GAO: New rules leading to lower healthcare premiums, cuts to agents' fees

A controversial piece of the healthcare reform law is beginning to save consumers money but could also give them fewer plans to choose from, the Government Accountability Office (GAO) said Monday.

The GAO interviewed insurance companies and regulators about the early impact of a provision that governs how insurance companies spend their money. It requires plans to spend 80 or 85 percent of their premiums on medical costs — a calculation known as the medical loss ratio (MLR). Companies that miss the minimum MLR will have to pay rebates to their customers.

According to GAO, some insurers are decreasing premiums or leaving their rates unchanged in order to comply with the MLR requirements. Three companies told GAO that premiums will either fall next year or increase by a smaller amount than they would have without the MLR.

The changes to premiums are coming in conjunction with cuts to brokers' premiums, GAO found. Insurance agents and brokers have warned repeatedly that the MLR will hurt them. And while consumer advocates have argued that the effects are overstated, the GAO report seems to support agents' claims.

Commissions to agents and brokers fall into the 15 or 20 percent of revenues that insurance companies can use for administrative expenses and profit. Brokers are worried that insurance companies will cut commissions and redirect that money toward their own bottom lines.

The GAO said "almost all" of the insurers it interviewed are cutting commissions. Those cuts enabled the plans to change their premiums.

The report also indicates that one of the most protracted policy debates over the MLR isn't making much of a difference so far.

As the rules for the MLR were being crafted, insurers complained repeatedly about the treatment of initiatives to improve healthcare quality. Those programs are exempt from the calculation of administrative expenses, but plans said the exemption is too narrow. They said the rules shouldn't specify which activities can be counted as quality improvement and that such an approach could discourage investments in new programs.

But insurers told GAO that their loss ratios will barely change because of the deduction for quality improvement. Subtracting those initiatives might shave about 0.5 percent off of total administrative expenses, one company said.

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