On Monday, after months of negotiation and deliberation within the National Association of Insurance Commissioners (NAIC), the Department of Health and Human Services (HHS) issued interim-final regulations requiring health insurers to spend 80 to 85 percent of premium dollars on health care services. Insurers that fail to meet the new standards — called the Medical Loss Ratio or MLR — will have to issue rebates to beneficiaries.
The new rules have received mixed reviews from consumer advocates and insurers alike. Many of the nation’s largest insurance companies’ stocks actually “rose on the news Monday,” leading one analyst to speculate that the market was reacting to the end of a period of uncertainty for insurers, and that the regulations ended up “somewhat more positive than expected.” Indeed, the group Consumer Watchdog — an consumer advocates’ organization — argues that while “HHS deserves credit for resisting a lobbyist onslaught demanding more loopholes,” the agency “also left intact some of the industry’s chief goals, including over-broad tax deductions and loose definitions of ‘health quality improvements’ that will artificially boost the health care ratios (also known as medical loss ratios) of all insurers.” The group has identified the following problems:
1. Inclusion of public health marketing campaigns as “health quality improvements.” The NAIC proposal would allow insurance companies to count as health care certain marketing costs—such as anti-tobacco or anti-obesity messages—that are largely intended to improve a corporate image.
2. Excessive tax deductions. The proposed regulations would allow insurers to deduct almost all federal and state taxes, including income taxes, from their premium revenue before calculating the medical loss ratio.
3. Lack of transparency for administrative costs counted as “health quality improvements,” including: provider accreditation fees, prospective utilization review and telephone hotlines. Each of these activities is generally considered a cost-reduction, claims adjustment or administrative activity.
4. “Mini-med” plans: In a newly developed regulation, HHS announced a major exception to the MLR rules of so-called “mini-med” health insurance plans, which limit employee benefits to as little as a few thousand dollars a year. Such plans, mostly used in the retail and fast food industries, and for part-time employees, will be allowed minimum health care ratios as low as 40% (as opposed to the 85% level of conventional employee insurance). The exception is currently allowed for one year, and must not be allowed to continue beyond a year.
In a release issued on Monday, Sen. Jay Rockefeller (D-WV) expressed concern about the mini-med exemption saying, he was “disappointed that limited benefit ‘mini-med’ plans continue to seek exceptions from these standards,” but that “they should know that their requests will be subject to close scrutiny.” The Senator also announced that he would be holding hearings on the policies on Wednesday, December 1 at 2:30 p.m.
Hopefully, this will be the first of many. Regulators and Congress will have to keep a close eye on how insurers abide by the new standards to ensure that the industry doesn’t inflate its MLR numbers without actually delivering more efficient care.