Responding to a Reuters article detailing how WellPoint used a computer algorithm to rescind the health insurance coverage of breast cancer patients, Congressional Democrats sent a letter to the major insurance companies urging them to “ensure that rescissions occur only in cases of fraud or intentional misrepresentation of material fact” and “immediately institute a policy of independent, external third party review.” In less than 24 hours, WellPoint, UnitedHealth, Humana and Blue Cross of California have all agreed to implement “the new standard in May 2010,” but their pledge, while certainly significant, should not be taken at face value.

After all, federal law has required insurers to end rescissions since Congress passed the Health Insurance Portability and Accountability Act (HIPAA) in 1996. That law gave states the authority to enforce the rescission ban, but permitted the federal government to take over if states failed to adequately protect consumer interests. Over the last 14 years, insurers have been able to take advantage of weak state regulations to purge their rolls of costly patients without triggering a response from the federal government. What’s still unclear is how or if the federal government will enforce the rescission requirement under health reform. The new law restates the rescission prohibition and leaves enforcement of the rule to the states. The federal government is again the regulator of last resort. A fail-safe, if you will.

In short, regulators must trust but verify. As health policy analyst Peter Harbage said, “People have this idea that someone is going to flip a switch and rescission and other bad insurance practices are going to end. Insurers will find ways to undermine the protections in the new law, just as they did with the old law. Enforcement is the key.”

HHS Secretary Sebelius has issued a statement touting the new progress, but she can also encourage states to reevaluate their regulations to ensure they’re in compliance with the federal guidelines (and the insurers new promise). And if states can’t protect their residents from insurance rescissions, then the federal government must. Otherwise, it will be another five or ten years until the next crop of rescission horror stories crop up in the press.

Draft guidelines issued by the National Association of Insurance Commissioners (NAIC) suggest that health insurers may attempt to game the medical-loss ratio (MLR) requirements in the new health care law by re-classifying certain administrative expenses as medical costs and “deducting taxes and regulatory fees from the premium expense insurers must report.”

The new health care requires insurance companies to spend at least 80% of customers’ premiums on medical care in the individual insurance market, and 85% in the employer/group market until 2014; insurers who can’t meet these minimum standards will have to issue rebates to their customers. But the draft guidelines posted on the NAIC’s website say that insurers may try to “spend more” on medical care without sacrificing profits by expanding the definition of medical service. From the draft:

The denominator (premiums) in the PPACA MLR is reduced by federal and state taxes and licensing or regulatory fees and the numerator (claims) is increased by expenses for activities that improve health care quality. Both of these adjustments will result in a higher MLR than one calculated as incurred claims divided by earned premiums with no adjustment. As discussed below (question B.1.c), PPACA could be read to also include loss adjustment expenses in the numerator, which would further increase the result. In either case, we believe current MLR’s for most issuers in the small group and large group markets, when calculated with the PPACA adjustments, would be higher than the PPACA minimums. The situation is less clear in the individual market. Some issuers would likely have MLR’s below 80% even after the adjustments, while others would be well above the minimum.

The health care law tasks the NAIC — a private body not subject to federal transparency rules and largely funded by the insurance company — with defining the standard definitions, “subject to the certification of the Secretary.” As Judy Dugan, Research Director at Consumer Watchdog, told me during a phone interview, “Previously, having a low MLR was beneficial for a company because Wall Street liked a low MLR, so insurance would be very strict just doing direct medical costs in MLR.” “Now they want to shift the game” by announcing to Wall Street, “our MLR is going to go up by a couple of points but don’t worry we’re shoving administrative costs into it.”

According to page 19 of the health law, administrative costs simply have to meet the new broad definition of “activities that improve health care quality” to be added to the company’s medical loss ratio percentage. “This is how WellPoint has already increased their MLR average by two percentage points,” Dugan said, referring to the company’s recent call with investors. “They just unilaterally announced that they are shifting a number of functions that were previously considered administration into MLR category.”

A recent report from the Senate Committee on Commerce, Science, and Transportation also noted that health care industry analysts predict “companies will review their current spending and attempt to shift as many expenses as possible from administrative to medical,” concluding that “a key to the insurance industry’s profitability over the next several years will be ‘how much MLR recharacterizaiton the HHS Secretary allows.’” Consumer advocates believe that the NAIC’s central role in defining MLR categories and insurers’ ability to reclassify costs as “activities that improve health care quality” category will keep ensure the “industry’s profitability.”

Throughout the health care debate, the GOP saw conspiracy in every single legislative step and maneuver. Republicans claimed that Democrats were giving out judgeships, extra funding for hospitals and the Medicaid program, positions in the administration and threatening to close down Air Force bases to secure the votes of wavering members. They insisted that the Democrats were writing a secret bill behind closed doors and spread all kinds of rumors about death panels, government rationing and the horrors of British-like single-payer health care.

Now, the conservative American Spectator is claiming that the administration purposely delayed the release of a recent Center for Medicare and Medicaid Service’s (CMS) report — which found that national expenditures would increase by 0.9% under health reform — until after a key Congressional vote on health reform. The Spectator’s HHS source told the magazine that Secretary’s office received a copy of the report “more than a week before the Congressional votes on the bill” and quotes him as saying, “[t]he reason we were given was that they did not want to influence the vote.” “[T]here were a number of meetings here almost right after the analysis was submitted to the secretary’s office. Everyone went into lockdown, and people here were too scared to go public with the report,” the source said.

But as NBC’s First Read found out, there isn’t any truth to this conspiracy either:

1. The Office of the Actuary didn’t receive the language of the reconciliation bill until March 18 (when the legislation was posted), so the Spectator’s assertion that HHS had a copy of the Actuary’s score a week before congressional passage — on March 22 — doesn’t make sense.

2. Past scores from the Office of the Actuary came out AFTER passage of the legislation. For the House bill that passed on Nov. 7, 2009, the Actuary’s score came out on Nov. 13. And for the Senate bill that passed on Dec. 24, 2009, the Actuary’s score came out on Jan. 8, 2010. This most recent Actuary report is dated April 22.

3. Given points #1 and #2, it’s hard to see how the Actuary’s score was available before the CBO’s, which came out on March 18.

Indeed, point 3 is particularly convincing since CMS references the CBO analysis in its report and relies on the study to reach certain conclusions. It’s also difficult to imagine that the CMS report would have swayed too many votes. Lawmakers were familiar with CMS’s conservative methodology because the office had already released two other reports, all which assumed an increase in national spending; this latest report, in fact, is almost a copy/paste of the CMS’ previous conclusions.

For the record, the Chief Medicare Actuary, Richard Foster, has described the Spectator’s story as “completely inaccurate,” but Republicans still aren’t convinced. They are calling on Democrats to hold a hearing about the analysis.

From tea bags to death panels, from thick thousand page binders to “don’t tread on me” signs, Republicans have developed some creative ways to visually represent their opposition to health care reform. Now, a conservative group has invited Pennsylvania candidates for Senate and the governorship “to a shooting range to fire bullets into a junker that represents policy ideas it opposes.”

The Commonwealth Foundation is billing its FreePA event as a “celebration of the freedoms we enjoy but are under attack by Harrisburg and Washington” which embodies “a healthy love for the right to keep and bear arms, and CF’s habit of welcoming debate on the issues“:

The truth is that the opponents of our principles are the ones who refuse to engage in civil discourse about our pressing public policy problems. They know that their anti-freedom agenda is being rejected by the general public, so they won’t show up to public events like LiveFreePA and explain why they want to take away your rights and monitor your behavior, and then tell you and your family how to live your lives. Not only that, now they’re talking to the newspapers proclaiming how you should spend your Saturday on May 8th.

You know what? If I were a nanny-stater, I wouldn’t show up either. And I sure wouldn’t want you to come, have a good time, and show these politicians what gun safety and a sense of humor look like, and be encouraged to keep fighting for freedom. That’s why I hope you’ll join us May 8th to pump a few rounds (or fire a cannon…) into a beat-up car bearing anti-freedom policy ideas like “ObamaCare,” “Card Check,” “Cap and Trade,” and other failed, wealth-redistributionist ideas.

The group has invited “10 Republican and Democratic candidates to the May 8 event at a Lancaster County shooting range,” and so far all four Republicans and one Democrat, Jack Wagner, have confirmed that they’re attending. Admission is $65 for shooters and includes breakfast, lunch, beer, shooting activities and cigars!