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Boston Massacre

The Democrats’ healthcare reform initiative may have been thwarted by the election of a 41st Republican senator, but brokers still face some serious threats to their business.

By  Joel Wood

If you’re not at the table in Washington, the saying goes, you’re on the menu. Certainly, that’s true of The Council’s intensive work protecting the broker role in the insurance marketplace throughout the health reform debate. In addition to the many threats to the employer-provided group health insurance environment generally, there were specific knives out for brokers.

Some of these threats came at us unexpectedly, but they all grew out of the “Hillary Care” debates of 1993–94. That legislation would have created “Health Insurance Purchasing Cooperatives,” which presumed that intermediaries could be supplanted—whacking, on average, a couple of percentage points off of all health insurance transactions. The allure is understandable. Casting aside the value proposition, brokers are not healthcare providers and are, in fact, an “administrative expense.” But to cut out the broker is to assume there will be no marketing of health insurance and that government can do it better and more efficiently. Please.

While the Clinton health plan never came close, the Obama effort came within days of what was widely expected to be enactment—until Scott Brown and his Boston Massacre. The drama and irony of the Massachusetts nightmare for Democrats—arguably the biggest public policy agenda item of two generations headed for passage, and then the late Sen. Ted Kennedy’s, D- Mass., seat being lost—have left Democrats reeling.

In early February, the president and congressional leaders were keeping open the possibility of comprehensive reform. They possess legitimate parliamentary tools to do so, if only they could unite their own caucuses. But the consensus—to the extent such a thing exists in Washington—is that reforms will be scaled back.

In the hundreds of conversations I’ve had with Council member executives in the past year, the overwhelming concern is reform’s impact on clients. But it’s worth revisiting the broker issues because the threat—even of “incremental” bills—remains.

Under the legislation first introduced in the three major committees of the House and in the Senate Health, Education, Labor and Pensions Committee, all subsidized products in insurance exchanges could be sold by unlicensed trade associations and labor unions. Thanks to Blue Dog Democrats in the House and Sen. Orrin Hatch, R-Utah, we successfully had language included to ensure that licensed insurance intermediaries could sell products in exchanges. But…good grief.

When Majority Leader Harry Reid, D-Nev., introduced his “combined” bill for Senate consideration, it had a provision never before aired for congressional consideration: The Department of Health and Human Services would regulate broker compensation on health insurance products. Even though the Senate bill promoted the creation of state-based exchanges, the feds would regulate broker comp within those exchanges.

Sen. Ben Nelson, D-Neb., has taken unfair lumps for the now-infamous Nebraska carve-out. The guy was trying to eliminate unfunded mandates for all states, and he had a list of other requirements to secure his vote. He was successful on most of his list (vastly improving the bill), and Reid offered to exclude Nelson’s home state from the mandates, opening the door for a broader exemption in a House-Senate conference. We will forever be grateful that eliminating the Reid/HHS provision was among Nelson’s agenda items. Thanks also to the intervention of Sens. Bill Nelson, D-Fla., and Michael Bennet, D-Colo.

The House-passed bill called for a single, national insurance exchange. While it didn’t have explicit broker comp language, HHS was to establish “marketing rules.” We know what that means. The House bill also tasked the Small Business Administration to develop its own marketing for products sold through exchanges. What are the chances that SBA bureaucrats would do a better job than brokers helping clients meet health insurance needs?

Finally, the legislation contained the price-control element of maximum medical loss ratios (MLRs) for health plans, putting the squeeze on administrative costs. While such costs should be alleviated, federal price controls don’t assure efficiency. Much of what is considered administrative expense, for example, is the check and balance against provider fraud. For the group plans typically brokered by Council member firms, we don’t worry too much about an MLR of 85% as much as we philosophically disagree with the concept. But the Senate bill included a provision relieving nonprofit plans that met a 92% MLR from new taxes. It’s difficult to imagine how this would affect the market, but it surely could skew things, especially if for-profit plans feel compelled to fall in line.

Until the Massachusetts election, the consensus among Democrats had been that the political consequences of failing to pass a bill were greater than the consequences of passing something bad. In the past month, they’ve had to recalibrate. They’re off balance politically, but their majorities remain strong. We didn’t win on our broker issues because we issued white papers and philosophical treatises to Congress. We did it by head-on, old-fashioned political activism. The threats to broker interests have been percolating for 18 years now. They’re not going away.

Nor are we.

Wood is The Council’s senior vice president of Government Affairs.

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