Bookmark and Share

July 2011 St@teside

NAIC Releases White Papers on Exchange Governance, Navigators/Brokers, and Adverse Selection

On July 12, 2011, the executive committee of the National Association of Insurance Commissioners (NAIC) approved three white papers on exchange governance, the role of navigators and health insurance agents and brokers (“producers”) in the exchange, and adverse selection in the exchanges. Prior to that, NAIC’s Professional Health Insurance Advisors Task Force voted on June 30 to support legislation currently pending in Congress that would that would exclude commissions paid to producers from revenues used to calculate the medical loss ratio (MLR).

The exchange governance paper provides examples of existing state models and discusses a series of issues that states need to consider when establishing an exchange, including: 1) the location and legal structure of the exchange; 2) the board structure; 3) stakeholder board participation; 4) board expertise; and 5) conflict of interest.

To help states understand the role navigators and producers currently serve and to determine what their roles should be in the exchange, NAIC’s paper outlines issues states should consider, including:

  • Standards for navigators. States can establish standards that address factors such as qualifications, licensure, and the avoidance of conflicts of interest.
  • Licensing and certification of navigators. States need to determine whether to license or certify navigators and whether to establish a system of reciprocity to allow licensure in multiple states if certain standards are met.
  • Educational and continuing education requirements for navigators.Since exchanges will operate differently in various states, each state will have different education requirements to serve the needs of its population.
  • Accountability. States may want to require navigators to carry professional liability insurance that would protect them as well as the consumer in the event of an error. Other consumer protections can also be required as part of the grant process for selecting navigators.
  • How navigators can help facilitate enrollment in public programs.
  • Safeguarding a consumer’s personal information.
  • How to identify, reach out, and oversee non-insurance partners acting as navigators. In the absence of regulatory authority over navigators, states could consider applying a consumer complaint process to navigators and “community partners” that serve as navigators. Also, in the absence of oversight by the commissioner of insurance, the exchange governing board must be given authority under the enabling legislation to promulgate regulations to oversee the functions of navigators.
  • Funding for navigator programs. Since navigators may not receive compensation from an insurer, the exchange may charge the plan a separate fee to compensate the navigator.  The compensation should not vary regardless of group size, plan design or health insurance issuer chosen by the consumer. If navigators are expected to service Medicaid or CHIP populations, these programs also should contribute to funding the navigators.
  • Whether producers should serve as navigators.  If states determine that producers are suited to serve as navigators, they will need to determine whether producers need additional training to ensure they have the necessary knowledge to perform the navigator duties.
  • Whether there is a potential for conflict of interest arising when producers serve as navigators.
  • How navigators and producers would be involved in multi-state plans offered by the U.S. Office of Personnel Management (OPM) through the exchange after 2014. It is expected that the federal regulations would help states address this issue.

Adverse Selection

Since the risk of adverse selection can threaten the viability of exchanges, NAIC lays out several options for states to address adverse selection:

  • States can require insurers to operate both inside and outside the exchange and/or offer products at certain levels.  Although the ACA requires that states establish tiers of benefits based on actuarial value, there is concern that even within the same actuarial value, insurers would still be able to differentiate their plans in order to entice or deter certain consumers from enrolling. In addition, while insurers in the exchange are required to include silver- and gold-level coverage, those outside the exchange can offer bronze-level or catastrophic coverage.  Self-insured plans are subject to even less rigorous requirements under the ACA, and might offer coverage that is substantially less protective than exchange coverage.2
  • States need to provide consumers with choice of plans without overwhelming them.
  • If a state mandates benefits that exceed the essential benefit requirements, it may need to make the mandated benefits a requirement outside the exchange as well.
  • NAIC cautions states that if a state’s requirements for plans to be certified as a qualified health plan go beyond those required by federal regulations, it is possible that the plans sold through the exchange will be more expensive. This can drive enrollment away from the exchange and hinder competition and/or inhibit new insurers from becoming part of the exchange.
  • States may consider having similar participation requirements between insurers inside and outside the exchange.
  • Regulating the compensation structure for both producers and navigators. The compensation structure can have a significant effect on the market and these effects can vary between the individual and small group markets. To minimize the effects of different compensation structures on the market, states can regulate them both in and out of the exchange.
  • If a state charges an administrative fee for products sold inside the exchange, it may need to do the same for products sold outside the exchange to avoid a cost discrepancy.
  • To prevent individuals from purchasing coverage when they need it and drop it when they do not, states may want to include enrollment requirements in addition to those included in the ACA. For example, states can prohibit consumers from purchasing coverage (both inside and outside the exchange) during a specific time period each year. Additionally, states can institute a penalty for late enrollment or limit the number of times a person can change coverage to once a year.

NAIC’s Professional Health Insurance Advisors Task Force voted in support of legislation (H.R. 1206) introduced by Representative Mike Rogers (MI) to remove commissions from the calculation of the medical loss ratio has been well received by brokerage groups such as the National Association of Health Underwriters (NAHU) but opposed by consumer groups. Under the Affordable Care Act, insurers must pay rebates to consumers if they spend more than 15 percent (in the large group market) and 20 percent (in the small group and individual market) on administrative and other nonmedical expenses.  Including commissions in the calculation of administrative costs increases the likelihood that insurers pay rebates to consumers.  Supporters of the bill expressed concern that including commissions in the MLR calculation would lead to diminishing commissions, which would make brokers and agents likely to exit the market. On the other hand, consumer groups note that the legislation would “cost consumers billions in higher health insurance premiums and lost rebates."2

According to Florida Insurance Commissioner Kevin McCarthy, chairman of the Professional Health Insurance Advisors Task Force, the task force’s vote in support of the law is not an official position of NAIC. The NAIC or the association’s government relations committee will have to act on the resolution first.3

1Jost, T.S. (2010, September). Health Insurance Exchanges and the Affordable Care Act. Eight Difficult Issues. The Commonwealth Fund. Retrieved on July 26, 2011, from
2Hansard, S. (2011, July 11).  NAIC Task Force Supports Bill to Remove Broker Commissions From MLR Requirement. BNA’s Health Care Policy Report (Subscription Only). Retrieved on July 21, 2011, from
3Hansard, S. (2011, July 18).  NAIC Approves Three White Papers On Issues Relating to Creating Exchanges. BNA’s Health Care Policy Report (Subscription Only). Retrieved on July 21, 2011, from