shows that in many cases the provision is having the opposite effect.

Agent Compensation Takes a Hit

According to the poll of 520 NAIFA member agents and brokers who sell and service health insurance policies, 75 percent have seen their commissions decrease since the MLR went into effect Jan. 1, 2011. An additional 13 percent have been informed by insurance companies that commissions will be cut in the near future.

The decreases have been substantial. More than five out of ten (53 percent) of all the agents surveyed report that their commissions have been lowered by 25 percent or more, which includes 17 percent who say their companies have cut commissions by 50 percent or more.

“Members of Congress and regulators acknowledge that professional, licensed health insurance agents are vital to the market,” said NAIFA President Terry K. Headley, LUTCF, LIC, FSS. “These agents do a fantastic job ensuring that people and businesses get proper coverage and the service they deserve. But we can’t drastically cut agents’ pay, sometimes in half or more, and expect them to continue working at the same level, with no consequences for the clients they serve.”

Consumers Lose Out

Services provided by agents continue long after a policy is in force, Headley said. The highly trained agents provide clients with ongoing evaluations of their health care needs and coverage options. They help clients file claims and provide assistance if problems with care providers or the insurance companies arise. In addition, many agents design and administer employee wellness plans for their group health clients, and they often serve as de facto extensions of their small business clients’ human resources departments.

Consequences of the precipitous drop in agent commissions are already affecting the marketplace and hurting the quality of services consumers receive. Nearly a quarter (23 percent) of the agents who have seen their commissions fall have reduced services for their clients, the NAIFA survey found, while 11 percent have stopped selling and servicing policies for individuals and 4 percent have gotten out of the health insurance market altogether.

Most of the agents who have thus far absorbed the hit of the reduced commissions say they won’t be able to do so forever. Nearly half (44 percent) say that if allowed they will charge fees for services they have always performed at no additional cost to clients. However, many states prohibit insurance agents who receive commissions from charging fees. Customer services will be on the chopping block for 30 percent of the agents, if commissions remain depressed. Almost three out of ten (29 percent) will stop serving individual health insurance clients, and 18 percent will stop selling health insurance altogether.

“One goal of the health care law is to increase competition, but the MLR provision is having an opposite effect,” said Headley. “As agents are driven out of the marketplace, their clients have fewer and fewer choices for receiving coverage with quality customer service and less opportunity to have plans tailored to their specific needs. These are things agents bring to the table that the government or the insurance companies on their own can’t replace.”

While the MLR is hurting insurance agents and their clients, its broader impact is touching communities across America. Many NAIFA members are small business owners and employers. The survey shows that 13 percent of the agents with reduced commissions have laid off or reduced the hours of their support staff, affecting an average of two employees per agency. Another 23 percent have considered staff reductions. More than a quarter (27 percent) said they will be forced to reduce staff in the future if commissions remain depressed.

How to Fix the MLR

The PPACA allows states to apply for an MLR waiver if they feel the provision is going to disrupt the insurance marketplace. So far, only Maine has successfully obtained a waiver, and that required an arduous, six-month application and review process.

The inefficient waiver process is not the answer to the problems the MLR is causing, and congressional action is required. NAIFA supports bipartisan legislation proposed by Rep. Mike Rogers (R-MI) and John Barrow (D-GA) that would exclude agent compensation from the MLR calculation.

“The NAIFA survey shows that insurance markets are being disrupted and consumers are being harmed across the nation, not just in Maine and the other states that have applied for waivers,” Headley said. “Congress needs to fix this part of the health care law so consumers will continue to benefit from the valuable services agents provide.”

See the Key Findings of the NAIFA Survey on the NAIFA Blog (

About NAIFA: NAIFA comprises more than 600 state and local associations representing the interests of approximately 200,000 agents and their associates nationwide. NAIFA members focus their practices on one or more of the following: life insurance and annuities, health insurance and employee benefits, multiline, and financial advising and investments. The Association’s mission is to advocate for a positive legislative and regulatory environment, enhance business and professional skills, and promote the ethical conduct of its members.


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Sheila Owens
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