State regulators’ vote puts a key consumer protection at risk
By Consumers Union on Friday, July 1st, 2011
In a huge disappointment for consumers, a task force of state insurance regulators voted today to support a Congressional bill that would gut a key consumer protection of the Affordable Care Act, known as the medical loss ratio rule.
As we’ve explained before, the medical loss ratio rule requires insurers to spend at least 80 percent of their premium revenue on healthcare claims and quality improvement costs (85 percent for large groups). Insurers who miss this target are required to rebate the difference to consumers, beginning with this year.
The rule is designed to push insurers to operate more efficiently by reining in adminstrative expenses and profits and will help temper some of those drastic rate hikes we’ve seen for the past several years. Had the provision been in effect for 2010, insurers would have had to rebate almost $2 billion to consumers.
But a task force of the National Association of Insurance Commissioners (NAIC) voted to support HR 1206 (Rogers), which would remove broker commissions from the administrative side of the equation, meaning that less of your premium dollars will actually go toward medical care. We’ve seen insurers typically pay 5% to 10% of premium revenue for agent or broker commissions. This bill would remove that amount from the minimum loss ratio calculation. It doesn’t take a mathematician to see that this would blow a large hole in this consumer protection by allowing insurers to pocket much more for administration and profit than the ACA intended.
Consumer representatives to the NAIC, including Lynn Quincy from Consumers Union, said the task force vote “is not supported by the evidence and not in the interest of consumers.” Moreover, by removing broker commissions from the loss ratio equation, the Rogers bill “would cost consumers $1.27 billion in rebates. It would also take the pressure off of insurers to reduce premiums.” You can read more information about the issue and the full statement by the NAIC consumer representatives here.
The NAIC task force’s support gives the bill more momentum and means consumers need to voice their opposition even louder. The NAIC Executive Committee will decide next whether to approve the task force decision. Consumer representatives have called on the full NAIC, which includes insurance commissioners from all states, to reject the task force recommendation.
Consumers Union will be fighting to defeat this bill and keep the medical loss ratio rule as it is, and we will ask you to join us as we work to make sure you get a fair shake on health insurance.