Health and Human Services Secretary Kathleen Sebelius has written a letter to the National Association of Insurance Commissioners (NAIC) requesting their assistance in defining medical loss ratio (MLR) standards in the new health care law and has issued two formal requests for public comment on how best to define the term and implement reform’s rate review provisions.
The new health care law requires that insurers spend at least 80% of customers’ premiums on medical care in the individual insurance market, and 85% in the employer/group market until 2014 and pay rebates to enrollees if they does not meet minimum standards. The bill also tries to prevent insurers from increasing rates before 2014 by requiring that insurers “submit to the Secretary and the relevant State a justification for an unreasonable premium increase prior to the implementation of the increase, and prominently post this information on their Internet websites.” States can also keep insurers with “unreasonable” rate hikes from participating in the new exchanges.
On the medical loss ratio provisions, the Secretary is asking the insurance commissioners to develop:
- Definitions relating to the activities that health insurance issuers offering individual and group coverage must report under Section 2718(a) (clinical services, activities that improve health care quality, and all other non-claims costs and the nature of such costs); and
- Standardized calculation methodologies relating to the above mentioned activities, ensuring that they account for the special circumstances of smaller plans, different types of plans, and newer plans.
I’ve argued that MLR and rate review are really the only ways to prevent insurers from increasing premiums in the interim period, when Americans are just getting their first impressions of the new health care law. Therefore, it is absolutely critical that these rules don’t allow insurers to game the system or simply reclassify costs to meet the new requirements. Already, WellPoint has announced that it intends to re-label administrative costs as ‘medical care’ in order to meet the new MLR requirements and health policy wonks have argued that insurers could avoid the MLR guidelines by paying more for certain services (to meet the benchmark) or excluding certain benefits from coverage (benefits which would attract a sicker risk pool). Insurers could also circumvent the premium rate review by shifting more costs into deductibles and co-payments.
On a call with reporters, Jeanne Lambrew — Director of the HHS Office of Health Reform — didn’t provide any specifics into the new standards, emphasizing that the agency wanted to give all the different stakeholders — insurance commissioners, insurers and the general public — an equal opportunity to contribute to the process. “We want to know more about what criteria states and other entities use to improve health care quality. What criteria should be used when determining whether a medical loss ratio should be adjusted, due to potential market volatility? What methods are currently used to enforce medical loss ratio related requirements?” Lambrew also said the agency wanted to know if certain health plans should be excluded from the rate review process and how best to define an unreasonable rate increase. Both comment periods will be open for 30 days.