Even with all the ink, airtime, and pixels used in
debating and discussing the Affordable Care Act over the last year, many of its
provisions–including some very important ones–remain obscure. HHS today put forward regulations
implementing one of those seemingly obscure, but actually quite vital parts of
the law. The new regulations give
shape to the requirement that insurers spend a certain percentage of premium
revenues on health care for their enrollees–the so-called Medical Loss Ratio
It’s often observed that health insurance companies make
money by denying care–the less they spend on health care for their enrollees,
the more they can keep for profit.
This leads to some counterproductive incentives–insurers end up
competing on which ones can most effectively minimize claims payouts rather
than which provide the best value to their enrollees.
The Medical Loss Ratio provision is designed to change
that incentive. Insurers will be
required to spend a certain minimum percentage of their premium revenues on
health services and quality improvement activities–80% of such revenues for
insurers in the individual and small group markets and 85% in the large group
market. If health care spending
does not reach those levels, insurers will be required to pay back a portion of
enrollees’ premiums until they do–minimizing claims payouts will no longer be a
path to higher profitability for insurers. The point of the provision, though, is not to generate
rebates for consumers. Instead, it
aims to change the way insurers do business–it encourages them to compete on
quality and price rather than on limiting health care expenditures.
Today’s regulations spell out how this will work in much
more detail–in fact, 300 pages worth of detail. The regulations heavily rely on the recommendations of the
National Association of Insurance Commissioners–and as Sabrina Corlette
reported last month, those recommendations represent a big win for consumers. As we pore through the lengthy
rulemaking, a few highlights stand out:
- MLR will begin to be measured in 2011 and any rebates
due to consumers will begin to be paid in August 2012.
- States can request an adjustment to the 80% individual
market MLR standard, though not the 80% small group standard nor the 85% large
group standard. HHS will make
adjustments for states that can show the 80% standard would lead to
destabilization of the individual market.
HHS officials noted that four states had already requested an
adjustment–Georgia, Iowa, Maine, and South Carolina.
- The smallest insurer plans (those with fewer than 1,000
enrollees) will be exempt from the provision. Plans with fewer than 75,000 enrollees and new plans will
have adjustments made to their MLR calculations.
- So-called “mini-med plans“, those that offer very limited
benefits in exchange for lower premiums, will also receive special adjustments
to their MLR calculations. To
receive such an adjustment, though, they will have to provide extra information
to HHS on their expenses and profitability. They will also have to provide prominent notice to consumers
of their benefit limits.
Overall, the MLR standard is a key provision of health
reform for transforming the private insurance market. The fact that HHS followed NAIC’s thoughtfully considered recommendations is a
great sign. My colleagues and I will have more to say about the MLR and its impact on children and families in the coming weeks.