The National Association of Insurance Commissioners (NAIC) — the insurance industry funded group tasked with making recommendations to HHS about the medical-loss ratio standards in the new health care law — released a new draft report Monday, suggesting that the Secretary should exempt plans in the individual health insurance market from spending 80% of premium dollars on actual medical expenses. The provisions, known as medical-loss ratio percentages (MLR), are intended to prevent insurers from registering unreasonable profits between 2010 and 2014 and require issuers in the individual market to spend 80% of premium dollars paying for claims, while companies in the small and larger group markets have to meet a requirement of 85%. The law also allows the Secretary to adjust the percentage if she believes that “application of the 80 percent standard may destabilize the individual market in that State, and/or 2) on account of the volatility of the individual market due to the establishment of State Exchanges.” Significantly, insurers that don’t meet these minimum standards will have to issue rebates to customers.
The draft NAIC warns that the rules may be “too strict for some individual policies,” leading some customers to lose coverage. The group argues that newer individual policies could not meet the 80% requirement because the risk pool is specifically selected to weed out sicker people, ensuring that its healthier applicants don’t begin filing claims until later in the life of the plan. Unable to spend 80% of its premiums on claims — since few claims are coming in — the insurer would have to lower premiums to avoid issuing rebates, potentially destabilizing the company. In that case, the NAIC warns, individual policies could leave the market, leaving customers stranded:
2. What criteria do States and other entities consider when determining if a given minimum MLR standard would potentially destabilize the individual market? What other criteria could be considered?
The primary factor is the extent to which issuers would be unable or unwilling to meet the standards and would therefore withdraw from the market and terminate existing policies. In the worst case, this could lead to a lack of available coverage, but even if coverage remains available, those with health conditions who are terminated by withdrawing issuers could be left with no access for up to six months because in most states, issuers will be permitted to medically underwrite until 2014. In that case, they may have to remain uninsured for After six months, when they would qualify for the new federal high risk pools.
Consumer advocates and progressive lawmakers have stressed that regulators must ensure that the new MLR standards don’t allow issuers to re-classify administrative expenses as medical expenses (to artificially inflate their MLRs) or hide lower MLR rates behind larger aggregate numbers. As the NAIC’s consumer board said in a recent report, “insures should be prohibited form grouping their plans together to mask the low MLRs of some of their plans” (insurance-related data may be aggregated at the policy form level, by plan type, by line of business, by company, by State.)
In this case, as long as insurers aren’t reclassifying expenses or aggregating their MLRs to conceal lower numbers, the Secretary may want to consider their request. After all, if the newer policies in the individual market are not exempt from the MLR requirements, then younger and healthier people would receive the bulk of the rebates. The devil, though is still in the details and regulators will need to pay close attention to the final NAIC recommendations. Insurers should not be given an exemption for newer plans and the ability to protect their most profitable plans from MLR rebate requirements. This early document presents a refreshingly thoughtful explanation, suggesting that regulators may want to show MLR rates at plan level for reporting purposes but show more aggregated date for rebating.
But consumer advocates I spoke to cautioned that this is only a preliminary draft and that the NAIC has until June 1 (or later if they push back the deadline) to submit its final recommendations to HHS. The public has until this Friday to submit its comments.