HHS proposes broker compensation rules for health insurance exchanges

The Department of Health and Human Services recently released a proposed rule that, if approved, would require carriers to pay brokers the same compensation for plans sold through a federally facilitated state exchange, or a similar plan outside the exchange.

Online health insurance exchanges are required under the Patient Protection and Affordability Care Act (PPACA).

According to the proposal, HHS would certify a health plan as “qualified” to operate in a federally backed state exchange only if broker compensation for that plan is “similar” to compensation offered for “similar health plans” offered outside the exchange.

The compensation would apply to individual plans or plans sold through the exchanges’ Small Business Health Options Program (SHOP).

The proposal does not define “similar health plans,” but instead requests comments on whether the term is specific enough or too vague.

Robert O. Smith

The National Association of Insurance and Financial Advisors (NAIFA) applauded the proposal.

“Brokers provide myriad services, from analyzing clients’ coverage needs to helping individuals get claims approved to providing wellness programs for small businesses,” said Rob Smith, NAIFA president, as quoted on NAIFA’s website blog.

“Agents and brokers are the de facto human resources departments for many small companies,” he said. “These are services that no one else provides and that brokers cannot continue to provide if they are not fairly compensated.”

The NAIFA blog noted the negative impact medical-loss-ratio provisions have on compensation and the overall cost of health care.

A group of 10 senators, led by Orrin Hatch (R-Utah), sent a letter to the secretaries of Treasury, HHS and Labor seeking an extension of a 30-day comment period on the rule proposal, and two other rule proposals, to provide additional review and input.

PPACA requires states to have online exchanges by January 2014. Those that opt to not run an exchange will default to federally facilitated exchanges.

PPACA’s medical-loss-ratio (MLR) provisions require insurers spend at least 80% of individual and small-group, and 85% of large-group premiums on medical expenses. The remainder is spent on administrative costs, including commissions.

Since the MLR provision went into effect in 2011, carriers have slashed commissions, some by as much as 50%

HHS plans to charge a user fee of 3.5% of premiums on insurers that seek to sell plans in states that default to federal assistance.