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Regulators at California's Department of Insurance and Department of Managed Health Care have opened an investigation into a new Aetna agency agreement in which agents receive no commission for transacting health insurance but are authorized to charge service fees, which the company collects and remits to the agent.
Such a provision would appear to violate longstanding pronouncements of CDI that greatly restrict the ability of an “agent” to charge fees, said IBA West General Counsel Steve Young. “Brokers have much greater discretion to charge fees, but only “agents” are authorized to transact health and disability insurance in California,” Young said.
The insurer’s attempt to pay zero commissions is considered to be a response to one of the changes brought about in last year’s federal health care reforms: a provision that requires all large group health plans to spend at least 85% of premiums on medical services and quality improvement. Individual and small-group health plans have an 80% medical loss-ratio requirement. Under rules developed by the federal Department of Health and Human Services, commissions are included in the overhead and administrative expenses—subject to the overall cap of 15 percent for large groups or 20 percent for others.
“Aetna agents should consult legal counsel before agreeing to these new contract terms, or charging service fees to customers for any service that is not outside the scope of their agency agreement with Aetna,” Young said.
Young said California law has never expressly recognized the essential services that brokers in fact provide for their health insurance customers. By virtue of archaic definitions in the Insurance Code, an agent is someone who acts on behalf of the insurer, and a broker is someone who for a fee acts on behalf of the applicant or insured, and the CDI has traditionally held that one must look at the capacity in which the policy was actually placed—as an “agent” or as a “broker”—and then apply that characterization even retroactively to all interactions between producer and client.
“Without question, brokers have always provided essential services to California health insurance customers, even though the Code has retained archaic terminology suggesting that only an “agent” may place health insurance policies,” Young said.