When the time comes again for the National Association of Insurance Commissioners to weigh in on federal matters, will it be taken seriously as an organization, and regarded as authoritative experts? At one time, the answer would have been an automatic and immediate yes. But today, after a series of unusual decisions and signs of infighting, the answer may not be so clear, leaving some to wonder if the organization is beginning to show the stress fractures that are bound to result when a group dedicated to state insurance regulation finds itself in an era of relentlessly encroaching federal oversight.
Take as an example the NAIC's dealings with the juggernaut that is U.S. Department of Health and Human Services, which has been implementing the bulk of the Patient Protection and Affordable Care Act (PPACA). The NAIC and HHS have worked extensively together on matters of PPACA implementation, but when the NAIC made a controversial gambit last year to get the HHS to give health insurance agents a waiver on what the insurance industry considers to be one of PPACA's more onerous requirements — the medical loss ratio requirement — HHS flatly denied the NAIC. Could things have turned out differently?
The answer depends on whom you ask within the ranks of the country's insurance commissioners, but the result stemmed from the most divisive issue at the NAIC in years, which cut through the center of the organization just before the 2011 Thanksgiving holiday, to the consternation of regulators, consumer groups and Congressional lawmakers.
The medical loss ratio (MLR) is a PPACA mandate that at least $0.80 of every health insurance premium dollar must go to medical costs, leaving only $0.20 to cover insurers' costs. Where this concerns agents is the possibility that carriers may cut into agent commissions in order to preserve current profit levels. Trade groups have so far lobbied unsuccessfully to get HHS to exempt agents' commissions from the MLR, so by last autumn, the NAIC got involved by drafting a resolution that would formally request HHS to exempt agents and brokers' commissions from the MLR.
This effort to support the agents and brokers community created division within the NAIC itself and created a public flap in Washington. Some felt the NAIC's actions on this issue hurt its reputation before federal agencies while others felt it was a brave stand against a major health care reform mandate whose critics have challenged all the way to the Supreme Court. (Arguments over the Constitutionality of another controversial provision, the requirement that everyone must buy a minimum level of health insurance, will begin at the Supreme Court this month.)
The action under the NAIC's new leader, Florida Insurance Commissioner Kevin McCarty, has drawn attention to the NAIC's role in Washington and its methods at a critical time, when much of PPACA has yet to be implemented. The NAIC, experts point out, still needs to work with Congress and HHS, as well as with the Federal Insurance Office, the Treasury Department and the Federal Reserve on requirements and mandates emerging from the sweeping financial services reform package, the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The existing fault lines over the NAIC's role in helping craft and implement PPACA's medical loss ratio rule opened wide at the NAIC National Fall meeting in early November outside of Washington.
When insurance commissioners from across the states gathered in a room at the Gaylord National on the Maryland side of the Potomac River and opened their packets of agenda items for the conference, many noticed something they were not expecting: a drafted resolution on a matter on which they had toiled endlessly for months, but which had reached a dead end for further action. There had been no consensus on how what kind of stand, if any, the NAIC should take on the MLR.
But McCarty, the incoming president of the NAIC, a 501(c)3 organization which calls itself the U.S. insurance standard-setting and regulatory support organization, had not given up.
Inside each packet given to the commissioners was a draft NAIC resolution, a seldom-used statement of support consisting of a string of Whereas findings and concluding with "WE, THE MEMBERS OF THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS, THEREFORE RESOLVE THAT…"
The resolution seemed to come "from thin air," Washington State Insurance Commissioner Mike Kreidler said on a public conference call before a deeply divided vote right before the Thanksgiving holiday. Kreidler is currently the longest serving state insurance regulator. A former U.S. House and state legislator, he has been in his elected commissionership position since 2000.
"It came as a complete surprise to everyone," Kreidler later said. "I heard people asking questions: 'Is this going to come before the full plenary?'"
Connecticut Insurance Commissioner Tom Leonardi, who is close with McCarty, also took issue with the process. "It came out of nowhere — a number of commissioners who did not even know it was in existence — first, it was to be introduced at plenary without discussion," Leonardi said in an interview. "No one had told me of its existence."
According to one commissioner at the meeting, Leonardi was outraged, and his good relationship with McCarty and strong stance against the amendment led others to feel safe enough to follow suit in protesting a vote on the issue.
"It was first circulated secretly to only some commissioners, as opposed to all of us. The lack of transparency, the failure to follow a process that would include committee review and a public hearing, the willful disregard of the evidence, all undermine the credibility of the NAIC's vote today," California Insurance Commissioner Dave Jones stated on Nov. 22 on the nearly 90-minute plenary vote call.
Clearly, some regulators in the room at the Gaylord had already seen it and agreed to sponsor it. But when asked, no one would say exactly when they first found out about it, only that they were asked to sponsor it. McCarty wanted to push a vote at the Gaylord, some commissioners recalled, but met with so much opposition, that it was agreed they would revisit it in a couple of weeks. (When approached by National Underwriter, McCarty declined to comment for this story.)
One commissioner noted the MLR resolution had not even been raised in an Executive Committee meeting, and that the "total lack of transparency" of the NAIC at the Fall meeting, and the work "totally behind closed doors," contrasts sharply with the very public, very open organization under former NAIC President Jane Cline, now in private practice in West Virginia.
But not everyone felt the MLR resolution was handled poorly. "When you are losing, you argue process," said Kansas Insurance Commissioner Sandy Praeger. "We established the government relations liaison council to be able to respond quickly, so there are a number of ways, when we need to act, so we could act more quickly."
Resolutions are relatively rare at the NAIC; only a handful have been issued over the last decade. More common are letters to Congressional committees, individuals or to the body itself, as well as federal agencies, all archived under the Government Relations function of the NAIC.
A recent one was also an agent protection resolution — the August 2010 Resolution To Protect the Ability of Licensed Insurance Professionals to Continue to Serve the Public, a resolution to protect agents' roles while states are establishing standards for health care exchanges (online insurance-purchasing portals) under PPACA.
Resolutions found via the NAIC website prior to health care reform appear nonpartisan and do not support a particular regulated constituency, although an exhaustive list was not available from the NAIC.
Before that, was a 2004 formal resolution urging Congress to adopt a two-year extension of the Terrorism Risk Insurance Act, and one in 2000 committing "the state insurance regulatory organization to work toward fully implementing the technology and policy initiatives associated with the NAIC's Gramm-Leach-Bliley financial services reform working groups and pursuing uniform regulation through technology.
ALL OPPOSED?
Some say the push for a MLR resolution vote was both a tactical failure and an inauspicious start for McCarty's NAIC presidency. Despite a 26-20 final vote, with five abstentions, to approve the MLR resolution, numerous commissioners felt that McCarty could have gotten even more votes and built more of a consensus around the issue had he handled it differently. Procedural maneuvers to strike portions or to table the resolution failed, and a vote to table the resolution by sending it back to a committee failed by one vote. The count was 26-25.
Texas Commissioner Eleanor Kitzman, and Montana Commissioner Monica Lindeen, who both declined to be interviewed but who issued statements regarding the resolution, have both embraced the role of the agent and the need for an MLR change, but they could not vote for the resolution as crafted by McCarty. Lindeen voted to send it back. Kitzman was the only one who abstained from the vote to table it as well.
Lindeen and Praeger had proposed an amendment to focus the resolution on the NAIC's request to Congress, not including HHS in the demands. It failed with three no votes, 13 yes votes, and 15 abstentions – largely stemming from confusion over what the NAIC was really voting on.
The resolution itself was a formal request by the NAIC that HHS take immediate action to mitigate the adverse effects the MLR rule might have on agents and brokers – namely by exempting agent and broker commissions from any insurance carrier's MLR calculations. The resolution asked that HHS place an immediate hold on implementation and enforcement of the MLR requirements relative to agent and broker compensation and that it classify an a portion of producer compensation as a health care expense.
HHS, as it turned out, does not even have the authority to make such a change; under PPACA, all HHS can do is approve state MLR adjustment requests (which, so far, it has universally declined to do).
HHS is there to interpret the law, said Washington & Lee law professor Tim Jost, an NAIC consumer representative knowledgeable on health care reform. There is no room in the statute to classify agent commissions in the MLR, he said.
"We were sympathetic to the concern that the agent was the easy target (for insurers looking to meet the tighter MLRs)," Praeger said. "I think we expressed that to HHS (back in 2010). We had our lawyers look at the parameters and we just didn't think we had the authority that the agent commission be pulled out, and I think HHS was in the same box." The end result, Praeger said, was that the NAIC resolution put HHS in an awkward position.
In a matter of days HHS, which has its own people on NAIC health-related conference calls, issued its final regulation on Dec. 7 in the Federal Register with nary a mention of the NAIC pre-Thanksgiving gambit. Steve Larsen, director of the Center for Consumer Information and Insurance Oversight (CCIIO) at HHS' Centers for Medicare and Medicaid Services (CMS) agency, speaking at an industry conference in late January, finally referred to the resolution's request by markedly noting, "we don't see an avenue to modify or delay the MLR regulation; we don't see a regulatory fix there."
He acknowledged they undertook the review under pressure from the industry, and that the review was extensive. This included ongoing discussions with officials from the National Association of Health Underwriters and the NAIC, as well as a review by HHS in-house lawyers, he said.
"In the end, the NAIC also reached the same conclusions when they came to us with their recommendations regarding the MLR," said Larsen, referring to methodology recommendations the NAIC made on the same issue a year before.
So why did NAIC go out on a limb over the objections of many, and vote on something that ultimately seemed to result in a fractious and unproductive political exercise? Praeger, who was at the helm of the NAIC as president during the AIG crisis, had no easy answers. She points out that the language of PPACA mentions the NAIC nine times, and that the organization is still looked to as a body of experts. Still, the MLR resolution raised concerns.
"It is important when we do send something that it is really important and completely accurate and doesn't gloss over certain aspects," Praeger said. "[PPACA] is going to remain very controversial for the next few years if it remains on the book and new want to remain being viewed as the experts so our credibility is very important here. We want Congress to continue to look to our state regulators every day, we want Congress and the administration to continue to look to those 10, 000 to 13,000 agents across the country for advice and expertise…and we all know when a reputation once damaged is hard to get back."
Jost, the law professor and consumer rep, noted that he has not "seen any hard evidence consumers are being harmed" by the MLR, as the NAIC position now publicly asserts. "Agents and brokers are being harmed. They are getting less than they used to," he said, but insurance companies were already beginning to cut commissions before PPACA passed — the MLR just gave them cover for doing so, Jost said.
