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."