Implementing Health Reform: Premium Increase Requests; Agent/Broker Fees And The MLR (SHOP Enrollment Update)

Update: SHOP Enrollment. On May 29, 2015, CMS released a set of frequently asked questions (FAQs) addressing flexibility for direct enrollment for state-based SHOP exchanges. Although the federally facilitated SHOP exchange now has functionality to allow small employers to enroll online, some state-operated exchanges are still not able to do this.  These states may continue to allow employers to enroll directly with insurers for coverage.

Employers that desire SHOP enrollment may enroll in a SHOP qualified health plan through an insurer complying with SHOP enrollment rules and policies.  The employer may receive an eligibility determination from the SHOP either before or after enrollment. Employers must enroll through the SHOP to ensure eligibility for small employer tax credits; they risk being find ineligible if they do not receive an eligibility determination before enrolling in coverage.  State-operated exchanges continuing direct enrollment must submit a plan to CMS for achieving full online eligibility functionality by January 1, 2017.

Original post: There has been a lot of chatter in recent days about dramatic health insurance premium increases coming for 2016. It is to be expected, of course, that insurance premiums will be higher in 2016 than in 2015. Health care costs, the largest determinant of premiums, are on the rise. The reinsurance program, which reinsures high cost cases in the individual market, is set to reduce the share of claims it covers again in 2016 before disappearing in 2017. The risk corridor program is also likely to pay out less than many insurers expected for 2014, 2015, and 2016.

The continuing delayed transition of non-compliant policies encourages adverse selection against ACA compliant plans in many markets. And the continued threat to insurance coverage caused by the King v. Burwell litigation (which challenges premium tax credits in federally facilitated exchange states) and House v. Burwell (which challenges the cost-sharing reduction payments in all states) creates a very uncertain environment for health insurers in the individual market.

Several states have released some information on rate increase requests, and some of these requested increases are quite high. But the rate review process is just getting underway, and it is likely that in the end increases will be more modest than initially appears, as happened last year. Moreover, enrollees in plans that seek high rate increases will have the opportunity during open enrollment to switch to lower-cost plans. And in any event, most marketplace enrollees receive premium tax credits and thus will not bear the full brunt of premium increases.

On June 1, 2015, the Centers for Medicare and Medicaid Services (CMS) released additional information on requested rate increases. All insurers in the nongroup market were to have filed rate requests in states using the healthcare.gov platform as of May 15. Insurers that requested “unreasonable” premium increases—that is, increases of 10 percent or more—were required to post justifications for their premium increases. The rate increases and justifications became available on June 1. The rate increase requests and justifications should also be available on (or linked from) state insurance department websites. Consumers may comment on these posted rate increases to their insurance departments for the regulators to consider in reviewing requested rates. The posted rate increases do not, of course, reflect the actual rate increases that consumers generally will experience for 2016, since they only include the highest rate increases—those of 10 percent or more

Agent & Broker Commissions And The Medical Loss Ratio

On May 27, 2015 the Center for Consumer Information and Insurance Oversight posted a guidance regarding medical loss ratio reporting and rebate requirements. The medical loss ratio requirement of the Affordable Care Act requires individual and small-group insurers to spend at least 80 percent of their premium revenues on health care claims and quality improvement expenses (85 percent for large-group insurers). Insurers who spend less than this amount must rebate the difference to their enrollees.

One of the most controversial issues during the drafting of the Medical Loss Ratio (MLR) regulations was how to treat agent and broker commissions. These fees have traditionally been considered as an administrative expense and as part of the premium, but agents and brokers mounted a vigorous, but ultimately unsuccessful campaign, to have the fees excluded from the premium for MLR calculation purposes.

The May 27 FAQ notes that some insurers have been attempting to exclude agent and broker fees from the premium to increase their MLR and reduce their premium. These insurers have claimed that payment of the commission is not a condition of coverage and that the amount is merely passed through to the agent or broker and is not part of the premium. In some cases, insurers have required policyholders to sign a statement that they have retained the broker or agent and paid the commission independently when this is not true.

In its May 27 guidance, CMS stated that agent and broker commissions can only be excluded from premium for MLR calculation purposes if seven conditions are all met:

1. State law does not consider the agent or broker to represent the insurer;
2. The policyholder is not required to use an agent or broker and may purchase the policy directly from the insurer;
3. The policyholder selects, retains, and contracts with the agent and broker of his own accord;
4. The policyholder negotiates and is responsible the fee or commission separate and apart from the premium;
5. The insurer does not include the agent and broker commissions and fees in its rate filings as submitted to the state regulator;
6. The policyholder pays the fees or commission directly to the agent or broker or voluntarily chooses to pass the fee or commission through the insurer and is not required to do so; and
7. The policyholder issues the 1099 directly to the agent or broker if one is required.

CMS states that it intends to ensure insurer compliance with this requirement and take corrective measures if necessary.

The same guidance clarifies that if an MLR rebate is owed to an enrollee who is eligible for an advance premium tax credit which covers part of the premium, the full amount of the rebate is still due to the enrollee, who is in fact responsible for the premium and is merely receiving assistance in paying it.