State regulators are about to forward recommendations to the U.S. Department of Health and Human Services about how to treat medical loss ratios (MLRs).
MLRs are the minimum amount of premium per dollar that must be paid out in claims by health carriers. Under the new Patient Protection and Affordable Care Act (PPACA), the minimum MLR is 80 percent or 80 cents on the dollar. If carriers do not meet this minimum, they must rebate premium to those enrolled in their plans.
How medical loss ratios are constructed is important, a number of insurance commissioners say, because without at least a phase-in in 2011, 2012 and 2013, carriers may decide to withdraw from their states. A number of carriers are already raising the issue with their insurance departments, according to comments from NAIC leadership made a few weeks ago after a meeting with President Barack Obama and HHS Secretary Kathleen Sebelius.
State insurance commissioners put final touches on proposed recommendations that will be put to a final vote at the fall meeting of the National Association of Insurance Commissioners, Kansas City, Mo., when it meets in Orlando this coming week.
The Health Insurance and Managed Care “B” Committee discussed and adopted work developed by the NAIC’s Life & Health Actuarial Task Force that would allow for rebates to be calculated into the medical loss ratio during the transition period.
The discussion then turned to the issue of credibility and how a 50 percent requirement could have a negative impact on small groups. Addressing credibility could offer smaller health groups relief and remove some of the urgency to consider national aggregation, Kansas Insurance Commissinoner Sandy Praeger and "B" Committee chair commented. One way to reduce the strain on small groups would be to start with an 80 percent credibility requirement and phase it back to 50 percent, she said. Another option would be to leave it at 80 percent.
A decision was made to hold the issue and discuss it at the NAIC executive committee/plenary session in Orlando when the committee is supposed to have data provided by Milliman, actuarial consultants, to make a more informed decision.
Oklahoma Insurance Commissioner Kim Holland, NAIC Secretary-Treasurer, said that it is imperative that some relief be provided to carriers so that they remain solvent and remain in the states. New York regulator Lou Felice remarked that while he understands that concern, it is important that regulators “keep their eye on the ball,” namely to retain access to health insurers for states’ residents. If carriers are given too much latitude on MLRs, there will be less aggressive pricing and less access to insurance, he explained. Felice added that there will be a big transformation in 2014 when new requirements become effective and wondered whether the outcome will just be delayed: states will lose carriers in 2014 rather than in 2011 if they are given latitude now.
Connecticut Insurance Commissioner Tom Sullivan asked Felice whether the large group market is broken. Felice responded that “pricing is more aggressive in New York large groups which are in the 80s already. They can meet [MLRs] on a state and national basis.”
Kansas’ Praeger said that she fully understood that rebates should be an occasional and not a regular occurrence. In response to a question from Illinois Insurance Director Michael McRaith, Praeger said that there could be a reconsideration of decisions recommended by the NAIC at a later point if needed. She emphasized that regulators need to do everything that they can to minimize market disruptions.
On the issue of credibility, the adjustment to account for random statistical fluctuations in claims experience for smaller plans, there was discussion on an 80 percent permanent rate or phase back to 50 percent. It was noted that the American Academy of Actuaries, Washington, illustrated a 90 percent permanent rate to minimize market disruption.
However, it is not endorsing it, according to Academy spokesperson Andrew Simonelli. In fact, the Academy's Medical Loss Ratio Regulation work group has recently focused on an 80 percent level. It has identified flaws in the 50 percent rate, he continued. And, he added, the work group has said that, “Increasing the magnitude of the credibility adjustments may help keep insurance markets attractive to smaller competitors, which would enhance consumer choice.”
Tim Yost, a consumer advocate, agreed that the goal is not to pay rebates and suggested that the 80 percent credibility requirement could be used for the smallest groups which are most likely to face challenges.
Barbara Yondorf, another consumer advocate and a former Colorado insurance regulator, said that health plans in her state were very concerned with aggregation and believed that health care should be addressed as a local issue.