Friday marked the end of the open comment period for rules relating to the new medical-loss ratio (MLR) requirements and rate review standards in the new health care law. As expected, America’s Health Insurance Plans (AHIP) asked for fairly broad provisions that would allow the insurance industry to both reclassify administrative spending as medical spending and increase premiums with only limited regulatory oversight.
The new health care law allows insurers to classify certain practices as “activities that improve health care quality” and count those expenses as medical costs. Following the lead of insurers like WellPoint, AHIP recommends reclassifying certain provisions that were previously excluded from medical expenses (or considered administrative in nature) as “activities that improve health care quality”, thus inflating insurers’ medical loss ratio percentage without improving efficiency. “This definition should recognize the full range of health plan activities — both directly and indirectly related to patient care — that have the primary purpose of improving patient outcomes,” AHIP argues, before providing a long list of services like “nurse call lines,” “quality research and reporting programs,” and “consumer education programs.” [Read their full letter HERE]
But before insurers are allowed to reclassify any expenditures as “activities that improve health care quality,” they must “provide credible scientific evidence that the function improves the health quality of individual policyholders.” As Consumer Watchdog notes in their recommendation to HHS, “Any program or function added under the new ‘health quality’ definition must be stringently monitored by the states and the Department of Health and Human Services to protect against future abuses.” Interestingly, the Federation of American Hospitals goes even further in its recommendations, specifically stating that “the inclusion of a separate category specific to activities that improve health care quality is not as common, and requires a close focus by federal regulators to avoid becoming a “catch-all” into which a wide variety of expenses not directly related to patient care and clinical service quality may arbitrarily be placed.” The FAH warns regulators against agreeing to brand services like disease management and health education as “activities that improve health quality” [Read their full letter HERE]:
There are broad categories of costs that may appear to be related to quality improvement, when in actuality the various types of costs within the broad categories need to be closely scrutinized to reach a proper classification. It is not sufficient or appropriate to allow for one type of classification for all types of costs within the broad categories. For example, most activities related to disease management and health/wellness promotion programs are not directly related to quality improvement for particular patients and should be excluded. Also, generalized programs of health education for the population at large, which are often used as much for promotion of the health plan as to be generally informative on health status, should be excluded.
AHIP also adopted a rather lax approach towards the premium rate review provisions in the law, which require the Secretary to work with the states to establish an annual review of “unreasonable rate increases,” monitor premium increase, and to award grants to sates to carry out their rate review process. The provision is one of the only mechanisms preventing insurers from dramatically increasing rates before the exchanges become operational in 2014. Unfortunately, the AHIP letter recommends no set standards by which regulators can deem rates unreasonable, noting only that rate review should “continue to occur at the state level” — this will allow insurers to take advantage of states that don’t’ have adequate rate review protections — and that “the annual review of ‘unreasonable increases’ in premiums should be tried to principles of actuarial standards and solvency and should be applied consistently across states.” (The letter also lists a variety of factors that should be considered before a rate increase is deemed ‘unreasonable’).
Conversely, Consumer Watchdog recommends establishing several definite criteria by which an insurance regulator can brand a rate hike as unreasonable:
- The proposed premium increase is greater than 150 percent of the rate of “medical care” inflation as calculated by the Bureau of Labor Statistics (BLS).
- The proposed premium increase is greater than 10 percent, or will result in an increase of more than 10 percent in one year.
- If the insurer failed to meet the medical loss ratio (MLR) requirement of section 2718 in the year prior to the proposed rate increase, or if the proposed rate increase is likely to result in a loss ratio below the 80 percent or 85 percent MLR requirements.
- The premium includes provision for excessive administrative expenses or profit.
- The premium includes provision for unreasonable or wasteful administrative expenses.
- The benefits provided under the policy are unreasonable in relation to the premium charged.
- The premium is unreasonable in relation to the deductible or out-of-pocket charges including but not limited to co-pays and coinsurance costs required of the policyholder when accessing medical care.
- The insurance company failed to adequately negotiate provider reimbursement rates.
- A premium increase should not be considered reasonable simply because the increase is necessary to avoid a future financial loss on the insurer’s block of business. Such a standard would allow an insurer to avoid scrutiny even if the rate increase was made necessary due to poor business practices by the insurer.
Insurers are required to report their medical loss ratio in 2010, but won’t offer rebates until January 1, 2011. Later this year, states will also have to establish a process for reviewing increases in health plan premiums and require plans to justify increases.