On February 9th, Representative Mike Pompeo (R-KS) pledged his support of a bill that promises to save thousands of jobs and make it easier for Americans to secure high-quality, affordable health insurance coverage.
With the support of lawmakers like Representative Pompeo, the Access to Professional Health Insurance Advisors Act of 2015 (H.R. 815) would modify the way that the federal health reform law calculates health insurers’ administrative costs by excluding agents’ commissions.
Such a change may seem esoteric, but without it, hundreds of insurance agents would be put out of work – and everyone in our community would find it more difficult to obtain the right coverage that meets their family needs.
The federal health reform law dictates that insurers devote at least 80 percent of premium dollars to medical claims in the individual and small-group markets — and 85 percent in the large-group market. Firms that don’t reach these “medical-loss ratio” (MLR) thresholds must rebate consumers the difference.
The idea is to limit potentially wasteful spending on overhead and ensure that consumers get good value for their premium dollars. Unfortunately, agents and brokers are becoming collateral damage in the federal government’s attempt to mitigate insurers’ administrative costs.
Insurance companies set commissions, they do not pay them. Agents are licensed and independent, working for the client during initial sale, renewal and providing year-round advice and assistance, whether it is an employer or an individual. Insurance carriers simply serve as pass-through conduits for commission fees.
The misclassification of commissions has had a swift – and disastrous – consequence. Many insurers immediately slashed spending on commissions when the MLR rules took effect last year. The U.S. Government Accountability Office found that agent commissions have fallen by as much as 50 percent since the passage of the federal health reform law.
The MLR has made it impossible for agents to stay in business. Consequently, the exodus is already beginning.
A recent study by the Bureau of Labor Statistics found that the number of health insurance agents and brokers decreased by 3.3 percent nationally within the first few months of the enactment of the new MLR rules.
That’s bad news not just for the employment situation – but for families and small businesses, as well. People depend on agents to help them navigate the insurance marketplace. As the provisions of health reform take root, it will only grow more confusing. Small employers depend on their agent to assist them with all related benefit problems and functions year round.
By supporting H.R. 815, Representative Pompeo showed he understands the skills and knowledge agents possess are more essential to our community than ever. Excluding commissions from the medical loss ratio will ensure that agents continue providing the stellar service on which families and small business rely.
These subsidies affect about 5 million Americans or 1.6% of the population. They are among the 19 million who have purchased private policies. But this market has changed drastically over the last four years.
For many years prior to the ACA or Obamacare, about 10% -12% of the insured were not in an employer plan, but chose to purchase policies through a private market. Applications could be submitted online on any day and were processed in as little as 24 hours. Once you bought a policy, you were protected by law against the carrier raising your rates or terminating your policy based solely on your personal claims.
Rates were very low for the majority of Americans because there were multiple carriers, fewer plan mandates, and the rates were based on risk of claims, including one’s pre-existing conditions at application. It incentivized people to buy a policy while they were healthy. Those who delayed coverage until they were facing a high claim had to pay a higher premium to the carrier or through the state’s high-risk pool. Because of these incentives, in Kansas, for example, only about 2,300 were in the high-risk pool at any given time. States with the fewest mandates and risk rating enjoyed the lowest rates in the nation.
Risk rating is used in all insurance, including life, auto or home. This is not discrimination.
Even so, a few states, including Massachusetts, New Jersey, New York, Maine, and Vermont, decided to eliminate health risk rating, causing people to lose their discounts for a healthy lifestyle. This forced rates to skyrocket in those states. Lawmakers were justifiably concerned that only the unhealthy would apply for a policy and others would delay purchasing until they were expecting a high claim. Instead of returning to risk rating to keep rates down and avoid this problem, Massachusetts decided to subsidize premiums for those with lower income through a Connector (Exchange) and expand Medicaid (forcing the whole country to pay for its coverage). All but those with low incomes in Massachusetts were left with high premiums.
Since ACA regulations are very similar to the regulations implemented in Massachusetts and the other states mentioned above, they have had a minimal adverse effect in these states, which already had the highest premiums in the nation.
But by inflicting the Massachusetts model on ALL states, coupled with many more regulations and policy features that many people didn’t want, here’s what happened:
Rates for most people doubled and for young people quadrupled.
People were required to switch to more expensive plans to meet ACA requirements. (Due to delays in implementing some of the most damaging features of the law, many of those who were already insured with private plans were not aware that their policies’ premiums would double until the 2015 open enrollment when they were forced to comply.)
Carriers reduced their provider networks and prescription coverage in an attempt to reduce premiums
Everyone was restricted to buying a policy during an “open enrollment window”.
People had to wait weeks for their new policies to take effect.
The law was written to entice the states to create, manage, and fund a state-run exchange, by offering grants and premium subsidies to states that agreed to participate. Otherwise people in those states would need to buy through the federal exchange with no subsidies. The problems with the website are infamous
37 states declined. So the administration, through the IRS, decided to expand subsidies to people who bought insurance through the federal exchange, too.
Both sides of the political aisle expect a ruling this summer from SCOTUS in favor of King in the King v Burwell case, which would uphold the wording in the law and declare that the subsidies through the federal exchange are not authorized.
How do we help those who would lose their subsidies?
Some, not necessarily in the GOP, have suggested:
These 37 states should each create a website that links to Healthcare.gov, and call it a state-based exchange to keep the subsidies flowing.
These states should quickly expand Medicaid to include most of those who will lose their subsidies.
Congress should quickly pass an amendment to the ACA law that authorizes subsidies in the federal exchange.
All of these costly “solutions” are frankly missing the point. We must look at the root cause of high rates that created a need for these subsidies: Obamacare regulations that were forced on every state.
Many of the people who have subsidized policies were insured before Obamacare. Consider Paige, a working mother in rural Kansas who lost the insurance plan she had purchased for her family of five because of ACA mandates. The price of the new policy was about double the premiums she and her husband were paying before. Unable to afford the increase, Paige was forced to buy a plan on the federal exchange and to put their children on Medicaid. “We work hard and have never had to be on welfare,” she says. “We just want our family’s plan back at the rate we were paying.”
We can help.
First the Federal Part
We begin with three easy steps
Pass the Cruz bill to repeal Obamacare and extend the subsidies for 6 months to allow states time for transition.
Return regulation of private health insurance back to the states, where it belongs. Let each state decide solutions. Massachusetts will handle it differently than Kansas does.
Allow a federal tax deduction for private policies like those individuals on employer plans enjoy.
State Solution Example
My native Kansas
We can get those rates back down by returning to risk rating. We can pass a law allowing all those who purchased an Obamacare policy to stay with their current carrier’s plan without risk rating pre-existing conditions. However, any new applicants or those who switch plans would be risk rated by carriers, as was previously allowed under state law.
We can allow more affordable plan options. With no Obamacare mandates on the type of features and benefits that a plan must offer and the new Kansas Mandate Lite law, which gives even more flexibility, carriers can create plans that do not include features that people don’t want.
We can increase competition. The federal exchange only gave those with subsidies two carrier choices. We would give them access to all carriers in the state. And with no Obamacare administrative restrictions that caused some smaller carriers to exit the market, those carriers can begin to offer plans in Kansas again.
Carriers would have the option to continue to offer their ACA-qualified plans, but they would also be able to market their newly designed plans that they file with the state Insurance Commissioner’s office.
Carriers may continue to allow dependents to stay on their parents’ plans until age 26. (Although most parents may find that purchasing a separate private policy for their child is more cost effective.)
We could use premium taxes that are already being collected to reinstitute the high-risk pool.
Results of This Kansas Solution
Everyone in the private market, including those who had a subsidy, will have affordable choices
No paying for policy features that you don’t want
No fees for not purchasing a plan
No fear of a raise in pay causing your share of premium payments to go up
Since their rate matches their risk, more young and healthy people will likely purchase a policy keeping rates down for all
A federal tax deduction on insurance premiums will further reduce the cost of the policies
Filing a tax return will be a lot easier
No one has to navigate a government website middle man to make changes to a policy
No small open-enrollment window for a private plan. Apply anytime, applications will be processed more quickly, fewer delays in coverage
No requirement to re-enroll each year, which gives continuity of care
Saves the tax payers and businesses trillions of dollars
In a matter of months we can repair the damage caused by Obamacare to our private marketplace. Businesses can breathe again and enjoy stability that they have not had in the past four years. We are coming to help you, Paige!
Beverly Gossage is a health care policy analyst and 2014 candidate for Kansas Insurance Commissioner. She is a licensed insurance agent in multiple states and the past president of a chapter of the National Association of Health Underwriters.
We are wondering what Edward S. Kornreich and Herschel Goldfield think now after reading our post “Which health insurance carrier denies the most claims?” You see these gentlemen posted an op ed “Medicare’s lesson for health insurance reform” at The Hill.com in September. Here is a quote from the piece, “ Missing from the healthcare debate is any serious discussion about a critical flaw built into our system: Insurers have an incentive to deny claims, because the more they pay out, the less they profit. Patients and doctors have the opposite incentive…….There is an alternative. In fact, it is already in place for the millions covered by Medicare.”
Kornreich and Goldfield should be pleased. Denials are no longer missing from the debate. You’re welcome.
Medicare denied coverage for ambulance rides, which had been pre-approved, for a 90-year-old double amputee. After multiple resubmissions of paperwork, trips to the hospital patient services department, and two-hour-long phone calls (reaching different Medicare representatives each time), this elderly man has not been able to resolve his nightmare.
Last month, Congressman Dennis Kucinich grilled private insurance carriers about the insurance claims they denied in an attempt to demonize them. Meanwhile, it turns out that Medicare actually denies a larger percentage of claims than any of the private insurers. See the report here.