Maggie's Farm

Some have compared the impact on agents of ObamaCare’s medical loss ratio (MLR) to the impact of online technology on travel agents.

Yesterday, I spent hours studying many web sites to decide on a hotel to take my family during spring break. Although the web sites were very informative, most offering standard categories as to number and type of beds, whether there is a pool, etc., the information was not complete or didn’t cover all my requirements. I still had important questions to meet my family’s particular needs. I, also, noted many Commenters at these sites who’d had bad experiences due to lack of adequate information. I phoned several sites and directly to several hotels’ reservation lines, but those who answered had no more information than at their sites. Finally, I reached an agent who spent a half-hour giving me complete answers to my questions, and I made the reservation.

MLR requires medical plans to commit 80% of premiums of small group and individual plans to claims, and 85% for large plans. Agent commissions, though a pass-through charge from buyers, are treated in ObamaCare as administrative costs, thus making it harder for insurers to meet the 15% or 20% allowance for non-claim costs. The argument goes that as the Internet makes it easier to make reservations directly, the need for travel agents has declined. So, too, will the need for insurance agents decline as medical plan purchasers can buy directly from insurers or government-directed exchanges. Lastly, standardized medical plans dictated by ObamaCare are supposed to make choices easier. Therefore, we needn’t be concerned that to meet MLR restrictions that agents’ commissions have been as much as halved, leading many to reduce services to buyers or to leave the field.

This leaves medical plan buyers – as it does travel buyers -- largely at the mercy of 1-800 ignorance or inadequacy, as well as self-interest or lack of independence in not providing useful comparative information. Further, a buyer is not given additional information important to the decision, say about nearby facilities or services involved in the trip, or the efficiency of claims-processing or how certain treatments might be actually covered by the medical plan. Then, unlike the range of accommodations available at hotels at varying prices, standardized medical plan buyers will be forced under ObamaCare to buy services they either don’t need or, even, religiously or ethically object to, and pay the cost of these services, in effect, for those who want them. Premiums have already increased to cover provisions mandated by ObamaCare, and will increase further.

There’s another aspect to the MLR regulations that will further reduce the choices available and increase the costs to many medical plan buyers. If an insurer does not meet the MLR percentage limitations, beginning by August 1, 2012 the insurer will have to pay rebates to buyers. Insurers are each setting aside tens of millions of dollars for these rebates, costs that will be recovered through higher premiums. According to healthcare consultancy The Segal Co., “Until now, insurers have been able to subsidize less-profitable product lines and types of groups (usually small ones), and do it across state lines, with the profits of the more-lucrative ones. Now, with insurers under the threat of paying out rebates on the latter, they may give small-group policyholders fewer subsidies and charge higher premiums.”

There’s bipartisan legislation pending in the House and Senate to relieve this impact on agents but, even if it might pass, it is unlikely to be signed by President Obama, or regardless of the President may not muster 60-votes in a future Senate if blocked by ObamaCare supporters there.