The National Association of Insurance Commissioners (NAIC) is working furiously to meet the self-imposed, end-of-summer (end of summer being rather loosely defined) deadline to release the medical-loss ratio definitions. At “50 Ways to Implement Health Reform: State Challenges and Federal Assistance,” an event cosponsored by RWJF and the Alliance for Health Reform this week (summary here, webcast here), Brain Webb, manager of health policy and legislation for the NAIC, laid out the organization’s plans for establishing standard medical-loss ratios. The schedule allows data collection to begin by early 2011, facilitating a speedy and accurate dispersal of the first “rebate checks” to consumers in March 2012. Those rebates would be issued annually if insurers don't live within the MLR guidelines.
Webb noted that this pace virtually guarantees the regulations will be imperfect -- what qualifies for “medical” costs will likely remain in flux, maybe for a few years. That of course brings us back to the question many have been debating for some time now. What exactly constitutes "administrative" vs. "medical" costs? And how will insurers try to massage the definitions (and when will they in fact have a point?).
Understanding medical costs might seem fairly simple. If the ratio is set at 80:20 --as it is for individual and small group markets under the new reform rules -- then 80 cents of a health care dollar must be spent on actual care: doctors’ fees, tests, scans, medications, etc. That caps administrative costs at 20 percent of health spending. But what administrative costs are we trying to cap? Exhorbitant salaries, sure that's clear cut. More salespeople than nurses? Ditto. But how are we going to count quality improvement initiatives? Comparative effectiveness analysis? Disease management programs? Pilot projects on new ways of delivering health care (which some insurers have undertaken, even before the law passed)?
The medical-loss ratio is one of many ongoing implementation struggles, and one unlikely to be solved or set in stone immediately. The NAIC remains highly fluid in its working definition, and Brian Webb made clear the necessity of future reviews as the exchanges come online to determine how best to use the medical-loss ratio to encourage the best practices to build the high quality, high value health care system we want.