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Public Policy Analysis & Opinion
Health care reform repercussions hit agents
Big “I” cites accounting concerns; NAIC seeks compensation clarifications
By Kevin P. Hennosy
The implementation of the “Patient Protection and Affordable Care Act” (P.L. 111-148) (PPACA) is proving to have an impact on insurance producers’ operations, even outside the sale of health insurance.
On August 11, 2010, the Independent Insurance Agents and Brokers of America (Big
“I”) sent a letter to congressional leaders advocating for the repeal of provisions
of the act that will expand tax accounting requirements for businesses.
During the extended negotiations that resulted in passage of the act, opponents
of health care reform legislation charged that the program was not paid for, so
proponents included provisions to expand required use of Form 1099 for vendor
transactions. Under section 9006 P.L. 111-148, businesses must issue a Form
1099 to any vendor that exceeds $600 in transactions per annum.
The letter from the Big “I” leadership argues that the cost of compliance with the provision far outweighs
the benefits to federal revenue coffers:
“We understand this provision was intended to close the ‘tax gap’ of businesses not in compliance with the tax code. However, for insurance
agencies and brokerages and their many small business clients, this onerous
provision will cost jobs. The amount of resources that will have to be poured
into new record keeping, accounting and compliance procedures will be
especially burdensome for small businesses such as those in our membership. At
a time when we are attempting to recover from a deep recession, this provision
will stretch already thin resources to the breaking point.”
In a statement released to journalists on August 12 to announce the existence of
the letter, the Big “I” leadership went further:
“The Big ‘I’ and many others in the small business community oppose this mandate,” said Robert Rusbuldt, Big “I” president and CEO. “The mountain of paperwork required to comply with this provision will cost the
federal government time and money, divert resources and prevent investment in
job growth and business expansion at a delicate point in the American economy.”
The Big “I” letter questions the tax policy elements of the provisions:
“In addition, although this provision is intended to target businesses evading
taxes, in reality it is the compliant businesses that will pay the price.
Noncompliant businesses will continue to avoid paying taxes, and compliant
businesses will be saddled with increased costs and unjustified audits by the
Internal Revenue Service (IRS). Meanwhile little to no net revenue will be
raised for the government, especially when increased costs at the IRS are
factored in.”
The letter supports legislation sponsored by Senators Mike Johanns (R-Neb.) and
Blanche Lincoln (D-Ark.) that would repeal this 1099 provision to H.R. 5297,
the Small Business Jobs and Credit Act of 2010. The amendment offered by
Senators Johanns and Lincoln could be considered as soon as September 14, 2010,
after the Senate returns from recess, according to the Big “I” statement.
In another area related to the Patient Protection and Affordable Care Act, the
National Association of Insurance Commissioners (NAIC) adopted a resolution
concerning “navigators” that are empowered to engage in “public education” efforts.
According to an NAIC statement released on August 26, “the resolution affirms the important role of health care insurance agents in
providing services to consumers and businesses.” The NAIC had adopted the resolution on August 17. It was sponsored by Illinois,
Maine, Florida, Kansas, Oklahoma, Louisiana, Alaska, New Hampshire, Utah, South
Carolina, North Carolina, Nevada, Montana, Ohio, New Jersey, Kentucky,
Missouri, Michigan, Connecticut, Tennessee, Washington, Delaware, California,
New York and North Dakota.
“State insurance regulators recognize the important service that agents provide to all consumers as they make
critical health care decisions for their families,” said Jane L. Cline, NAIC president and West Virginia insurance commissioner. “Significant changes for health plans under the PPACA precipitate the need for
clarity and guidance by licensed, specially trained insurance professionals.
The continuing role of producers in the health insurance transaction is an
essential part of protecting consumers during this transition.”
The late Senator Edward Kennedy introduced the navigator concept in an outline
of health care reform legislation. The Kennedy Plan created a role for
membership entities to facilitate participation in what was called “American Health Benefit Gateways” (state-by-state health insurance exchanges).
The Kennedy Plan, which was incorporated into the original Senate legislation
that was co-sponsored by Senator Chris Dodd (D-Conn.), provided a basic
framework for the navigating entities.
The Secretary of HHS shall award grants to establishing states to enable the
gateway or gateways in such states to enter into agreements with private and
public entities under which such entities would serve as navigators.
To be eligible, an entity shall demonstrate that the entity has existing
relationships with, or could readily establish relationships with, employers
and employees, and self-employed individuals, likely to be eligible to
participate in the program.
Entities may include trade, industry, and professional associations, commercial
fishing industry organizations, ranching and farming organizations, chambers of
commerce, unions, small business development centers, and other entities that
the Secretary of HHS determines capable of carrying out such duties. An entity
that serves as a navigator shall: (1) conduct public education activities; (2)
distribute fair and impartial information; (3) assist with enrollment in
qualified health plan; and (4) provide information that is culturally and
linguistically appropriate.
The Secretary of HHS shall establish standards for navigators, including
provisions to avoid conflicts of interest. Under such standards, a navigator
may not: (1) be a health insurance issuer; or (2) receive any consideration
directly or indirectly from any health insurance issuer in connection with the
participation of any employer in the program or the enrollment of any eligible
employee in health insurance coverage.
The navigator concept sought to introduce the perspective of plan beneficiaries
to the selection of a health care plan, rather than simply relying on the
perspective of the purchaser. In addition, with the prohibition on receiving “consideration” for sales or enrollment, the concept sought to remove the costs associated with
commission-driven sales.
This is not the first time that Congress has attempted to create alternative
means of distribution for health care benefits. Congress created Multiple
Employer Trusts (METS) and Multiple Employer Welfare Arrangements (MEWAs) to
foster expansion in health insurance coverage, by allowing groups to band
together to purchase coverage.
These entities generally failed because Congress charged the Department of Labor
with overseeing the initiatives without providing either the strict statutory
responsibility to do so, or the corresponding budget. Without regulation, METS
and MEWAs became known as cesspools for fraud that state regulators were unable
to clean up.
The NAIC Resolution puts federal officials on notice that a similar dynamic
could become evident if the rules implementing the P.L. 111-148 do not provide
a strict compliance structure for navigators:
WHEREAS: The Affordable Care Act provides for “Navigators” to conduct public education and distribute fair and impartial information concerning enrollment in health plans
and provide referrals for consumer assistance. While these are important
activities, Navigators are not licensed and trained insurance producers and are
not authorized to engage in all activities that are appropriate for licensed
producers. Unless the activities and compensation of Navigators are carefully
structured, this program could provide an avenue for untrained individuals to
evade producer licensing requirements and expose consumers to harm.
Furthermore, the NAIC argues that entry into the State Insurance Exchanges
should travel through the office of a licensed insurance producer, which one
would assume would require a ticket paid for through a sales commission. This
stance is much stronger than the one taken by the NAIC several years ago when
the association drafted a model act on producer licensing. At that time, the
NAIC, under pressure from insurance carriers, seemed more than willing to allow
the introduction of various types of consumer service personnel to stand in the
place of licensed insurance producers.
The NAIC Resolution concludes:
As the standards for implementing national health reform are being developed, it
is essential that they recognize and protect the indispensable role that
licensed insurance professionals play in serving consumers. It is important for
federal policymakers to acknowledge the critical role of producers and to
establish standards for the Exchanges so that insurance professionals will
continue to be adequately compensated for the services they provide, and so
that the duties of Exchange Navigators appropriately reflect the important role
of insurance producers who are skilled, knowledgeable, educated and licensed
and regulated.
The National Association of Health Underwriters (NAHU) praised the passage of
the NAIC resolution reaffirming the important role that licensed health
insurance agents and brokers play in our nation’s health care delivery system.
“The resolution states that the newly created role of exchange navigators in the
new law would be limited to directing health care consumers in the health
insurance exchange to government agencies and licensed health insurance
professionals,” explained NAHU CEO Janet Trautwein. “This will ensure continued access to the services of state-licensed and trained
health insurance professionals who serve as counselors and advocates to
millions of Americans.”
The NAHU statement also addresses the issue of reducing the cost of health care
financing, quoting Trautwein:
“Health insurance agents and brokers also help consumers lower their overall
health care costs. This role is especially important now in our tight economy
with families struggling to make ends meet. NAHU looks forward to our continued
work with the NAIC and other regulators in helping to curb the potential health
care costs associated with the new federal reform while expanding consumer
health care choices.”
Cutting costs associated with health care financing transactions will become all
the more important when the Medical Loss Ratio (MLR) provisions of P.L. 111-148
go into effect. The MLR requires that insurers price products based on 80% to
85% of premiums being paid back to consumers in the form of medical payments or
refunds. Traditionally, health care plans have operated under loss ratios of
60% to 65%.
In August of this year, the NAIC adopted MLR Blanks Proposal to account for that
provision of P.L. 111-148. In NAIC parlance, “blanks” are the actual forms submitted by insurance companies to report financial
information to state regulators. According to the NAIC, regulators will then
review this data to calculate MLR and any rebate required under the new federal
law. n
Kevin P. Hennosy is an insurance writer who specializes in the history and
politics of insurance regulation. He began his insurance career in the
regulatory compliance office of Nationwide Insurance Cos. and then served as
public affairs manager for the National Association of Insurance Commissioners
(NAIC). Since leaving the NAIC staff, he has written extensively on insurance
regulation and testified before the NAIC as a consumer advocate.
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