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Health insurance regulators delay decision on medical loss ratio calculations Posted: March 29th, 2011

By John Frook

A committee of the National Association of Insurance Commissioners (NAIC) postponed taking action on a resolution to exclude health insurance sales commissions from medical loss ratio (MLR) calculations on March 27, according to a National Underwriter report.

However, the debate over whether agent and broker compensation should be included in future MLR calculations is far from over.

The MLR controversy affects health insurance policy owners and other consumers because the outcome could determine where a sizable amount of premium payments are spent. Professionals who sell health insurance policies say current MLR formulas amount to an unfair penalty, while consumer advocates say inclusion of sales fees in MLR calculations would come at the expense of patient care.

MLR defined

Under the health care reform law, health insurance companies are required to spend 85 percent of large group insurance policy revenue, and 80 percent of individual and small group insurance policy revenue, on medical care or quality-of-care improvements. The calculations of those expenditures is the MLR.

Current MLR formulas typically include commissions. Agents and brokers say including commission in MLR calculations is unfair, and that health insurance companies have used the health care reform law's MLR provision as an excuse to slash commissions by as much as 50 percent. Agents and brokers want the NAIC to endorse the Access to Professional Health Insurance Advisors Act, which is sponsored by Rep. Mike Rogers (R-MI) and John Barrow (D-GA), and would exclude commissions from MLR calculations.

Consumer Watchdog, a Santa Monica, Calif.-based non-profit organization, says current MLR formulas are appropriate. Exclusion of agent and broker commissions as part of MLR calculation amounts to greater than $1 billion in benefits going to agents, brokers and health insurance companies instead of for the benefit of health insurance policyholders, according to Sen. John D. "Jay" Rockefeller (D-W.V). Along with Sen. Tom Harkin (D-Iowa), Sen. Rockefeller is among the most prominent opponents of the proposed change.

NAIC decision pending

The NAIC said Sunday that more information is needed to make a decision. The Professional Health Insurance Advisors Task Force, which is the part of the NAIC responsible for deciding whether to support Access to Professional Health Insurance Advisors Act, can meet again no sooner than late April.