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By Consumers Union on Friday, July 22nd, 2011

You’ve heard us talk about an important provision in the new health law that makes sure your insurance premiums are spent on actual healthcare, not just insurance company bureaucracy. This rule says insurers can’t spend more than 20 percent of your premium on administrative costs like advertising, salaries, and of course, profits. If insurers can’t meet the requirement, they’ll have to pay a rebate to policyholders!

But this new protection has been under attack for over a year, and a new House bill, H.R. 1206, sponsored by Rep. Mike Rogers of Michigan, aims to exempt agent and broker commissions from the calculation, effectively undermining the new rule before consumers reap the benefits.

With agents and brokers in full lobbying attack mode in support of the bill and consumer advocates pushing back, the National Association of Insurance Commissioners (NAIC) – an organization representing state insurance officials — studied the brokers’ claim that the new law has caused harm to the industry.

The resulting report was inconclusive, showing that some insurance companies had reduced agent compensation, but others had not. It did declare that consumers would be hurt by the proposed legislation, costing us some $1.27 billion in rebates. And the report found that by allowing insurance companies not to count commissions in their administrative costs, they wouldn’t have to take steps to reduce our premiums – one of the main goals of the new rule.

And, while not noted in the report, the Rogers bill would also increase the federal budget deficit, as the purchase of insurance is heavily subsidized by federal tax expenditures. Higher premiums would mean higher tax subsidies.

Disappointingly, in June, a task force of the NAIC voted to endorse the legislation, ignoring the NAIC’s own report that found potential harm to consumers. But we didn’t give up the fight. You helped send more than 10,000 emails and make numerous calls into NAIC members to stand up for consumers. In its next executive committee meeting, the NAIC declined to further pursue an endorsement of this worrisome legislation.

Thanks to consumers like you, prospects for the Rogers bill are dim at this point. Even if it is passed by the House, it is unlikely to be taken up by the Senate. However, congressional leaders and HHS officials are considering alternatives that still may impact efforts to keep premiums in check, so we’ll be watching closely and calling on you again to make sure this new common-sense consumer protection gets a chance to work for you.

 

 

 

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