The Patient Protection and Affordable Care Act (PPACA), among other things, requires that health insurance companies pay a minimum percentage of premiums on health care, commonly referred to as the medical-loss ratio. Specifically, PPACA requires that insurers in the individual and small group market spend at least 80% of premiums on medical care, and in large group markets, the requirement goes up to 85%.
However, the fees and commissions paid by health insurers to insurance brokers may not be included in the percentage spent on medical care as announced by HHS in the interim final rule published in December of 2010. This rule was based upon a recommendation regarding medical-loss ratio calculations by the National Association of Insurance Commissioners (NAIC).
One potential unintended side effect of the rule appears to be that many insurance brokers may be forced out of the market as their fees and commissions are reduced or eliminated by health insurance companies in their attempt to meet their medical-loss ratio obligations under the Act. In fact, UnitedHealthcare has already announced that it will no longer pay commissions to brokers for policies sold to large employers in Texas and Florida, two of the largest states in the nation.
While it is unknown at this time whether the final rule to be promulgated by HHS will include these commissions and fees as part of the amount spent on medical care, it will be interesting to see if other health insurers follow UnitedHealthcare's lead. Should enough other health insurers follow UnitedHealthcare, the insurance industry could gain momentum to squeeze HHS into changing the medical-loss ratio rule. At this stage, it is too early to tell who will be winners and losers.
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