California’s health insurance regulations — aligned this year with federal guidelines — include a requirement that insurers spend at least 80% of their premium revenue on direct patient care. However, efforts to change provisions of the federal Patient Protection and Affordable Care Act could have an effect on how California insurers balance their books — and on how consumers pay for health coverage.
Previously operating on a 70-30 split, California adopted the 80-20 ratio in January to be in line with new federal guidelines. But precisely what is contained in the two portions is being contested. The 20% not used for direct medical care includes profit and administrative costs — including insurance broker fees.
The House is considering a bill (HR 1206) that would exempt insurance brokers’ fees from being classified as administrative costs. After it was introduced by Reps. Mike Rogers (R-Mich.) and John Barrow (D-Ga.), the bill attracted more than 50 co-sponsors.
Some consumer advocates argue that the ACA is already a boon to the insurance industry, bringing in millions of new policy buyers. They say not counting broker commissions as part of administrative costs in the medical loss ratio could take the financial teeth out of reform.
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Even using the term “medical loss ratio” could be construed as an indication the ACA is written from an insurer’s — rather than a consumer’s — point of view, according to some. The term suggests that 80 cents of every dollar spent on medical care for a patient is considered a “loss” by the insurance industry.
The National Association of Insurance Commissioners voted to postpone taking a position on the bill. Some state commissioners support the bill, and some oppose it.
In California, a related effort is under way: AB 736, by Assembly member Chuck Calderon (D-Montebello), would allow health insurance agents to also be licensed health insurance brokers.
We asked experts and stake holders: How should Congress handle the issue? What is the potential effect on California if HR 1206 passes? What are the potential effects if HR 1206 fails?
We got responses from: