Category: Cosby Insurance Group

Michigan Representative Mike Rogers (R-8) and Georgia Representative John Barrow (D-12), along with 14 bi-partisan cosponsors, introduced formal legislation to remove broker compensation from the Medical Loss Ratio (MLR) rule. The existing rule also limits the ability of insurers to offer low-cost plan alternatives and, over time, they will reduce the number of insurers willing to write health insurance in the individual and small-group markets, leaving consumers underserved and causing countless insured individuals to lose their health coverage.

Please take a moment today to “Take Action” and send your representatives a message urging him/her to strongly consider cosponsoring H.R. 1206! Take Action NOW!

03.17.2011 News release by U.S. Rep, Mike Rogers

U.S. Rep. Mike Rogers, R-MI, and U.S. Rep. John Barrow, D-GA, have introduced a bipartisan bill that would amend the new health care law to preserve jobs and consumer access to licensed insurance agents and brokers.

“The nation’s 500,000 insurance agents and brokers help consumers find the right health care, advocate on their behalf, identify cost-savings opportunities and inform them of new products and changes in the industry,” said Rogers, a senior member of the House Energy and Commerce Committee Subcommittee on Health. “A mandate in the new health care law severely restricts their ability to perform such services, meaning small businesses are losing jobs or shutting down completely and consumers are finding it harder to access their services.”

The Medical Loss Ratio (MLR) regulation in the new law mandates how much insurers must spend on medical claims as opposed to administrative expenses. The new health law mandates that insurers must now spend up to 80 percent of revenue exclusively on medical claims.

The complication is how the Department of Health and Human Services (HHS) defines “administrative expenses.” Insurance agents and brokers are paid exclusively by commission, which as a convenience to consumers is included in the insurance premium, a “pass through” from insurers to agents and brokers. However, HHS classified commissions as an “administration expense” in the new health law.

Insurance agents’ and brokers’ commissions are never part of an insurer’s actual revenue, and should never be counted as an insurer administrative expense, as confirmed by the National Association of Insurance Commissioners, the non-partisan experts on state insurance markets.

The result has been insurers dramatically cutting commissions to agents and brokers, in some places up to 50 percent, resulting in jobs being cut, insurance agents and brokers are beginning to disappear and small businesses and consumers are experiencing more difficulty in accessing affordable insurance.

“Insurance agents and brokers serve as the voice of health insurance for millions of families and small businesses in rural communities,” said Congressman Barrow.? “These folks can help explain to consumers the many changes taking place in the healthcare world over the next few years, and so it’s important that our insurance agents are not hampered by provisions in the new healthcare law.?This is another critical improvement that needs to be made to the healthcare law, and I’m hopeful that my colleagues on both sides of the aisle will work with Mike and me to see that this important improvement is implemented.”

American Medical Association’s Relative Value System Update Committee, RUC, is a panel of experts that guide the way providers are reimbursed, or at least for our federal programs like Medicare and Medicaid.  However, this private committee influences how of our health care system is designed. While you can likely get through your usual day not knowing what RUC is, however if you want to know why you spend more time at the specialist than you do your primary care physician or why there is so much talk is about re-focusing our health care system towards primary care the featured article will likely change your views or at least enlighten you.  A must read!

Read: Fixing America’s Health Care Reimbursement System by B. Klepper

The facts are that just about every expert in the industry has stated that the recent health care reform package will significant drive premiums upward. There are several driving factors, mandated benefits, new compliance mandates, taxes, guarantee issue, and many others.

However the one force that will unintentionally drive premiums upward is the so called mandatory loss ratio or mandatory medical spending requirement. The mandatory loss ratio regulation is complicated but briefly it mandates that insurance have somewhere around an 85% loss ratio. On its face sounds like a good idea to limit the profits that insurance companies make, however, look further. If an insurance company is currently operating with an 80% loss ratio and therefore 20% goes toward administration cost (workers’ salaries, systems, administration, profit to shareholders) then simply passing regulation that mandates an 85% loss ratio will not necessarily make these administration cost go away or reduce them. Unless of course the insurance companies drastically change their services or become incredibly more efficient. I propose that instead that the affect of the new law will have an unintended consequence to clear the way to drive premiums upward by approximately 33% over the next few years.

Why? Consider that if every $1 in insurance premiums 80 cents goes toward medical care and 20 cents toward administration cost. With the new law insurers will be mandated to spend 85 cents on medical expenses for every $1 in insurance premium. This will drive insurance companies to increase premiums to $1.33 so that the mandated 15% will produce enough revenue to cover their original 20 cents of administrative costs. ( $1.33 x 15% = 20 cents). Remember that 20 cents was our original administrative costs but our total premium had to increase to $1.33 to accommodate the new law. Winners: The insurance industry maintains their revenue to cover their administration and profit, the medical providers receive an enormous windfall from a 41% increase in medical spending (changed from 80 cents to $1.13 to accommodate the mandated spending requirement). Losers: Employers and employees by much higher insurance premiums, and self-pay individuals paying much higher prices due to the economic pressures for an increase in demand for higher priced medical services.

Will it work exactly the way I describe above? No of course not. But is it one additional perverse governmental pressure that will send medical spending and premiums in the wrong direction? YES! You want someone in the market place driving medical spending downward. Someone that is trying to hold spending increases down. To date, the only significant force doing this has been the insurance companies, albeit, not very well. But like paying medical providers for units of medical care, where we just get more units of care, not better health outcomes, mandating spending limits of 85% is a bad idea.

Like paying for units of care, mandating upward medical spending limits will only drive medical costs and health care premiums higher.