NAIFA survey shows federal health care rule’s medical loss ratio harms consumers, agents

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A new survey by the National Association of Insurance and Financial Advisors shows that the federal health care law’s medical loss ratio (MLR) provision has had a devastating effect on agents’ ability to maintain a high level of customer service to their clients.

A new survey by the National Association of Insurance and Financial Advisors shows that the federal health care law’s medical loss ratio (MLR) provision has had a devastating effect on agents’ ability to maintain a high level of customer service to their clients.

According to the national survey of 861 NAIFA members who sell health insurance, 15 percent said the MLR has decreased their commissions, causing them to lay off or reduce the hours of support staff in their offices (affecting an average of two employees per agency). Additionally, 14 percent of the respondents said they have considered reducing staff and 21 percent said they will do so if commissions remain depressed.

“When health insurance agents and brokers are forced to cut their staff, then there are fewer people available to solve clients’ problems and answer complex questions that arise every day in a health care system that grows ever more complicated,” NAIFA President Robert Miller said. “Consumers are the ones who are hurt by the MLR when agents have to reduce service. Insurance agents do more than sell insurance; they help companies and their clients select the right plan, understand a plan’s coverage and assist with claims. All of this requires a level of expertise that is only gained with experience in the world of health care.”

The MLR provision requires insurers to spend at least 80 percent of individual and small group health insurance premiums and 85percent of large group policies on medical or quality improvement expenses. Since it went into effect in January 2011, the MLR has prompted most insurance companies to slash the commissions of insurance agents and brokers.
According to the NAIFA survey, 70 percent of members who sell health insurance have seen a decrease in commissions. Of that 70 percent, more than half (53 percent) said their commissions decreased 25 percent or more, while 18 percent said their commissions decreased 50 percent or more. Of those who have not experienced a decrease in commissions, at least 12 percent have been informed by carriers that their commissions will be reduced in the near future.

For those who have experienced a loss in commissions, more than half (65 percent) said they have absorbed the lost income, while 19 percent have reduced customer service.
In addition, since the MLR went into effect:

-- 11 percent of respondents say they have gotten out of the market for individual health policies.

-- 5 percent have stopped selling and servicing health coverage altogether.

-- 30 percent say that if commissions remain depressed they will stop selling and servicing individual health policies; 22 percent say they will stop selling all health insurance.

When it comes to premiums, the majority of respondents (90 percent) said their clients’ premiums have increased or will increase in 2012, in spite of the MLR.
“Removing agent commissions from the MLR won’t have any impact on premiums, but leaving them in seriously dilutes customer service,” Miller said.

Senate bill S 2288 would change the way agent compensation is considered in the federal health care law’s MLR. A similar bill in the House of Representatives, H.R. 1206, has more than 200 bipartisan cosponsors.

Other highlights from the survey:

Agents who have not yet seen their commissions go down overwhelmingly said they would be forced to make changes if their commissions ultimately do drop by 33 percent. According to the survey:

-- 31 percent would charge their clients fees for services, if permissible by law.

-- 25 percent would get out of the market for individual health clients.

-- 22 percent would curb customer service.

-- 22 percent would lay off or reduce the hours of their support staff.

About NAIFA: Founded in 1890 as The National Association of Life Underwriters (NALU), NAIFA is one of the nation’s oldest and largest associations representing the interests of insurance professionals from every Congressional district in the United States. NAIFA members assist consumers by focusing their practices on one or more of the following: life insurance and annuities, health insurance and employee benefits, multiline, and financial advising and investments. NAIFA’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
NAIFA
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