The Centers for Medicare and Medicaid Services says it will crack down on insurers who fail to meet the exact letter of the law for medical loss ratio (MLR) reporting. But, in new guidance declaring its intentions, the CMS also outlined for insurers exactly how they can exclude agent fees and compensation from earned premium when doing such reporting.
In general, the new guidance states that insurers, under most circumstances, cannot exclude agent fees or commissions related to a policy from earned premium when calculating MLR.
"CMS has become aware that some issuers have been seeking ways to exclude agent and broker fees and commissions from premium in order to increase their MLRs and reduce or eliminate rebates," the guidance states. "Specifically, some issuers have been trying to assert that payment of agent or broker fees or commissions is not a condition of coverage, and that the policyholder owes these amounts directly to the agent or broker, while issuers merely pass these amounts through. In some cases, issuers have required policyholders, as a condition of coverage, to sign a statement that the policyholder retained the agent or broker and negotiated the fee independently of the issuer, even where it appears that such statement was not factually accurate."
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That's not going to fly any longer, CMS said. But there are certain instances when such fees and compensation may be excluded. Transactions must meet all of the following conditions:
1. The law of the state in which the policy is sitused does not deem the agent or broker to be a representative of the issuer;
2. The policyholder is not required to utilize an agent or broker to purchase insurance and may purchase a policy directly from the issuer;
3. The policyholder selects, retains, and contracts with the agent or broker on his or her own accord;
4. The policyholder negotiates and is responsible for the fee or commission separate and apart from premium;
5. The issuer does not include these agent or broker commissions and fees in rate filings submitted to the applicable regulatory agency;
6. The policyholder voluntarily chooses to pass the fee or commission through the issuer and is not required to do so, or the policyholder pays the fees or commission directly to the agent or broker; and,
7. The policyholder issues the 1099 to the agent or broker, if a 1099 is required.
But be careful, CMS warns, because the agency is going to be watching for scofflaws.
"If CMS determines that an issuer has incorrectly calculated rebates or has incorrectly reported MLR data, it may require issuers to take appropriate corrective actions, such as paying any difference in rebates owed (with interest) to enrollees, and reporting the corrected amounts to CMS," the guidance says.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
