Florida Fights $145 Million Insurance Rebate

Party Rooster

Unleash The Beast
Washington ruling could mean $145 million rebate to Floridians for health insurance

A little-known part of the federal healthcare reform act could get Floridians $145 million in insurance rebates and perhaps put many insurance agents out of business.

By John Dorschner

A final ruling from Washington is expected as early as Friday on Florida’s request for a waiver from a healthcare reform provision that could mean an additional $145 million in rebates to Floridians who buy health insurance on the individual market.

Healthcare experts say the decision might also put most health insurance agents out of business and cause major changes in how health plans spend their money.

The rebates are required as part of a healthcare reform law mandating that insurers spend at least 80 percent of premiums on medical care. Starting in 2011, insurance companies that don’t will have to make refunds to consumers.

Florida Insurance Commissioner Kevin McCarty had asked that the state be exempted from the law for three years and that the percentage that must be spent on healthcare rather than nonclinical expenses — an equation called the medical loss ratio — be phased in gradually.

In a meeting with The Miami Herald editorial board on Thursday, McCarty called the idea of a medical loss ratio “flawed.” He said the law could kill many health insurance agencies and be unnecessarily “disruptive” to the stability of the insurance business.

Still, McCarty was not optimistic about his objections being upheld. Washington rejected his original appeal in December and “Florida would have to have a very heavy lift” to prevail in this second go-round, he said Thursday.

Ethan Rome, head of Washington-based Health Care for America Now!, said the alternatives are clear. “Consumer advocates say Florida consumers should get $145 million in rebates. The governor and the insurance commissioner want to take $145 million and give it back to the insurance companies.”

He said the medical loss ratio “is one of the most arcane but most important consumer protections in the healthcare law.”

The Affordable Care Act, passed in 2010, requires that starting in 2011 insurers spend 80 percent of the premiums of individuals and small groups on healthcare. For large groups, 85 percent must go for treatment. That means that no more than 15 or 20 percent can go for administrative expenses, marketing, sales commissions and profits.

If insurers go over those thresholds in 2011 and any year after, they have to refund the difference to consumers. The federal Office of Health and Human Services estimated that could work out to about $174 million a year in Florida, but McCarty’s office believes that the law should be modified so that consumers would receive only $29 million the first year. The difference — $145 million — would be rebated to consumers if Washington rejects the appeal.

Seventeen states, including Florida, appealed the loss ratio requirements, saying it would cause a hardship on insurers and lessen competition in their states. Several were granted exemptions.

Florida’s initial request was rejected on Dec. 15, when HHS Deputy Administrator Steven B. Larsen sent McCarty a letter saying Florida had 20 insurers offering policies in the individual market and the insurers who had threatened to drop out because of the new medical loss ratio requirement handled only a tiny percentage of the state’s policies.

On Dec. 30, McCarty appealed the rejection, sending letters from Florida insurance salespeople complaining that the law would cause them extreme harm.

Larsen’s December letter revealed that the state’s largest insurer, Blue Cross Blue Shield of Florida, spent 79.2 percent on healthcare for individual policies in 2010, and if refunds had been offered then, it would have had to give back $8 million. Golden Rule, a subsidiary of UnitedHealthcare, spent 67.5 percent of its premiums on healthcare and would have to give back $36.8 million. Humana spent 62 percent, for a refund of $27.7 million. Cigna was at 65.8 percent, for a refund of $11 million.

Insurers are still calculating their 2011 loss ratios, the percentages that will determine refunds. Ellen Laden, spokeswoman for Golden Rule, said insurer reports were due to HHS by June 1, with refunds to consumers by Aug. 1.

BCBS spokesman John Herbkersman said the nonprofit company is “fully committed to providing quality and affordable healthcare and will continue to comply with all regulatory guidelines established by the federal government.”

One agent complaining to Washington was Stan Bershad, who runs a four-agent practice in Bay Harbor Islands. He wrote that he used to receive $75 a month from Aetna for selling a policy to a small law firm in Fort Lauderdale. Recently, he saw that reduced to $3 a month — for a policy that took him hours annually to service.

Bershad said in an interview that he’s convinced his pay was slashed because Aetna wanted to change its loss ratio to comply with the law.

BCBS and many other insurers now use the Internet to sell individual policies, and Santiago Leon, a Miami health insurance broker, said the law may put almost all agents out of business, the same way the Web ruined many travel agents.

McCarty said that would be unfortunate. Individual health insurance is sold by “mom and pop stores” that do a valuable job of helping clients choose among the many options in health plans and help clients when they encounter problems with insurers. “Buying a ticket to Atlanta is not the same as buying health insurance,” he said.

Rome, the consumer advocate, said he agreed that agents provided valuable services. He suggested clients who want those services should pay agents directly, rather than as an insurance commission. Bershad, who’s been an agent for 44 years, said that would be a “difficult transition.”

Do people really still use insurance agents like that anymore?