Health insurance agent and broker commissions were cut by a number of insurers because of the new medical loss ratio (MLR) included in the federal health reform law, according to the nonpartisan Government Accounting Office.

When the Patient Protection and Affordable Care Act’s provision requiring insurers to meet minimum requirements for funding patient care took effect in January, many health insurers cut agent and broker compensation. The law squeezed the insurers, saying they have to spend no less than 80% of individual and small-group premiums and 85% of large-group premiums on medical costs. Agent and broker compensation fell in the smaller administrative category.

“Most of the insurers GAO interviewed were reducing brokers’ commissions and making adjustments to premiums, as well as making changes to other business practices, in response to the PPACA MLR requirements,” according to the report. “Almost all of the insurers said they had decreased or planned to decrease commissions to brokers in an effort to increase their MLRs.”

One insurer told the GAO it started making reductions to its brokers’ commissions in the fourth quarter of last year in the individual and small-group markets to increase its 2011 MLRs in these markets and, as a result, premiums were not as high as they otherwise would have been. The same insurer said the reductions will take effect gradually because they are only being applied to new sales or when groups renew annually.

Another insurer lowered commissions to its brokers in the individual market in the first quarter so that premiums were increased less than they otherwise would have been, which they expect to result in an increase in its MLRs for 2011.

A bill, supported by several agent trade groups, asks Congress to remove agent and broker compensation from the MLR calculations.

In its report, the GAO also noted that insurers differed on how the new MLR requirement may affect where they do business. One insurer said that they have considered exiting the individual market in some states in which they did not expect to meet the PPACA MLR requirements, while several other insurers said that the PPACA MLR requirements will not affect where they do business. The insurers included in the report were not identified by name.

The report is based on interviews performed between December 2010, one month prior to the implementation of the new MLR, and July.