State Insurance Commissioners got you a turkey for Thanksgiving

Unless you are an insurance commissioner or an insurance industry lobbyist you probably don’t think much about the National Association of Insurance Commissioners (NAIC). The NAIC is a national professional organization of state insurance commissioners. While the NAIC has always enjoyed some power and prestige its importance was elevated by the passage of national health reform.

One would imagine that this group would be sympathetic to consumers. It is, after all, an organization of insurance regulators. But a key NAIC vote last week revealed otherwise.

For more background on the vote see this News & Observer editorial by Consumer Reports President Jim Guest. In short, the Affordable Care Act created a new rule that insurance companies must start spending a minimum amount of each premium dollar on health care. This rule means that in the future insurers will spend more on your medical treatments and less on executive pay, trips to Cabo, fancy new buildings, and agent commissions. It turns out (surprise!) that agents don’t like the idea of insurance companies spending less on commissions.

So insurance agents are trying to effectively reclassify commissions as medical care or quality improvement. Last week the NAIC took up the issue and voted on a resolution urging Congress and Health & Human Services to weaken health reform and suspend or delay implementation of the new rules.

Sadly, North Carolina Insurance Commissioner Wayne Goodwin made the motion for the resolution and voted in favor of this ill conceived recommendation.

Commissioner Goodwin tried to construct an argument from twigs and twine to support his vote but his logic falls apart with a little poking. For example, Goodwin says he is concerned that if commissions are cut then some agents could go out of business. This would hurt consumer access to agents, he claims. How did he reach that conclusion? He asked insurance agents whether or not consumer access would suffer if their commissions were cut. Interesting methodology.

A different approach would be to ask consumers whether or not they are having trouble finding an agent or broker. Goodwin could carefully monitor responses over time to see if NAIC action is warranted.

His second major contention is that agents run businesses and he doesn’t want them to lose those businesses. I can appreciate that argument but I have trouble seeing why consumers should have to subsidize this business through higher premiums. For many years the NC General Assembly made a similar argument to explain why we shouldn’t work too hard to cut drug prices. Drug companies, after all, provide jobs in the state. True enough, but that doesn’t mean that people should suffer and get squeezed out of the market to ensure drug industry profits. As one broker who supports health reform told me, agents and brokers need to innovate.

The NAIC could have monitored commissions and surveyed families and small businesses to gauge their level of access to brokers. NAIC could have made any number of recommendations to accommodate agents without chipping away at health reform. Instead, under intense political pressure from brokers and agents, they voted to pass a one-sided resolution. Thankfully, it does not have the force of law. But if the symbolic vote weren’t important then agents would not have poured so much effort into getting it passed.

In North Carolina, I hope this is not the start of a troubling trend for the Department of Insurance. Commissioner Goodwin generally stands on the side of consumers. Not this time. Let’s work to make sure this was an aberration for the insurance commissioner and not a change in direction.


  1. Mike

    November 28, 2011 at 12:39 pm

    As a small business owner I find insurance rules confusing. I’ve used the same agency to help me choose plans for over 10 years. They’ve looked at hundreds of options for me during that time, saved me thousands of dollars, and have always help me and my employees with changes during the year. The job they do for me worth every penny, and it doesn’t cost me a dime more because they get paid a commission by the insurance companies after my sale is made, in lieu of the insurance companies spending millions of dollars on marketing for no return (unlike the real crooks – the pharmacy companies). You’re looking at the wrong place to fight, you should be fighting against Big Pharma and some of the bigger hospitals who price fix to keep their profits higher.

  2. Adam Linker

    November 28, 2011 at 1:15 pm

    The money used to pay commissions generally comes from premiums. From what other pot of money would commissions be paid? And it sounds like you still have access to a broker. The NAIC could have passed a resolution accommodating agents while protecting consumers. Instead they only protected agents while ignoring the arguments of consumers.

  3. Adam Searing

    November 28, 2011 at 2:12 pm

    If insurance companies have to make a little less $$ so agents get paid, that’s fine with me – just don’t take it out of consumer’s pockets! Agents provide a good service, but it just isn’t medical care.

  4. Adam Linker

    November 28, 2011 at 2:19 pm

    Absolutely, and the NAIC could have said as much in its resolution. It did not.

  5. Fred

    November 29, 2011 at 3:11 pm

    I have read with interest the comments made by AdamL and others regarding the recent NAIC passage of a Resolution to remove agent/broker commissions from the Medical Loss Ratio calculation and believe that you misunderstand Commissioner Goodwin’s position and why he took it, as well as the unintended consequences of this portion of the MLR rule.

    Commissioner Goodwin’s administration has saved more than $1 Billion for consumers and has no plans to stop. Also, you need to understand ,that by statute he is required to strike a delicate balance to protect consumers, ensure consumer access to insurance, and to ensure a solvent, competitive market and in my opinion has fullfilled his duties in this case.

    Many supporting the existing MLR rule contend that removing agent compensation from the equation will cost consumers billions of dollars in rebates from insurance companies. These interests fail to account for the valuable services agents and brokers provide, which are being lost because of the MLR provision. If an auto manufacturer offers a rebate on a car, consumers would obviously expect to receive the same vehicle they would have gotten had there been no rebate, not one with faulty steering and no brakes. The fact that consumers could receive rebates does not make up for the fact that they may no longer be able to count on insurance professionals to help them choose their coverage, enroll employees, help with claims and other problems, and provide vital human resources functions. Also, as insurance companies abandon markets or scale back their product offerings, consumers will no longer have access to the same coverages or plans as in the past. These MLR advocates also fail to account for premium increases that may be driven by the MLR rule. They ignore the fact that without agents to help consumers get proper coverage, sort out claims, and fix other problems,
    people are likely to spend much more of their own time on these tasks or, in some cases, give in and pay for claims errors that their insurance should cover.

    The Department of Health and Human Services recognizes that the MLR provision can disrupt insurance markets and harm consumers. That is why HHS has granted MLR rule waivers to five states. Maine was the firstto obtain a waiver following an arduous six-month application and review process. Several other states received waivers only after HHS significantly modified their requests. To date, seven other states have applied for relief, and one of those, North Dakota, has had its request denied. The waiver process is an imperfect solution. First, it requires states to spend scarce resources to argue their cases to HHS officials in Washington. Then, the waivers, if they are granted, offer only partial relief. They are temporary and cover only some segments of the health insurance market.
    Fortunately, there is a simple way to fix the MLR problem once and for all.

    Under current law, some costs, including federal and state taxes, count as “pass-throughs” for the MLR equation. They do not count on either the medical/quality side or the administrative/profits side. It makes perfect sense to count agent compensation, which pays for so much more than simply selling and administering policies, the same way.
    Some members of Congress have taken notice. Sen. Mary Landrieu (D-La.)wrote HHS Secretary Kathleen Sebelius urging the agency to “delay the inclusion of agent compensation in the calculation of the MLR” and offering to work on an “appropriate legislative solution” to fix the MLR permanently. Reps. Mike Rogers (R-Mich.) and John Barrow (D-Ga.) have proposed
    bipartisan legislation (HR 1206) that would exclude agent commissions from the MLR calculation. The bill has more than 100 cosponsors in the House of Representatives, agent groups have encouraged members of the Senate to introduce a companion bill. An
    influential group of state lawmakers, the National Conference of Insurance Legislators (NCOIL), passed a formal resolution urging Congress to enact the Rogers-Barrow legislation and calling on state governors, insurance commissioners and legislators to contact their congressional delegations on behalf of the bill.

    Of course, congressional action would not be necessary if HHS would simply reconsider the MLR rule. Nothing in the PPACA says agent compensation must be included in the MLR. Now that so many unintended consequences have come to light, HHS could and should revise the rule to treat agent compensation as a pass-through.

    Even President Obama has acknowledged that parts of the national health care law are flawed. In his State of the Union he said “anything can be improved.” It’s time for government, whether it be elected members of
    Congress or officials at HHS, to step up and fix the broken MLR rule. Brokers and their staffs are losing their jobs. Consumers already have fewer health care choices and are losing access to quality customer service.

    I cannot imagine what the damage has been to agents nationwide. We’ve lost valuable people because of this misunderstood – and maybe well-intentioned – action on MLRs. It will take us a long time to get back to where we were service-wise. But fixing the MLR rule is an important first step.

    I would be happy to provide more infromation to anyone that is truly trying to understand the full impact of PPACA and in particular the MLR rule that on the surface some believe restrains insurance companies from overcharging for insurance coverage to pad their profits, when in fact the subject is far more complicated than that. Our REAL problem is the cost of HEALTH CARE in this country, not how we finance it, whether through private industry or through the government through mine and your taxes.

    Read more: http://bluenc.com/insurance-commissioners-got-you-turkey-thanksgiving#comment-144080#ixzz1f7wLl69R

  6. Jessica

    November 29, 2011 at 11:55 pm

    I’ve read with interest Adam’s comments on this blog, and I feel that there is a fundamental misunderstanding being conveyed here. It seems that he feels that agent and broker commissions are making health insuracne premiums higher. Actually agent and broker commissions have nothing to do with how health insurance premium rates are determined. Premiums are set by a wide variety of factors, the most of important of which is the cost of medical care. The agent and broker commission is a set fee tacked on to the premium at the end of the process, similar to state and federal taxes. The commission is never part of the insurance carrier’s revenue stream, but is merely a pass-through expense. It is billed that way both as a consumer convenience and as a means of complying with state premium tax and consumer-protection laws.

    There is also no evidence that the MLR requirements will lower health insurance premiums. In the states that have already tried loss ratio caps, premiums and health care costs are not lower and health care quality is not better. Instead, these requirements actually discourage health plan investments in programs that generate long-term medical care cost savings and improve health care quality. Also, many administrative functions performed by insurers, such as providing customer service lines and processing claims, are largely fixed costs. These fixed costs are a very small percentage of the premiums of higher-cost policies, so the new MLR requirements may perversely incent carriers to offer higherpremium plan choices rather than lower cost options.

    Commissioner Goodwin very carefully considered his obligation to all stakeholders with regard to the recent NAIC action. I believe he did all health insurance consumers a true service by his vote in support of the resolution.

  7. Mel

    November 30, 2011 at 8:38 am

    Adam portrays the Commissioner’s vote as being anti-consumer because he supported exempting agent commissions from the MLR requirements. The truth is that the commissioner was voting in favor of consumer protections be insuring that they have access to high quality health insurance agents. Ask any consumer who has had a claim denied wrongly about the value that the agent had when he/she waded through the bureaucratic morass and got the care paid for by the insurer. Or ask the consumer who purchased a health policy online without an agent and ended up with less coverage than he thought he was getting. Medical insurance commissions do not account for as much of the premium as many think but the agents have a vested interest in working on behalf of clients.
    If you get rid of agents which would be the result not exempting their commissions from the MLR the consumer will be left with either an insurance company employee who will have little time for that consumer or a government employee such as envisioned by the navigator clause in the PPACA. Having dealt with government employees at the IRS trying to resolve a payroll tax issue, and having tried and failed to get my father Social Security disability benefits I would prefer to deal with someone who has a financial stake in solving my problems.

  8. AdamL

    November 30, 2011 at 11:32 am

    Thank you for your comments agent and broker representatives. I still haven’t heard any arguments against surveying consumers and monitoring their responses over time to see if their access to agents and brokers has suffered from the MLR requirements. If you are right, Mel, then the results will show that consumers are desperate for the services of a broker and they can’t find one.

    I also have not seen an argument against passing a resolution that keeps consumers whole, which the NAIC recommendation does not do. The MLR rule should not be changed. But if it is changed there are a number of options available that will lessen the impact on consumers. The NAIC recommended the worst possible options.

    Fred, it’s not the mission of the Department of Insurance to ensure that brokers and agents remain profitable. The Department protects consumers, ensures that insurance companies are solvent, regulates insurers and brokers, etc. If consumers and insurance companies see value in the services of brokers then they will pay for the service.

    Also, the MLR waivers are primarily being granted, not because of great disruptions to the market, but because of political pressure from agents. In North Carolina, for example, the MLR rule will not drastically disrupt the individual market because Blue Cross is the dominant player and Blue Cross meets the minimum MLR requirements. By definition MLR will only touch a small slice of the market.

  9. Fred

    December 1, 2011 at 1:11 pm

    Adam , your statement “it’s not the mission of the Department of Insurance to ensure that brokers and agents remain profitable.” is correct, but you missed the point of the other part of his responsibilities, which is to strike a delicate balance to protect consumers and ensure consumer access to insurance . The result of the the MLR Rule and Caculation, by including agent compensation in the 20 or 15% has resulted in decreased revenue to agents and as a result many have gotten out of the health insurance business or have been forced to offer less service and access by the consumer to the advice, councel and service that agents provide. Do you really believe that a consumer is best served by having only an “800” to call when they need advice and assistance ???

  10. AdamL

    December 1, 2011 at 2:39 pm

    Fred, you are missing the point that lost revenue for agents does not necessarily mean that consumers are having trouble accessing agents and brokers. I’ll suggest again what I suggested to Commissioner Goodwin, we should survey consumers and monitor their responses over time to see if people are having trouble with access.

  11. Fred

    December 2, 2011 at 2:41 pm


    This process of consumers having access to agents is and will be an evolutionary process that will excelerate over time to the point that consumers will only have an “800” number to call. No survey today will reveal what will happen in the future. We are already seeing the changes occur and will only continue.

  12. AdamL

    December 2, 2011 at 2:52 pm

    Interesting claim. Now let’s see the objective data. Maybe it will support your opinion or maybe it won’t.

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