ObamaCare vs. Health Insurance Brokers

Peter Suderman | August 30, 2011

A story in The Hill reports that, according to a new report by the Government Accountability Office, one of ObamaCare's insurance regulations is already leading to "lower healthcare premiums." How's that? The regulation in question requires health insurers to maintina what's known as a minimum loss ratio (MLR). That means insurers must devote a minimum of either 80 or 85 percent of their premium revenue, minus taxes, to paying for health care or activities that improve health care quality, as defined by federal regulators. The remaining 15 or 20 percent is left for administrative expenses, marketing, and profits.

Obama administration health officials insist that this will help ensure that consumers get better "value" from their health insurance. But value, in this case, appears to mean that insurers are cutting back on insurance broker commissions, which don't count as health expenditures, in order to reduce premium growth. Here's GAO:

Almost all of the insurers we interviewed were reducing brokers’ commissions and making adjustments to premiums in response to the PPACA MLR requirements. These insurers said that they have decreased or plan to decrease commissions to brokers in an effort to increase their MLRs. One insurer said they started making reductions to their brokers’ commissions in the fourth quarter of 2010 for their individual and small group plans to increase their 2011 PPACA MLRs in these markets and, as a result, premiums were not as high as they otherwise would have been. This insurer said these reductions will take effect gradually because they are only being applied to new sales or when groups renew annually. Another insurer lowered commissions to their brokers in the individual market in the first quarter of 2011, such that premiums were increased less than they otherwise would have been, which they expect to result in an increase in their PPACA MLRs for 2011.

So, thanks to ObamaCare, health insurers are cutting back on the commissions that go to pay the individuals whose job is to represent consumers. That, in turn, will likely make it diffcult for many brokers to keep doing business. Brokers obviously shouldn't be guaranteed work. But ObamaCare seems likely to force many of them to shut down, or significantly scale back.

Meanwhile, the long-term pressure created by mandatory MLRs may still end up pushing premiums higher. Because insurer profits will be legally limited relative to health care expenditures, they'll have less reason to police fraud and waste in order to keep health spending down, and additional incentive bloat the health system with unnecessary care.

Watch Reason.tv's interview with former health insurance broker Glenn Morton: