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CA Department of Insurance

Insurance Commissioner Dave Jones Disappointed In Divided NAIC Vote On Medical Loss Ratio

News: 2011 Press Release

For Release: November 22, 2011
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Insurance Commissioner Dave Jones Disappointed In Divided NAIC Vote On Medical Loss Ratio

California Insurance Commissioner Dave Jones expressed strong opposition to and disappointment with today's narrowly divided (phone call) vote of the National Association of Insurance Commissioners (NAIC) calling for reductions in consumer protections under the federal Affordable Care Act.

"I am very disappointed that the narrowly divided vote of Insurance Commissioners elevated politics over the sound, evidence-based decision making that is expected of us as insurance regulators," said Commissioner Jones after the close vote. "Consumers are ill-served by the proposal to lower the percentage of premiums that insurers are now required to put into medical care versus profits and overhead. The specific resolution in question was never heard by a NAIC committee, nor was there a public hearing on the resolution. It was first circulated secretly to only some commissioners as opposed to all of us. The lack of transparency, the failure to follow a process that would include committee review and a public hearing, the willful disregard of the evidence - all undermine the credibility of the NAIC's vote today."

During a holiday week, without any opportunity for the public to be heard, the NAIC narrowly voted to support a resolution that calls on the federal Department of Health and Human Services to take action it lacks the authority to take and for the Congress to make changes to the federal law that would increase the cost of health insurance. The resolution calls on Congress to weaken one of the most important consumer protection provisions in the Affordable Care Act - the medical loss ratio (MLR) requirement that 80% of every premium dollar go into providing health care in the individual and small group markets and 85% in the large group market. Commissioner Dave Jones (CA) and 19 other insurance regulators from around the country voted against the resolution and five Commissioners abstained.

Earlier this year, the NAIC took a look at agent and broker commissions and the medical loss ratio provisions of the Affordable Care Act. The Health Committee of the NAIC (the B Committee) issued a report that indicates:

  • "In 2011, a significant number of companies have reduced commission levels, particularly in the individual market. However, a significant number of companies have not reduced commissions in 2011."
  • "The states with higher MLR requirements have not observed any problems with consumer access to insurance or to producers."
  • "...adjusting the MLR calculations for producer compensation, results in an increase in the MLR by several percentage points."
  • If agent and broker commissions had been removed from the MLR calculation in 2010, consumer rebates would have been reduced by more than 60%, from $1.95 billion down to $762 million.

The net result of the proposal would be to reduce consumer rebates by more than $1.1 billion. At the same time, the experience of states that had higher MLRs is that consumers still have access to agents and brokers.

Jones opposed the resolution because it would reduce rebates to consumers, increase the cost of health insurance to consumers and reduce their access to health care and on process grounds because the NAIC did not vet this resolution through any NAIC committee nor did it allow the public the opportunity to comment on the resolution prior to today's vote.

Jones pointed out that "I have been contacted by consumer organizations and thousands of individuals who have asked me to vote against this resolution. This resolution calls for actions that would allow insurers to spend more money on administrative costs and profits, while charging consumers higher premiums."

Jones continued, "I recognize the important role that licensed health agents in my state play in assisting consumers and I will work with them to help ensure that they continue to play such a role as our nation's health care system changes and expands to cover tens of millions of additional policyholders, but rolling back the MLR requirement is not the answer. There is no guarantee that the health agents and brokers would benefit from this proposal, but the evidence shows that consumers would be harmed."

A data call conducted by the California Department of Insurance earlier this year demonstrated that commissions paid to health insurance agents/brokers increased over 300% between 2003-2010, as commissions increased along with skyrocketing health insurance premiums.

The California Department of Insurance, established in 1868, is the largest consumer protection agency in California. Insurers collect $310 billion in premiums annually in California. Since 2011 the California Department of Insurance received more than 1,000,000 calls from consumers and helped recover over $469 million in claims and premiums. Please visit the Department of Insurance website at Non-media inquiries should be directed to the Consumer Hotline at 800.927.4357. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.

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