[House Report 112-694]
[From the U.S. Government Publishing Office]
112th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 112-694
======================================================================
ACCESS TO PROFESSIONAL HEALTH INSURANCE ADVISORS ACT OF 2011
_______
November 15, 2012.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Upton, from the Committee on Energy and Commerce, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 1206]
[Including cost estimate of the Congressional Budget Office]
The Committee on Energy and Commerce, to whom was referred
the bill (H.R. 1206) to amend title XXVII of the Public Health
Service Act to preserve consumer and employer access to
licensed independent insurance producers, having considered the
same, report favorably thereon without amendment and recommend
that the bill do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for Legislation.............................. 2
Hearings......................................................... 3
Committee Consideration.......................................... 4
Committee Votes.................................................. 4
Committee Oversight Findings..................................... 6
Statement of General Performance Goals and Objectives............ 6
New Budget Authority, Entitlement Authority, and Tax Expenditures 6
Earmarks, Limited Tax Benefits, and Limited Tariff Benefits...... 6
Committee Cost Estimate.......................................... 6
Congressional Budget Office Estimate............................. 6
Federal Mandates Statement....................................... 10
Advisory Committee Statement..................................... 11
Applicability to Legislative Branch.............................. 11
Section-by-Section Analysis of the Legislation................... 11
Changes in Existing Law Made by the Bill, as Reported............ 11
Dissenting Views................................................. 14
Purpose and Summary
H.R. 1206, the ``Access to Professional Health Insurance
Advisors Act,'' was introduced on March 17, 2011, by Rep. Mike
Rogers (R-MI) and was referred to the Committee on Energy and
Commerce.
The purpose of H.R. 1206 is to reduce the economic harm and
reduced access to agent and broker services caused by the
Patient Protection and Affordable Care Act's (PPACA) medical
loss ratio (MLR) provision on the nation's health insurance
agent and broker community.
Background and Need for Legislation
Section 1001 of the PPACA requires health plans to spend 80
to 85 percent of premium revenue on ``reimbursements for
clinical services'' and ``activities that improve health care
quality.'' The MLR requirement excludes Federal taxes, State
taxes, and licensing and regulatory fees from the premium
portion of the calculation. On December 1, 2010, the Department
of Health and Human Services (HHS) issued regulations defining
approved activities that ``improve health care quality'' and
altering the statutory definition of taxes for purposes of
enforcing the MLR requirement.
By providing HHS the authority to define ``activities that
improve health care quality,'' the underlying MLR provision
gives HHS unprecedented control over the design of private
health insurance coverage, irrespective of consumer health care
preferences. Health care providers also have raised concerns
that the MLR requirement severely limits investment in programs
and initiatives to reduce fraudulent payments for services,
improve health care quality, and advance better care
coordination by classifying such investments as administrative
costs.
The MLR provision and associated regulation also have major
economic consequences for independent insurance agents,
brokers, and health benefit specialists. Brokers and agents
provide critical support and educational services to
individuals and employers seeking affordable health coverage
and help ensure plans meet a consumer's specific needs. Yet,
the MLR requirement includes independent agent and broker fees
in an insurer's MLR calculation and classifies fees as an
insurer-borne administrative expense. Thus, compensation paid
to agents and brokers is penalized by the MLR.
The CEO of the National Association of Health Underwriters
(NAHU) has testified that brokers servicing the individual and
small-business markets are seeing revenue slashed by 20 to 50
percent. NAHU survey data also indicate that the MLR will force
21 percent of agents to downsize their business as a result.
The National Association of Insurance Commissioners (NAIC)
also has recognized the harmful consequences of PPACA's MLR
requirement on the health insurance agent and broker community.
The NAIC passed a resolution in November 2011 asking Congress
to take legislative action to reduce the adverse impact on
agents and brokers associated with the MLR requirement. The
NAIC resolution stated:
We are very concerned about the impact the MLR
requirement could have on the ability of insurance
agents and brokers to continue assisting health
insurance consumers at a time of rapid changes that
makes their role even more essential. . . . Congress
should expeditiously consider legislation amending the
MLR provisions of the PPACA in order to preserve
consumer access to agents and brokers . . . and [HHS]
should take whatever immediate actions are available to
mitigate the adverse effects the MLR rule. . . .
H.R. 1206 amends the MLR requirement to exclude
remuneration paid to licensed independent insurance producers
from the premium portion of the MLR calculation. H.R. 1206
defines licensed independent insurance producers as an
insurance agent or broker, insurance consultant, benefit
specialist, limited insurance representative, and any other
person required to be licensed under the laws of the particular
State to sell, solicit, negotiate, service, effect, procure,
renew or bind policies of insurance coverage or offer advice,
counsel, opinions, or services related to insurance.
H.R. 1206 also requires HHS to defer to a State's findings
and determinations as to whether enforcing the MLR requirement
will destabilize their respective individual or small group
markets for health insurance. To date, HHS has partially or
fully denied MLR waivers for 17 of the 18 States that have
applied for an MLR adjustment. HHS has denied waivers despite
findings from individual state insurance commissioner that
without a waiver, the individual health insurance market could
destabilize significantly and consumer choice in health plans
could be limited severely.
Hearings
The Subcommittee on Health held a hearing on June 2, 2011,
related to the regulatory burden associated with PPACA. The
Subcommittee received testimony from:
Steve Larsen, Director, Center for Consumer
Information and Insurance Oversight, Centers for
Medicare and Medicaid Services;
Scott Harrington, Ph.D., Professor of Health
Care Management and Insurance and Risk Management,
Wharton School, University of Pennsylvania;
Janet Trautwein, CEO, NAHU;
Randi Reichel, Esq., Counsel, Mitchell,
Williams, Selig, Gates & Woodyard, P.L.L.C. on behalf
of America's Health Insurance Plans;
Edward Fensholt, Senior Vice President,
Lockton Benefits Group;
Katherine Hayes, Associate Research
Professor, Department of Health Policy, George
Washington University School of Public Health and
Health Services; and
Terry Gardiner, Vice President, Policy and
Strategy, Small Business Majority.
The Subcommittee on Health held a hearing on September 15,
2011, related to the regulatory burden associated with PPACA.
The Subcommittee received testimony from:
Steve Larsen, Director, Center for Consumer
Information and Insurance Oversight, Centers for
Medicare and Medicaid Services;
Janet Trautwein, CEO, NAHU;
Grace-Marie Turner, President, The Galen
Institute;
Edmund Haislmaier, Senior Research Fellow,
Health Policy Studies, The Heritage Foundation;
Lynn Bates Quincy, Senior Policy Analyst,
Consumer Union; and
Wendell Blaine Potter, Senior Analyst, The
Center for Public Integrity.
Committee Consideration
On September 11, 2012, the Subcommittee on Health met in
open markup session and approved H.R. 1206 for full Committee
consideration by a voice vote.
On September 20, 2012, the Energy and Commerce Committee
met in open markup session and favorably reported H.R. 1206 by
a recorded vote of 26-14.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. A
motion by Mr. Upton to order H.R. 1206 reported to the House,
without amendment, was agreed to by a record vote of 26 ayes
and 14 nays. The following reflects the recorded votes taken
during the Committee consideration:
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee held a legislative
hearing and made findings that are reflected in this report.
Statement of General Performance Goals and Objectives
The goal of H.R. 1206 is to reduce the economic harm
imposed by the Patient Protection and Affordable Care Act's
(PPACA) medical loss ratio (MLR) provision on the nation's
health insurance agent and broker community.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee finds that H.R.
1206, the ``Access to Professional Health Insurance Advisors
Act'' would result in no new or increased budget authority,
entitlement authority, or tax expenditures or revenues.
Earmarks, Limited Tax Benefits, and Limited Tariff Benefits
In compliance with clause 9(e), 9(f), and 9(g) of rule XXI
of the Rules of the House of Representatives, the Committee
finds that H.R. 1206, the ``Access to Professional Health
Insurance Advisors Act,'' contains no earmarks, limited tax
benefits, or limited tariff benefits.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimate
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, November 7, 2012.
Hon. Fred Upton,
Chairman, Committee on Energy and Commerce,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1206, the Access
to Professional Health Insurance Advisors Act of 2011.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Julia
Mitchell.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 1206--Access to Professional Health Insurance Advisors Act of 2011
Summary: H.R. 1206 would amend current law to exclude
compensation paid to insurance agents and brokers from the
administrative expenses used to determine the calculation of
the medical loss ratio (MLR) for health insurance plans. The
bill also would make waivers of certain requirements under the
MLR rules easier for states to obtain by requiring the
Secretary of the Department of Health and Human Services (HHS)
to defer to a state's findings that the application of those
rules would destabilize the state's insurance market. Finally,
the legislation would extend the availability of such waivers
in other ways.
CBO and the staff of the Joint Committee on Taxation (JCT)
estimate that enacting H.R. 1206 would increase deficits by
$531 million over the 2013-2017 period and by about $1.1
billion over the 2013-2022 period. Of this increase in the
deficit, $127 million would be a decline in off-budget Social
Security revenues between 2013 and 2022. Pay-as-you-go
procedures apply because enacting the legislation would affect
direct spending and revenues.
The bill contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 1206 is shown in the following table.
The costs of this legislation fall within budget function 550
(health).
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By fiscal year, in millions of dollars--
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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013-2017 2013-2022
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CHANGES IN DIRECT SPENDING
Estimated Budget Authority........................ 0 12 77 89 58 41 39 41 43 46 236 447
Estimated Outlays................................. 0 12 77 89 58 41 39 41 43 46 236 447
CHANGES IN REVENUES
Estimated Revenues................................ 0 -22 -92 -97 -84 -72 -71 -75 -79 -83 -295 -675
NET INCREASE OR DECREASE (-) IN THE DEFICIT
Deficit Impact.................................... 0 34 169 185 143 113 110 116 123 129 531 1,122
On-Budget..................................... 0 30 154 169 128 99 96 101 106 112 481 995
Off-Budget\a\................................. 0 3 15 16 15 14 14 15 16 17 50 127
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Note: Numbers may not sum to totals because of rounding.
\a\All off-budget effects would come from changes in revenues. (The payroll taxes for Social Security are classified as ``off-budget.'')
Background: Under current law, fully insured health plans
are required to provide rebates to enrollees to the extent that
the insurer's medical loss ratio is below a specified
percentage. A medical loss ratio is equal to spending on health
care and quality improvements as a fraction of total premiums
earned.\1\
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\1\Earned premiums are total premiums received by an insurer net of
any taxes, licensing, and regulatory fees paid by the insurer and after
accounting for payments or receipts for risk adjustment, risk
corridors, and reinsurance.
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The MLR is calculated by adding spending for medical claims
and quality improvement activities together and dividing by
earned premiums. Individual and small group market plans are
required to have an MLR of at least 80 percent, and large group
plans are required to have an MLR of at least 85 percent.\2\
Administrative expenses, including compensation paid to
insurance agents and brokers, as well as insurer profits
account for the remaining 15 percent to 20 percent (or less) of
earned premiums. The Secretary of HHS has the authority to
temporarily waive the requirement that insurers achieve an MLR
of at least 80 percent in the individual market if she
determines that enforcing the statutory MLR would destabilize
that market. Such waivers are granted on a state-by-state basis
and give states additional time to comply with the required
threshold. For 2011, 17 states applied for waivers and 7 states
were granted them.\3\ (Of those 7 waivers granted, 4 included
modifications for 2012 as well as for 2011. No additional
applications for waivers were submitted for 2012.)
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\2\Small group plans are generally defined as plans with 1 to 100
employees, but a state may substitute ``50'' employees for ``100''
employees until 2016.
\3\See: http://www.cciio.cms.gov/programs/marketreforms/mlr/state-
mlr-adj-requests.html.
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Starting in 2012, plans that do not meet the required MLR
standards in the previous year must pay a rebate to each
enrollee. Such rebates are equal to the amount by which the
applicable MLR standard exceeds the insurer's actual MLR
multiplied by earned premiums. According to HHS, insurers have
provided enrollees with rebates this year that totaled
approximately $1.1 billion.\4\ Rebates may be provided as a
reduction in premiums or reimbursed directly to enrollees. (CBO
incorporates estimated rebate amounts in its projections of
health insurance premiums.)
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\4\Of that $1.1 billion, individual market rebates equaled $394
million, small group market rebates equaled $321 million, and large
group market rebates equaled $386 million. See: http://
www.healthcare.gov/law/resources/reports/mlr-rebates06212012a.html.
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To avoid incurring rebates, insurers can increase their MLR
by reducing administrative costs or profits, increasing
spending on medical benefits or quality improvement activities,
or a combination of both. As a result of those changes,
premiums could be lower, higher, or about equal to the levels
that would occur in the absence of the MLR policy. In CBO's
judgment, informed by discussion with outside experts, premiums
are probably lower under the MLR policy than they would have
been otherwise.
For 2011 and 2012, CBO estimated the magnitude of the
reduction in premiums resulting from the MLR policy. That
estimate draws on insurance industry data and is based on two
factors: actual rebates in 2012, and evidence that insurance
carriers reduced administrative costs (in large part by
reducing agent and broker compensation).
Beyond 2012, in CBO's judgment, the MLR policy under
current law will continue to have the effect of reducing
premiums relative to those in the absence of that policy. Over
time, however, CBO expects that the reduction in premiums will
be attenuated. Starting in 2014, a three-year moving average,
rather than annual data, will be used to calculate the MLR,
making the MLR targets easier to achieve. In addition, CBO
expects that there is an increasing probability that insurers
will make changes--such as increasing spending on medical
benefits or quality improvement activities--that will push
premiums upward.
Overall, CBO estimates that the MLR requirements under
current law will reduce premiums by about one-half of a
percent, on average, over the next few years, declining to
approximately one-tenth of a percent by the end of the 10-year
projection period.\5\
---------------------------------------------------------------------------
\5\While CBO estimates that the MLR policy will reduce premiums
relative to those in the absence of the policy, many other factors also
affect premiums. On net, CBO estimates that the combination of those
factors will result in rising premiums overtime.
---------------------------------------------------------------------------
Basis of estimate: H.R. 1206 would exclude fees,
commissions, and rebates paid to licensed independent insurance
agents and brokers (or other individuals licensed by the state
to sell or assist in the sale or renewal of insurance) from
administrative expenses for the calculation of the medical loss
ratio of a health insurance plan. The bill also would change
the rules for consideration of state requests for waivers in
ways that would make those waivers easier to obtain. In
addition, the bill would allow states to request waivers for
the small group market. For this estimate, CBO assumes that the
legislation would be enacted near the end of 2012 and become
effective for plan years that begin at the start of 2014.
Under H.R. 1206, agent and broker compensation would no
longer be considered an administrative expense for the purpose
of calculating MLRs, making the MLR requirements easier for
plans to achieve. By making these targets easier to achieve,
H.R. 1206 would reduce the number of plans required to pay
rebates and the amount of rebates paid.
CBO estimates that removing agent and broker compensation
from the MLR calculation would initially reduce rebates by
between 60 percent to 70 percent, declining to between 40
percent and 50 percent by the end of the 2013-2022 period.
Because MLR requirements would be easier to achieve under H.R.
1206, insurers would have less incentive to reduce
administrative costs than under current law, CBO estimates.
Both of these effects are expected to result in an increase in
premiums relative to current law.
H.R. 1206 would also increase the probability that more
states would be able to waive or obtain modifications to the
MLR requirements because the Secretary of HHS would have to
defer to a state's own assessment of market destabilization.
The estimate incorporates increased waiver activity in the
individual market and new waivers in the small group market in
a smaller number of states. Because waivers allow plans to face
lower MLR thresholds, increased waivers are also expected to
increase net premiums.
Overall, CBO assumes that enacting H.R. 1206 would have the
effect of increasing premiums by approximately two-tenths of a
percent on average over the next few years, declining to less
than one-tenth of a percent by the end of the 2013-2022 period.
Overall impact on Federal spending and revenues
According to CBO and JCT's estimates, enacting H.R. 1206
would increase direct spending by an estimated $236 million
over the 2013-2017 period and $447 million over the 2013-2022
period. Further, H.R. 1206 would reduce revenues by $295
million over the 2013-2017 period and $675 million over the
2013-2022 period. Off-budget (Social Security) revenues would
account for $127 million of that revenue reduction over the 10-
year period.
Direct spending
Because H.R. 1206 would increase private health insurance
premiums, CBO estimates that subsidies for health insurance
purchased through the exchanges would rise. Subsidies for
health insurance premiums are structured as refundable tax
credits; the portions of such credits that exceed taxpayers'
liabilities are classified as outlays, while the portions that
reduce tax payments are reflected in the budget as reductions
in revenues. CBO and JCT estimate that the outlay portion of
the increased payments for premium subsidies available through
exchanges would be $236 million over the 2013-2017 period and
$447 million over the 2013-2022 period.
Revenues
The effect of the bill on the cost of subsidies for
purchasing health insurance through exchanges would decrease
revenues by $22 million over the 2013-2017 period and $38
million over the 2013-2022 period, CBO and JCT estimate.
H.R. 1206 also would increase premiums for employer-based
health insurance. By increasing the share of employee
compensation furnished as tax-excluded health benefits rather
than as taxable wages and salaries, CBO and JCT estimate that
revenues will decrease by $637 million over the 2013-2022
period. Decreases in such wages and salaries lead to decreases
in both federal income tax and payroll taxes for Social
Security and Medicare.
Pay-As-You-Go considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget-reporting and enforcement
procedures for legislation affecting direct spending or
revenues. The net changes in outlays and revenues that are
subject to those pay-as-you-go procedures are shown in the
following table. Only on-budget changes to outlays or revenues
are subject to pay-as-you-go procedures.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 1206, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON ENERGY AND COMMERCE ON SEPTEMBER 20, 2012
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By fiscal year, in millions of dollars--
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2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013-2017 2013-2022
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE OR DECREASE (-) IN THE ON-BUDGET DEFICIT
Statutory Pay-As-You-Go Impact.................... 0 30 154 169 128 99 96 101 106 112 481 995
Memorandum:
Changes in Outlays............................ 0 12 77 89 58 41 39 41 43 46 236 447
Changes in Revenues........................... 0 19 76 81 69 58 56 60 63 66 245 548
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Intergovernmental and private-sector impact: H.R. 1206
contains no intergovernmental or private-sector mandates as
defined in UMRA and would not affect the budgets of state,
local, or tribal governments.
Estimate prepared by: Federal Costs: Julia Mitchell, Sarah
Anders, and staff of the Joint Committee on Taxation; Impact on
State, Local, and Tribal Governments: Lisa Ramirez-Branum;
Impact on the Private Sector: Alexia Diorio.
Estimate approved by: Holly Harvey, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section cites the act as the ``Access to Professional
Health Insurance Advisors Act of 2011.''
Section 2. Findings
This section includes findings related to the importance of
the role of health insurance agents and brokers in our health
care system and the need to recognize and protect their
continued role.
Section 3. Protecting the ability of licensed independent insurance
producers to continue to serve the public
This section excludes remuneration paid to licensed
insurance producers from the premium portion of the MLR
calculation and requires HHS to defer to State findings and
determinations regarding destabilization of their respective
insurance markets.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italic and existing law in which no change is
proposed is shown in roman):
PUBLIC HEALTH SERVICE ACT
* * * * * * *
TITLE XXVII--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE
PART A--INDIVIDUAL AND GROUP MARKET REFORMS
* * * * * * *
Subpart II--Improving Coverage
* * * * * * *
SEC. 2718. BRINGING DOWN THE COST OF HEALTH CARE COVERAGE.
(a) Clear Accounting for Costs.--A health insurance issuer
offering group or individual health insurance coverage
(including a grandfathered health plan) shall, with respect to
each plan year, submit to the Secretary a report concerning the
ratio of the incurred loss (or incurred claims) plus the loss
adjustment expense (or change in contract reserves) to earned
premiums. Such report shall include the percentage of total
premium revenue, after accounting for collections or receipts
for risk adjustment and risk corridors and payments of
reinsurance, that such coverage expends--
(1) * * *
* * * * * * *
(3) on all other non-claims costs, including an
explanation of the nature of such costs, and excluding
Federal and State taxes, remuneration paid for licensed
independent insurance producers, and licensing or
regulatory fees.
* * * * * * *
(b) Ensuring That Consumers Receive Value for Their Premium
Payments.--
(1) Requirement to provide value for premium
payments.--
(A) Requirement.--Beginning not later than
January 1, 2011, a health insurance issuer
offering group or individual health insurance
coverage (including a grandfathered health
plan) shall, with respect to each plan year,
provide an annual rebate to each enrollee under
such coverage, on a pro rata basis, if the
ratio of the amount of premium revenue expended
by the issuer on costs described in paragraphs
(1) and (2) of subsection (a) to the total
amount of premium revenue (excluding Federal
and State taxes, remuneration paid for licensed
independent insurance producers, and licensing
or regulatory fees and after accounting for
payments or receipts for risk adjustment, risk
corridors, and reinsurance under sections 1341,
1342, and 1343 of the Patient Protection and
Affordable Care Act) for the plan year (except
as provided in subparagraph (B)(ii)), is less
than--
(i) * * *
(ii) with respect to a health
insurance issuer offering coverage in
the small group market or in the
individual market, 80 percent, or such
higher percentage as a State may by
regulation determine, except that the
Secretary may adjust such percentage
with respect to a State if the
Secretary determines that the
application of such 80 percent may
destabilize the individual market or
small group market in such State.
In the case of a State request for an
adjustment pursuant to clause (ii), the
Secretary shall defer to the State's findings
and determinations regarding destabilization.
(B) Rebate amount.--
(i) Calculation of amount.--The total
amount of an annual rebate required
under this paragraph shall be in an
amount equal to the product of--
(I) * * *
(II) the total amount of
premium revenue (excluding
Federal and State taxes,
remuneration paid for licensed
independent insurance
producers, and licensing or
regulatory fees and after
accounting for payments or
receipts for risk adjustment,
risk corridors, and reinsurance
under sections 1341, 1342, and
1343 of the Patient Protection
and Affordable Care Act) for
such plan year.
* * * * * * *
(d) Adjustments.--The Secretary may adjust the rates
described in subsection (b) if the Secretary determines
appropriate on account of the volatility of the individual
market or small group market due to the establishment of State
Exchanges.
* * * * * * *
(f) Independent Insurance Producer Remuneration
Definitions.--For purposes of this section:
(1) The term ``independent insurance producer'' means
an insurance agent or broker, insurance consultant,
benefit specialist, limited insurance representative,
and any other person required to be licensed under the
laws of the particular State to sell, solicit,
negotiate, service, effect, procure, renew or bind
policies of insurance coverage or offer advice,
counsel, opinions, or services related to insurance.
(2) The term ``remuneration'' means compensation paid
by or accrued from an insurance issuer or health plan
for services rendered under contractual agreement which
may include fees, commissions, or rebates.
DISSENTING VIEWS
We oppose the passage of H.R. 1206, the Access to
Professional Health Insurance Advisors Act of 2011, a bill to
amend title XXVII of the Public Health Service Act, as added by
section 1001(5) and amended by section 10101(f) of the
Affordable Care Act or ACA,\1\ relating to the calculation and
requirements of the medical loss ratio (MLR) of a health
insurance plan. Accordingly, we submit the following comments
to express our concerns that H.R. 1206 will undermine a
critical consumer protection provided Americans by the ACA and
will result in increased health care premiums for individuals,
families, and businesses.
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\1\The ACA is comprised of two public laws, P.L. 111-148 and P.L.
111-152.
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THE MEDICAL LOSS RATIO IS A CRITICAL CONSUMER PROTECTION
The ACA created new consumer protections to establish
greater transparency in the health insurance marketplace and to
encourage health insurers to deliver higher quality health care
at lower premiums. The law requires insurance companies to
publicly disclose the proportion of premium revenues spent on
health care benefits and quality improvement as opposed to
profits, marketing and other administrative costs, which is
called the medical loss ratio (MLR). For the first time,
insurers are also required to meet minimum MLR standards
established by the ACA of spending 80 to 85 cents of each
premium dollar on medical care or quality to ensure that
consumers receive value for their premium dollar.\2\ If an
insurance company spends less than 80 cents of each premium
dollar on medical benefits or quality (85% for large group
market insurers), they must issue rebates to consumers by
August 1 each year.\3\
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\2\The Public Health Service Act, Section 2718, as added by section
1001(5) of the Patient Protection and Affordable Care Act and amended
by section 10101(f) of the Health Care and Education Reconciliation Act
of 2010.
\3\The ACA, Section 1001.
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The ACA required the National Association of Insurance
Commissioners (NAIC) to develop a model regulation containing
uniform definitions and methodologies for calculating the
medical loss ratio.\4\ On October 27, 2010, the NAIC submitted
its final recommendations to the Department of Health and Human
Services (HHS). The regulation outlines were unanimously
approved by every state insurance commissioner including the
District of Columbia after months of work via an open and
public process in which a wide range of stakeholders
participated.\5\ On December 12, 2010, HHS issued regulations
regarding the implementation of the MLR requirements based on
these recommendations. The NAIC was careful to take into
account the impact of the MLR requirement on the stability of
state markets, and the ability of insurance agents and brokers
to continue their work with insurance commissioners. There are
allowances in the formula for administrative costs for fighting
fraud and for quality improvement activities such as flu shot
drives.
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\4\The ACA, Section 1001.
\5\Letter from the National Association of Insurance Commissioners
to Kathleen Sebelius, Secretary of the Department of Health and Human
Services (Oct. 7, 2010) (online at www.naic.org/documents/
committees_ex_mlr_reg_asadopted.pdf).
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BENEFITS ALREADY ACHIEVED FROM THE MEDICAL LOSS RATIO PROTECTION
On June 12, 2012, insurance companies nationwide submitted
their annual MLR reports for coverage to the Secretary of HHS.
Based on this data, nearly 90% of insurers already either met
or took steps to meet the medical loss ratio minimums. The
remaining insurers provided rebates to nearly 12.8 million
Americans this year totaling more than $1.1 billion. In
addition, according to the Congressional Budget Office (CBO),
this consumer protection likely reduced health insurance
premiums.\6\ This is a big victory for consumers purchasing
insurance not only in the individual market but also through
their employers.
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\6\Letter from Douglas W. Elmendorf, Director, Congressional Budget
Office, to Rep. Fred Upton, Chairman, Committee on Energy and Commerce
(November 7, 2012) (online at www.cbo.gov/sites/default/files/cbofiles/
attachments/hr1206.pdf).
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The NAIC's Health Care Reform Actuarial Working Group
issued a report that, among other things, found states with
higher MLR requirements have not observed any problems with
consumer access to insurance or agents and brokers. Indeed,
agent and broker jobs increased by 7,000 since May of last year
according to the Insurance Information Institute.
EFFECTS OF H.R. 1206
H.R. 1206 undermines this critical consumer protection that
nearly all insurers have already met by excluding broker and
agent fees and commissions from the MLR calculation. According
to CBO, H.R. 1206 effectively weakens the pressure on insurers
to hold down administrative healthcare costs and will increase
health insurance premiums. The NAIC report also stated that
adjusting the MLR calculations for agent and broker
compensation would effectively weaken the MLR by several
percentage points.
The exclusion of the agent and broker commissions from the
MLR formula would also negate 60% to 70% of rebates expected to
be paid in the coming years according to the CBO. This is
similar to a projection issued by the National Association of
Insurance Commissioners.
H.R. 1206 also changes the ACA by allowing states to apply
a weaker MLR requirement for their small group markets,
increasing health insurance premiums further according to CBO.
The ACA already allows states to apply for adjustments to the
MLR requirement for their individual market, but not in the
small or large group markets, in cases where the HHS Secretary
determines that a state's marketplace is noncompetitive and too
highly concentrated such that the MLR requirement would
destabilize the marketplace and availability of insurance. H.R.
1206 further changes this by deferring to a state request to
undermine this critical consumer protection in both the
individual and small group markets, providing less oversight.
So far, 18 states (including Guam) have applied for such
adjustments and seven states provided data supporting the
request such that it was granted.\7\ If H.R. 1206 had already
been in effect, it would have reduced the $1 billion consumer
premium rebates insurers paid out by at least $360 million,
increasing premiums for the 3.8 million people in Delaware,
Florida, Indiana, Kansas, Louisiana, Michigan, North Dakota,
Oklahoma, Texas, and Wisconsin.
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\7\The Center for Consumer Information & Insurance Oversight, State
Requests for MLR Adjustment (online at www.cciio.cms.gov/programs/
marketreforms/mlr/state-mlr-adj-requests.html).
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CBO SCORE OF H.R. 1206
CBO released a score on November 7, 2012, estimating that
H.R. 1206 would increase deficits by $531 million over the
2013-2017 period and by about $1.1 billion over the 2013-2022
period. H.R. 1206 would make it easier for insurers to meet the
MLR targets, and provide less incentive for insurers to reduce
administrative costs. The result would be a drastic reduction
in consumer rebates and an increase in insurance premiums. CBO
expects that rebates would initially be reduced by 60% to 70%,
declining to 40% to 50% by the end of the 2013-2022 period.
H.R. 1206 would increase the probability that states would be
able to obtain a waiver or an adjustment to their MLR
requirement which would result in an increase in net premiums
for both individual and employer-based health insurance plans.
According to CBO, premiums would increase on average by about
two-tenths of a percent over the next few years, declining to
less than one-tenth of a percent over the next ten years.\8\
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\8\Letter from Douglas W. Elmendorf, Director, Congressional Budget
Office, to Rep. Fred Upton, Chairman, Committee on Energy and Commerce
(November 7, 2012) (online at www.cbo.gov/sites/default/files/cbofiles/
attachments/hr1206.pdf).
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Henry A. Waxman.
Frank Pallone, Jr.