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Insurers Lobbying on the Fine Print May Erase Consumer Protections

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One of the provisions of the health reform law that insurers hate most requires that they spend at least 80 percent of what we pay them in premiums for actual medical care. That provision alone is a major reason why insurance companies and their allies invested so heavily in Republican candidates last year.

The insurers knew that if their candidates won--and most of them did--they would have a better than even chance of getting Congress to weaken that provision to the point of being almost meaningless. And they are well on their way to getting what they want.

As recently as 1993, insurance firms on average spent 95 percent of premiums they collected to pay medical claims. Since then, as more and more insurers have converted to for-profit status, that percentage has dropped--like a rock.

That's because the less they spend on our medical care, as reflected by a measure called the medical-loss ratio (MLR), the more is available for activities like underwriting, sales and marketing and, of course, profits that benefit shareholders.

The top objective of investor-owned companies is to keep Wall Street happy by "enhancing shareholder value," and one key way insurers do that is by pushing the MLR ever downward. Lord help the companies that disappoint investors with an MLR that is going in the opposite direction. Aetna's stock price once fell more than 20 percent in a single day after its CEO disclosed that the company had spent slightly more on claims during the preceding three months than it had during the same period a year earlier.

Today insurers on average spend about 80 cents of every premium dollar they collect from policyholders to pay claims, and Congress wanted to assure that number didn't go any lower. Under the reform law, if an insurer's MLR does go below 80, it will have to issue rebates to policyholders.

Lawmakers were feeling charitable toward the industry when they drafted the MLR provision. Until this year, insurers have only used the amount of money they pay out in claims to calculate their MLRs. Now, thanks to the new law, they can count anything they spend on disease management programs, health plan accreditation and other "health improvement activities"--not just on claims--as medical expenditures that would count in reaching that 80 cent plateau. But insurance company executives--and the independent agents and brokers who sell their product--want lawmakers to be more charitable still. If they get what they're lobbying for, the MLR requirement will essentially be meaningless, and consumers will probably never see a dime of the promised rebates.

It's not just Republicans who are undermining the law. So are a few industry-friendly Democrats. Even the White House is doing its part, although only because it is being coerced.

Insurers and many of their big employer customers have strong-armed the Obama administration into allowing the continued enrollment of customers in plans with skimpy benefits and low MLRs. A growing number of Americans are now enrolled in these plans, which often don't come close to covering the medical expenses of the people enrolled in them. Some of these plans have annual limits as low as $2,000, and many don't even cover hospital stays.

Often called "mini-meds," these plans are highly profitable for insurers because the portion of premiums they spend on medical care is often well below 80 percent. A growing number of employers - especially restaurant chains and big-box retailers--are offering only mini-meds to employees, which helps explain why 25 million Americans are now under-insured, according to the Commonwealth Fund.

Insurers like Aetna and CIGNA and employers like McDonald's and Home Depot have indicated they might stop offering mini-meds if they have to meet the 80 percent MLR requirement, so the Department of Health and Human Services, worried that several thousand people might be dumped from the ranks of the under-insured into the ranks of the uninsured, have granted them waivers from the law.

But insurers and their allies are not stopping there to weaken the provision; they are also asking their friends in government to let them manipulate the mathematical equation they must use to calculate the MLR in ways that will preserve insurers' profits and protect the incomes of the agents and brokers.

Insurers have always considered the commissions they pay agents and brokers, whom they call "producers" because of the role they play in producing business, to be an administrative expense. Under the new law, insurers will have to keep their spending on administrative functions in check, which has led to panic among producers. They are afraid that insurers will slash their commissions if they have to include them in the MLR equation.

So the insurance industry and the National Association of Health Underwriters (NAHU), the trade association that represents producers, have teamed up in an attempt to get the law changed so that commissions will be exempted from the MLR calculation.

If they get their wish, insurance firms will find it much easier to meet the 80 percent minimum and producers will not have to worry about pay cuts. In other words, the inefficient status quo will continue. Commissions will still be paid at the same level as before. As far as the MLR calculation is concerned, however, it will be as if those commissions didn't exist.

Because the lawmakers who drafted the reform law last year were more interested in protecting consumers than profits and commissions, insurers and producers knew they needed more industry-friendly Republicans serving both in Congress and as state insurance commissioners. Just weeks before last November's election, the National Association of Insurance Commissioners (NAIC), which was tasked by Congress to develop new regulations required by the reform law, rejected attempts by insurers and brokers to exempt commissions, saying the law didn't permit them to do so. Thanks in part to hefty campaign contributions from insurers and producers, the midterm elections changed the makeup of the NAIC just as it changed the composition of Congress.

Now dominated by Republicans, the NAIC is proposing that Congress change the law in exactly the ways that insurers and producers want it changed. The NAIC is currently soliciting public comment on a bill that would amend the law to mandate the exemption of broker commissions from the MLR calculation. Consumer representatives to the NAIC expect the organization will vote at its spring meeting in Austin later this month to send the bill to Congress.

Meanwhile, lobbyists for the insurers and brokers have been hard at work persuading a few Congressional Democrats to join Republicans in co-sponsoring the NAIC-recommended legislation when it arrives in Washington. One of the Democrats who is expected to sign on is Rep. Rob Andrews of New Jersey. Andrews recently told several hundred agents and brokers who were meeting in Washington exactly what they wanted to hear. "Some see your role as cost-added," he said. "I see your role as value-added." NAHU wasted no time tweeting his remarks to its members.

On the other side of the Capitol, Ben Nelson, a Democrat from Nebraska, has signaled that he will help lead an effort to change the law in the Senate. Nelson is a former insurance company executive who previously served as Nebraska's insurance commissioner.

Getting Congress to pretend broker commissions don't exist is not the only tactic insurers are using to weaken the MLR provision. Despite intense lobbying last year, the NAIC refused to let insurers count the money they spend on fraud-detection activities as a medical expense. America's Health Insurance Plans president Karen Ignagni told the House Ways and Means Committee last week that if Congress doesn't change the law to let insurers reclassify those expenses as medical costs, those fraud detection activities will come to a screeching halt. That's nonsense, of course. Insurers will continue to find ways to avoid paying fraudulent claims because doing so saves them money.

The lobbying to change the MLR provision is just one example of how special interests are working to gut the reform law while preserving the portions they like. For instance, insurers are especially fond of the requirement that we will soon have to buy coverage from a private insurer unless we're eligible for a public program like Medicare or Medicaid, so don't expect that provision to change. In the coming weeks, I will be writing about other consumer protections that are on the endangered list.