It is now official. The fees that private health insurance companies pay to insurance brokers cannot be included into their medical care expenses. This is good for consumers, but, it isn’t an ideal situation for brokers. This decision is probably not going to make insurers very happy either.
In 2010, there was a health reform law passed that required all health insurance companies to spend at least 80% of the money that they get from premiums on medical care and quality improvement. They could no longer spend more than 20% of their profits on administrative costs. Insurers of large groups are required to spend 85% of the money they get from premiums on medical care and quality improvement, and cannot exceed spending 15% on administrative costs.
Insurance companies who choose to exceed that 20% limit, (or that 15% limit), are required to give rebates to their customers. Shortly after this law was passed, insurers started to try and get around the intent of the law. Some actually posed the argument that employee salaries should be included as “quality improvement”. This argument was not accepted.
Another controversy had to do with insurance brokers. Brokers pushed hard to have their fees considered to be medical care. They did not want their fees considered to be an administrative cost.
Insurance brokers work as a “go between”. A consumer can come to them to find a health insurance policy. The broker communicates with several different private insurers, and gives potential options to the consumer. The consumer can purchase a health plan through the broker, and the broker will receive a commission from that private insurer.
The new requirements caused brokers to worry that they would end up losing their jobs. They also feared that their commissions would be cut, if insurers had to include brokers fees into the 20% that they can spend on administrative costs.
As of today, officially, brokers fees cannot be included as medical care. One reason is because those fees are not for health treatments or services that were provided to customers of the insurer.
Another reason is because if the insurers get permission to include those fees as medical care, then it opens the door for insurers to push other things that are not medical care into that 80%. It could also provide an argument for insurers to resist paying out rebates to their customers if the insurer chooses not to spend a minimum of 80% of their profits on medical care.
This decision is good for consumers. It means that the majority of what you pay for your health insurance premium is actually being spent on things that can help improve your health, or on health care treatments. Unfortunately, the decision isn’t an ideal one for people who are currently working as insurance brokers.
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