Regulators never take a holiday, especially in December when giving seems so right. Washington D.C. and Washington State have given new gifts to unwrap throughout the coming year.

On December 16th, the Center for Consumer Information and Insurance Oversight (CCIIO), a subsidiary of the conglomerate Centers for Medicare & Medicaid Services of the United Stated Department of Health & Human Services (and I’ve already hit my word limit), issued new guidance targeting agent and broker compensation that discourages health plan sales. That sounds strange to say but some levels of compensation just are not worth the effort. Like minimum wage, I guess.

CCIIO explains that insurance producer compensation that has “the effect of discouraging the enrollment of individuals with significant health needs in health insurance coverage” violate federal health reform regulations. CCIIO provides the following example:

If an issuer pays agents or brokers less through all forms of compensation for higher metal level plans (such as platinum and gold level plans), which are associated with higher utilization, than the issuer pays for lower mental level plans (such as bronze and silver level plans), this act constitutes a failure on the part of the issuer to comply with the applicable Federal guaranteed availability provisions and QHP marketing standards.

CCIIO observes that producer compensation is part of the price of coverage. Given that rates have been filed and approved for next year, CCIIO will wait until insurers have a chance to adjust rates to fix the illegal discrimination.

On December 1st, the Washington State Insurance Commissioner published a consent order in which Zenefits (YourPeople, Inc.) agreed that it would not “provide free use of its online, cloud-based, software platform that integrates the administration of human resources, payroll, and employee benefits…” The Commissioner found that Zenefits gave Washington residents “free access to valuable software functions” in violation of the state law that prohibits inducements to purchase insurance. It’s not an inducement if the “inducement” is worth less than $100. Like minimum wage, I guess.

No more free lunch – Zenefits has agreed to offer its online “apps” and software platform “as part of a paid service sold at fair market value.” Presumably, it’s worth more than $100 per person per year.

The order created a stir and dampened the holiday mood. Does the order mean insurers and producers can no longer provide online services? Does every free, cloud-based app relating to insurance fall into the illegal inducement ban? How much does a producer need to charge? Questions and more questions. Naturally, I went to the source for answers.

My discussion with the OIC was pleasant and not alarming. However, like many rules governing insurance, a violation depends on the obscenity standard. As first expressed by U.S. Supreme Court Justice Potter Stewart, “I know it when I see it.” The OIC could not clearly articulate a standard to objectively measure producer and insurer free services that would violate the statute. Naturally, I presume such services were not included in the health plan rate filing.

The agency did not go looking for the fight. Competing insurance brokers complained to the agency demanding an investigation of Zenefits. Investigators knew that Zenefits crossed the line by offering free “payroll” services unrelated to insurance services. The agency knows an inducement when it sees one. The agency also knows that it does not know what it needs to know about online insurance services.

The agency is not interested in chasing down every offer of online services, determining market value, and bringing illegal inducement charges. Nevertheless, some education and sharing will be necessary in the coming year to avoid unpleasantness. Some of the known unknowns might unknowingly hurt desirable programs.

Merry Christmas!

No refunds, returns or exchanges.