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Brokers, Agents Push for Review of 'Broker Rule,' Supporters Fight Back

By Jane Norman, CQ Healthbeat Associate Editor

Congress is under pressure from insurance brokers and agents to alter a provision in the health care overhaul to protect the income and jobs of those who sell insurance.

Consumer groups and many of the law's supporters are fighting back, pointing to studies suggesting the situation is not as dire nor as clear cut as the industry portrays. But pressure from a powerhouse of small businesses and heightened anxiety over the economy has captured the attention of House lawmakers and state insurance commissioners. A panel of state regulators will review a detailed internal report June 7 on the requirement known as the "broker rule."

The drive to repeal the provision has many of the markings of the successful effort in April to roll back a controversial tax reporting requirement in the health care law that attracted the ire of small businesses. The new controversy stems from a section of the law (PL 111-148, PL 111-152) intended to rein in rising premium costs. Beginning Jan. 1, insurers in the individual and small-group markets must devote at least 80 percent of the revenue earned from premiums to health care services and quality improvement. If the threshold is not met, insurers must issue policyholders rebates.

The rub is: Broker commissions are not considered a service or a quality improvement cost. The Health and Human Services Department said in a rule in December those fees are administrative expenses just as insurer salaries, profits and marketing expenses.

Janet Trautwein, executive vice president and CEO of the National Association of Health Underwriters, told a House Energy and Commerce panel June 2 that independent agents, who are members of her group, face a "desperate economic situation" that is causing "real people to suffer harm."

And Randi Reichel, an America's Health Insurance Plans lawyer, predicted individuals and small businesses will be hurt because fewer brokers and agents will be available to guide such customers through a complex system when seeking a health plan.

Brokers say, as insurers struggle to meet new federal rules, they are cutting broker fees to trim administrative expenses. The Bureau of Labor Statistics makes it clear that this is not an insignificant group, saying there were more than 434,000 brokers in 2008.

Republican Mike Rogers of Michigan and Democrat John Barrow of Georgia have introduced a bill (HR 1206) to remove brokers' commissions and fees from administrative costs. The measure has the support of 82 lawmakers, including 13 Democrats.

Liberal backers of the overhaul, such as Peter A. DeFazio of Oregon and Robert E. Andrews of New Jersey, are among those suggesting bipartisan appeal to changing the law.

Among the most ardent opponents of altering the broker rule is Sen. John D. Rockefeller IV, D-W.Va., an industry foe, who says insurers are eager to eliminate as many "administrative" expenses as possible to avoid rebates. Rockefeller produced a report showing that consumer rebates would be $1 billion less if the health law had been in effect in 2010 and broker fees were not considered administrative expenses.

A May 13 Congressional Research Service report found "preliminary evidence" that commissions are being reduced, but no clear signs that consumer access to health insurance has been impacted.

The report also quotes a recent investor note from equities analysts at Citigroup Global Markets Inc. that says even though insurers have halved commissions to about 10 percent for the first year of a policy "brokers are still receiving a significant amount of compensation for the duties they are performing." The analysts added that there's "no doubt" incomes have been reduced, but "brokers and agents benefitted for many years from rising premium rates, and that trend isn't sustainable."

Also involved in the battle is the influential National Association of Insurance Commissioners, state regulators sensitive to the demands of brokers with whom they have longtime regulatory relationships. NAIC members put off a decision at their March meeting on whether to endorse the Rogers-Barrow bill, asking instead for an internal report, which the group will consider.

The draft report is inconclusive, finding in 2011, "a significant number of companies have reduced commission levels, particularly in the individual market," but a "significant number" did not. The report also found consumers haven't had trouble finding agents in states with medical payout requirements similar to the federal health care law.

No House committee has scheduled action on the Rogers-Barrow bill, though aides expect a markup and are rounding up bipartisan support in the Senate. The bill's future may well depend on state insurance commissioners. Among those waiting to stake out a position is Sen. Ben Nelson, a Nebraska Democrat familiar with the issue: He's a former state insurance director, insurance executive and NAIC chief of staff.

The senator is waiting for NAIC to devise a state-based solution before he decides whether to support the Rogers-Barrow bill, an aide said. Nelson contends, though, that "agents and brokers need to be part of the equation.

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