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Medical Loss Ratio Regulations

December 10, 2010 | No Comments
Posted by Frank Ciesla

As the regulations required under the Patient Protection and Affordable Care Act which mandate use of the 85/15 or 80/20 medical loss ratio, are being implemented, it is clear that insurance companies will be able to dedicate a smaller and smaller amount of the premium for use in covering the non-medical expenses, including payments made by the insurance company to the insurance brokers.  This will impact all employers, including health care providers, in the employer mode.  Many employers, unions and governmental agencies are applying for waivers from the Secretary of Health and Human Services, on the grounds that the applicable health plans do not and cannot meet this requirement, which requests are being granted to avoid many people not having insurance.

In addition, several insurers, including Aetna and certain Blue Cross plans have taken action to either cut broker commissions or to list commissions as a separate line item on premium bills issued to employers who provide health coverage.  A recent article highlighting the steps taken by insurers which was published in the Philadelphia Inquirer can be found here. 

Many employers that are not large enough to have their own Human Resource Department rely upon their brokers for advice with regard to policy selection and policy structure, as well as advice and services with regard to the implementation of their health care policies.  Most employers do not pay the brokers for the services.  A broker’s revenue for providing these services comes out of the commission paid to the broker by the insurance companies.  It is clear under the proposed medical loss ratio regulations that the amount of resources available to the insurance company that can be used to pay commissions to the brokers will be reduced.  With reductions in payment, the brokers will not be able to provide the same level of services to the employers unless the employers are willing to make payment to the brokers for providing those services.  In the alternative, the employers may be required to hire consultants or employees to undertake the responsibilities that were previously provided by the brokers.  It is highly unlikely that the necessity for those services will go away.  What employers will be experiencing is a cost shift to the employers, that will result in the payment by the employers to the brokers.  This, of course, will occur over a period of time, but employers should be focused on how, in the future, those services will be provided.


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