The MLR is a perverse disincentive
for plans to reduce their costs.
Nobody’s good at breaking bad news, though lobbyists
might be the worst of all. Amid all the post-election punditry,
crickets were the only sound that could be heard on the subject
of legislation that would carve out agent/broker compensation
from the minimum medical loss ratio requirement under the
Affordable Care Act.
If you’re looking to Congress to restore health
insurance commissions to their pre-Obamacare days, you’re
not going to be happy. Lobbyists can do much to influence the
benefits marketplace for agents and brokers and clients, but
rolling the president of the United States and the Senate
majority leader aren’t on our can-do list.
Here’s the deal: Many provisions of the Affordable
Care Act egregiously undermine the employer-sponsored health
insurance market. None take such specific aim at brokers as the
MLR ratio, which requires that health plans pay out most of
their premiums for healthcare—80% for groups up to 100
employees and 85% for groups of more than 100. This means
profits, administrative costs, and marketing costs all have to
be contained within 15% to 20%. During legislative
consideration of the act, some Democrats wanted the number to
We and our allies within the agent/broker community went to
work to exempt producer compensation from the MLR calculation.
We found two excellent champions in the House of
Representatives—Mike Rogers, R-Mich., and John Barrow,
D-Ga.—to author legislation on the subject. In the
Senate, we persuaded Mary Landrieu, D-La., and Johnny Isakson,
R-Ga., to do the same. We lined up nearly 200 co-sponsors in
the House. We created a perception that this was a winnable
issue. After all, congressional Democrats may disdain insurance
companies, but everybody tries to please insurance agents and
The effort, however, was predicated on the GOP reclaiming
control of the Senate. This was a pretty good bet a year ago,
as Democrats were defending 23 seats in the 2012 election and
Republicans defending only 10—in a lousy economy with a
cranky electorate. When the dust settled on Nov. 7, though,
Democrats had picked up two seats in the Senate.
Sure, it was a status quo election, but the Senate outcome
was devastating—a combination of bad luck, political
miscalculations, and a bevy of Tea Party–backed losers.
Maybe the Lord was speaking to Todd Akin and Richard Mourdock,
but He wasn’t leading them to victory.
Only two days after the election, the Congressional Budget
Office released its estimate that removing agent/broker comp
from the MLR would cost taxpayers (policyholders) $1 billion
dollars over the course of 10 years. It was a stunning number,
bogus on many levels. But if we are to pass the legislation,
we’d most likely have to gore somebody else’s ox to
the tune of a billion bucks.
Senate Majority Leader Harry Reid and the White House
don’t like the legislation to begin with. With a nasty
“score” from the CBO, there’s no chance
they’ll let it advance to the Senate floor. Agents and
brokers have plenty of influence in Congress, but the MLR is
Exhibit A in the polarization in Washington on health benefits
issues. The rubber hit the road in an October markup of the
legislation in the House Energy & Commerce Committee. In a
party-line vote, Barrow was the only Democrat to support the
I’ve spoken to scores of audiences at Council member
firms over the past couple of years, and the MLR issue is never
the first issue raised. Council members are far more interested
in the broader implications of the future of employer-sponsored
health insurance. I can say with confidence that their
paramount concern is their clients’ interests, not their
cut of the health premium pie.
The compensation genie is out of the bottle. Plans are
experimenting with fee arrangements that bypass the MLR. I hear
from many brokers, too, that plans have used the MLR law as an
excuse to reduce marketing costs regardless of the value of
brokerage services. Even with all the uncertainty surrounding
the Affordable Care Act, benefits divisions of Council member
firms are busier than ever and often more successful than ever.
The MLR hasn’t halted M&A activity by any
Perhaps in the context of broader reforms, there could be an
opportunity to deal with the MLR, but it’s Pollyannish to
predict it in the near future. Then-White House health czar
(and now deputy chief of staff) Nancy Ann DeParle said it
openly in a speech to the U.S. Chamber of Commerce in 2009: One
of the reasons to pass healthcare reform is to incentivize
disintermediation. This White House isn’t going to take
its foot off that accelerator.
The better selling point on the MLR is that it, like so many
other areas of Obamacare, is really nothing more than another
government cost control—in the end, a perverse
disincentive for plans to reduce their costs. After all, the
bigger the premium, the easier it is to make the 80% or 85%
numbers work. The MLR is a pathetic substitute for actually
bending the healthcare cost curve.