Most analysis of the decision has focused on whether the high court was right to uphold the individual mandate as a tax — as well as how it will affect this fall’s presidential election. But few have noted that the newly upheld law will have a profound impact on the American job market — and soon.
Hidden inside the law’s 425,116 words is a provision that may destroy the jobs of thousands of insurance agents and discourage hiring by businesses across the rest of the economy. Policymakers must act to address this now.
That provision is the law’s medical loss ratio (MLR), which stipulates that insurers spend between 80 and 85 percent of every premium dollar on medical claims. That leaves no more than 15-20 percent of insurers’ revenues for administration and profit.
If insurers fail to adhere to those thresholds, they must rebate the difference to policyholders.
The Obama Administration’s HealthCare.gov website says that by limiting the amount insurers can spend on administration, the MLR provision will ensure that consumers get their “money’s worth on health insurance.” But blaming insurer’s administrative fees for the rising cost of health coverage is a mistake.
Health insurance premiums are rising because the underlying cost of medical care is increasing. Healthcare providers in the United States charge more than their foreign counterparts for everything from CT scans to bypass surgery.
Further, there’s not much fat to trim from insurer’s budgets. The industry already posts a slim profit margin of between 2.2 and 4.5 percent, according to recent data.
To comply with the government’s MLR rules, insurers have cut the commissions paid to agents and brokers that sell and service policies. As an August 2011 report from the Government Accountability Office concluded, “Almost all of the insurers we interviewed were reducing brokers’ commissions . . . in an effort increase their MLRs.”
As a result, many insurance agents have seen their incomes plummet — and have had to slash employment at their practices or go out of business altogether. According to a recent survey, a quarter have decreased the level of service they provide to clients — as they can barely keep their doors open.
For many small businesses, losing access to an agent poses disastrous consequences. The Congressional Budget Office has reported that agents and brokers often serve as de facto human resource departments for America’s small businesses, “finding plans and negotiating premiums, providing information about the selected plans, and processing employees.”
Without agents, these firms have to administer their benefits in house — and have less time and money to devote to other pursuits, like growing their revenues and creating jobs.
The National Association of Insurance Commissioners warned the Obama Administration about the potential consequences of the MLR rules only months after the health reform act became law. The group of state regulators expressed concern “about the impact the medical loss ratio requirement could have on the ability of insurance agents and brokers to continue assisting health insurance consumers at a time of rapid changes that makes their role even more essential.”
Insurance agents aren’t the only folks whose jobs are threatened by the MLR requirements. Higher premiums make workers more expensive to employ. As a result, many companies may consider laying off workers to reduce their health insurance tab — or may cease hiring altogether.
With the national unemployment rate north of 8 percent, it makes little sense for the government to discourage job creation.
There’s a simple fix to this conundrum. Policymakers should exclude commissions from the MLR calculation. Fortunately, both the House and Senate are considering legislation — H.R. 1206 and S. 2288, respectively — that would do just that.
It would not only allow individuals and small businesses to continue to access agents — it would also preserve thousands of jobs in nearly every community in America. It can’t have been the intention of those who drafted the health reform law to put thousands of Main Street insurance agents out of work.