As if we didn’t already know this: The infamous HHS Secretary tells us what she really thinks in Congressional testimony.

Read the comments on that page, too – very interesting.

Another story on this topic references the infamous McKinsey study released last year. “At least 30 percent of employers are likely to stop offering health insurance once provisions of the U.S. health care reform law kick in in 2014, according to a study by consultant McKinsey,” Reuters reported. “McKinsey, which based its projection on a survey of more than 1,300 employers of various sizes and industries and other proprietary research, found that 30 percent of employers will ‘definitely’ or ‘probably’ stop offering coverage in the years after 2014, when new medical insurance exchanges are supposed to be up and running.”

The Obama Administration went to a full-court press in an attempt to deflect and discredit this story as being a put-up job by a) the insurance industry, b) Republican operatives, and c) all of the above, even going so far as to label it an “outlier” (whatever that means!). In fact, Democrats used these and other arguments in a kitchen sink attempt to discredit a study that was, by the way, funded entirely by McKinsey. Their efforts were less than successful, and I can assure you that the survey’s results are, anecdotally, true: I’ve been told the same thing by many clients.

Surprisingly, even Howard Dean says that the McKinsey study is one that “the Democrats don’t like but I do and I think it’s true.” Dean likes it because it will remove a burden from small businesses. Note that Dean, always a proponent of single-payor, pulls no punches as he advocates for a government system, whereas the Obama folks are trying to camouflage their real intent: destroying private insurance companies by crashing their reserves and limiting their ability to offset health care costs with appropriate premiums, which will lead to the same thing.

An interesting comment on what agents and brokers bring to their clients:

“The thing many people don’t know about our industry is that health insurance agents are in the business of saving lives. Like family physicians or ER surgeons, agents are intimately connected with their clients’ quality of care — and are often exceptionally hands-on in fighting for a treatment or surgery to be approved by the insurer so that it can be performed by the doctor.

This same hands-on guidance is needed before coverage is in place. Choosing a health care plan is no easy task, as anyone who has shopped for an individual health plan will tell you. It is also frequently not an affordable task. In a struggling economy, one of the biggest challenges agents now face is convincing people that health care coverage is a necessary expense, not an expendable one.”

I thank the contributor for an industry newsletter for this observation. This commitment to the client is a hallmark of all good agents and brokers. Somehow, Washington misses the point when they pass legislation that specifically excludes agents from assuming their rightful place as a trusted advisor to the public, and instead empowers entities with an agenda not wholly in keeping with the best interests of the general public (or, private-sector employees!) to do the job that trained and ethical insurance agents have been doing for decades. How so, you say? Believe it or not, under the Affordable Care Act, agents and brokers may not be compensated, and aren’t recognized as traditional insurance licensees for the purposes of placing health insurance. In essence, your health insurance agent or broker, whether you use individual or group insurance, will be out of business on January 1st, 2014. He most likely won’t be able to assist you – and, assuming you need to use an exchange-based product (a good bet for many people) you won’t be allowed to use him.

Of course, the conventional wisdom from HHS is that agents and brokers will of course be allowed to assist their clients and prospects through the exchanges. And this is about as far as the mainstream media will take it (they really don’t want to get involved in the details, you see). What HHS is really saying is that if a state wants to allow agents to enter the exchanges, they can do so, under new rules announced recently. But under the AFA, they still can’t earn a commission for the placement of a health insurance policy or group plan. We can however, receive “grant money” through the health insurance exchange, known as a “Navigator” grant (but the funding for these grants cannot come from federal funds). What’s really interesting is that agents and brokers are a long way down on the list of specific “entities” are are allowed as navigators, and, as I recall, weren’t originally included in the Navigator section under Obamacare, and this is telling: included in this list are groups and organizations whose primary focus isn’t in serving the public with accurate insurance information: consumer-based nonprofits and unions lead the list. I’ll let you, the reader, figure out why unions would be allowed to act as navigators with employees of primarily non-union employers.

Of course, HHS will allow the state exchange to “enforce existing licensure standards, certification standards, or regulations for selling or assisting with enrollment in health plans and to establish new standards or licensing requirements tailored to navigators”. Color me sceptical, but I foresee some Insurance Departments making it easier, not harder, for previously unlicensed entities to act as navigators, and harder for traditional agents and brokers, who primarily work as independent contractors with a cottage-industry business model. It’s simply a matter of scale – a union or a non-profit is very familiar with the way government works, and can easily acquire any expertise required to achieve navigator status and apply for grants to enroll large numbers of eligible individuals – they themselves have the resources to hire employees, under a broker license, to do just that. As a national operation, they are tailored-made for the kind of large scale enrollment activity that Obamacare requires. Individual agents work alone, sometimes in larger agencies, but rarely with more than a few dozen agents. Inevitably, there will be problems with compensation for agents and brokers. We don’t receive salaries from a union.

There are other hurdles that agents will find hard to meet – almost as if they were specifically being targeted for extinction through the use of the navigator process. For instance, navigators must “provide information in a manner that is culturally and linguistically appropriate to the needs of the population being served”, along with other heretofore nonexistent requirements for agents and brokers working in the private-sector insurance market. While, again, the devil is in the details, I doubt that many agents, assuming a strict interpretation of these requirements to receive navigator grants, will be able to meet these onerous requirements, especially given the nature of the lack of any clear compensation path. It’s another matter entirely if the governing board of the health insurance exchange, empowered with granting navigator status, is anti-broker, as will almost certainly happen in some (most?) states. As proof of the politics involved, consider the number of state insurance commissioners who continue to insist that agent compensation not be excluded from the Minimum Loss Ratio rules as a pass-through cost – almost ensuring the death of the traditional insurance agent in the role he’s always played in the delivery of health insurance policies to the public.

In Colorado, exchange legislation was adopted in May 2011, with the passage of SB 11-200, The Colorado Health Benefit Exchange. The legislation as passed and adopted does not address any issues regarding navigators in Colorado, and in fact does not mention agents or brokers in any way shape or form.

I can only draw the conclusion that, barring a Supreme Court decision invalidating The Affordable Care Act in it’s entirety, or the election of a super majority of Republicans in the House and Senate at the federal level (and the election of a Republican President in 2012) my role as an agent/broker advising the public as a licensed insurance agent on health insurance and group benefits will most likely come to an end in 2014. This isn’t anything new, of course: Hillary Clinton, who headed up her own scheme for a government takeover of health care, was asked by an agent in 1993 what would happen to health insurance agents under her plan. The Wall Street Journal quoted Clinton as saying, “I’m assuming anyone as obviously brilliant as you could find something else to market.”

Spoken as a true central planner. One wonders what else they will “nationalize”.

Obviously, the big news this morning is the “individual mandate” decision rendered by Federal District Judge Hudson in Commonwealth of Virginia v. Sebellius, et al. Judge Hudson ruled that the individual mandate exceeded Congress’ Commerce Clause power and was, therefore, unconstitutional.

First, we have opponents of Obamacare chortling that the end is near, and secondly, we have Sen. Dick Durbin (D-IL) saying that (as if it were a baseball game) the Dems are up 2-1.

Neither is accurate, and both are misleading.

Opponents of Obamacare have seemingly forgotten that the individual mandate, the centerpiece of Virginia’s lawsuit against PPACA, was largely created and added to the legislation as an inducement to health insurers. Without it, due to adverse selection, health insurance companies will be destroyed in relatively short order. (I don’t believe that anyone even casually schooled in basic insurance principles, or simple economics, would disagree with that statement.)

Unfortunately, Judge Hudson severed the individual mandate from the Act, rather than rule that, given the unconstitutional nature of the individual mandate, the entire act was unconstitutional. While not without precedent, it is troubling, since the Act was passed without a severability clause, a small but important piece of legal boilerplate that says, essentially, if any part of this legislation is struck down, the rest remains. This means that, as of this moment, the funding mechanism for Obamacare has essentially been tossed, along with any “directly-dependent provisions”, but not the rest of Obamacare.

The thrust of the individual mandate argument demands that the entire Act be deemed unconstitutional. Assuming severability, the portions of the Act remaining will still be law, and that is an even bigger recipe for disaster (as if things could get any worse!).

Cut to the chase: This decision will ultimately be taken up by the Supreme Court, and could bypass the traditional appellate review. As the Virginia Attorney General said at one point this morning, “I’m sure it will be a 5-4 decision… I’m not sure which 5-4”. Justice Kennedy, anyone?

As to the  2-1 scorecard, Sen. Durbin is spinning the news for political purposes, of course. At least one of the other lawsuits wasn’t based on the same narrow criteria – Thomas More Law Center brought suit strictly on federally-funded abortion issues, while the suit involving Liberty College focused on the same individual mandate, albeit with the supporting argument that premiums would be used to pay for abortions. The reality is that the “score”, if you want to look at it that way, is really 1-1-1 (and I’m being charitable).

All of this pales in comparison to the 20 state lawsuit, filed in a Florida federal court (of which Colorado is a participant), suing the federal government over PPACA. That is where, in this observers’ opinion, the real action will be. For all I know, the Virginia case could seemingly be combined with the bigger, 20 state action when reviewed by the Supremes.

See comments by the Colorado AG on the Virginia ruling. Also, here.

Additional comments here, and here. And a legal opinion, here.

First, some background: medical-loss-ratio (MLR) regs are a controversial element in the Affordable Care Act (ACA), generally known as Obamacare. These regulations impose specific mandates on insurer premium revenues that relate directly to payments for clinical care. Under the ACA, 85 cents of every premium dollar must be spent for claims in the large group market, with 80 cents used as the new rule for the small group and individual health insurance market, regardless of where the insurer does business. These regulations are intended, so the story goes, to reduce excessive administrative expenses. You know, things like, salaries, commissions, and so on. Obviously expenses that are luxuries, right?

Maybe somebody should try and do that with Medicare and Medicaid, neither of which can even estimate, for example, what fraud costs the American taxpayer. But I digress.

To put this in contrast, it has been generally reported that health insurers spent 60 to 70% of premium revenue, more or less, on clinical care payments prior to the enactment of the legislation. Some insurers probably spent more, some less, of course.

Now, it’s no secret that meeting this new medical loss ratio will be problematic for insurers. There is, roughly, a 10 to 20% gap between where insurers are and where they need to be under the new regulations, maybe more. One might be prompted, if you were inclined to froth on about “obscene profits” or rant against “evil health insurers”, to assume that health insurers would simply reduce their allegedly bloated profits, or simply increase rates to meet this new requirement. However, it isn’t as simple as that – especially given the fact that your local grocery store probably makes more in profit percentage than, say, Aetna on an average year. Obviously, given the fact that the federal government is now in charge of both setting prices on premiums, as well as determining what will and won’t count towards the “80% MLR”, insurers were keen to make sure that HHS listened to their concerns regarding what counted as claims-expense and what didn’t.

The actual interim rule, scheduled for official release December 1 and with an official date of January 1, is published here. Entitled “Health Insurance Issuers Implementing Medical Loss Ratio (MLR) Requirements under the Patient Protection and Affordable Care Act”, the document is 308 pages long, and was written by the Office of Consumer Information and Insurance Oversight, Department of Health and Human Services, headed by Jay Angoff. The interim rules build on discussions between Health and Human Services (HHS) and the National Association of Insurance Commissioners (NAIC). In spite of the over-heated warnings of insurance industry “demands” coming from so-called consumer advocacy groups, virtually all of whom are progressive policy organizations, HHS recognized the NAIC by stating that “this interim final regulation adopts and certifies in full all of the recommendations in the model regulation of the National Association of Insurance Commissioners (NAIC) regarding MLRs.” As a practical matter, though, it seems to escape the champions of left-wing “consumer justice” that these interim rules were adopted without any changes by the health insurance industry, as reported by the Wall Street Journal here and here.

It will take me a little time to review this interim rule, and I will comment on it in the future. One thing that I did note in my brief review is the apparent suspicion that HHS holds for the health insurance industry. The other is that, regarding their recommendations to HHS, the NAIC acts very much like any other political organization, in that it’s actions and recommendations are all based on political calculus intended to advance policy positions. It should be obvious to anyone that the NAIC is made up of appointed (by governors) or elected (as in California) state insurance commissioners who do make a point of advancing the policy goals of their respective Democrat or Republican leaders, bureaucracy notwithstanding. It will be interesting to see what will happen going forward, as newly elected Republican Governors begin to make their weight felt in the proceedings of the NAIC and its recommendations to HHS with model rules, especially with states that appoint insurance commissioners. Colorado, due to the election of John Hickenlooper, will likely continue its left of center lean with rule-making recommendations. I suspect that, in the future, HHS might view the NAIC with less and less authority, especially if they begin to differ with the timeline or policy goals of health care reform as laid out by the Obama Administration.

UPDATE: Commentary on the impact of medical-loss-ratios here.