The New Health Dialogue

The votes are in. State insurance regulators, from the National Association of Insurance Commissioners (NAIC), voted unanimously Thursday morning on definitions for the Medical Loss Ratio (MLR). The “medical loss ratio” refers to the amount of money insurers spend on providing actual health and medical care to their customers. The Affordable Care Act sets minimum standards for the MLR -- large, group insurers have to spend at least 85 percent of their money on medical care (it’s 80 percent for small group or individual policy insurers). That means that only 15 percent can go to expenses that don’t specifically improve patient health, like administrative overhead and advertising costs.

The NAIC spent the week in Florida trying to reach a consensus on MLR policy -- answering questions like: what counts as “medical” spending? Will the MLR calculation take place at the state or national level? And how do we account for changes in the role of brokers in the new insurance marketplace? HHS will rely heavily on the NAIC recommendations to craft final regulations.

HHS Secretary Kathleen Sebelius said in a statement, "These recommendations are reasonable, achievable for insurers and will help to ensure insurance premiums are, for the most part, supporting health benefits for consumers. Not only do they ensure consumers receive better value for their health care dollar, they recognize special circumstances in different markets to preserve market stability and employee coverage as we transition to the new marketplace in 2014."

We’re not going to rehash everything here -- but if you want details on the specific regulations that were under debate, check out this excellent summary at the Community Catalyst blog:

First up is national aggregation: Some national insurers are seeking aggregation, or pooling all of their MLRs across state lines for certain insurance markets. This would mean that if an insurer is in a state with a low MLR and another state with a higher MLR – the two numbers would be averaged – leaving consumers in the dark about how much of their premium dollars are spent on health care. This change not only goes against the definition of health insurance ‘issuer’ in the federal law but could also end up making national carriers look better than their local competition.

Second are credibility adjustments for small insurers. Insurers must hit the MLR percentage the required by ACA…or provide rebates to policyholders. There has been much discussion at NAIC about how to protect smaller insurers that may not meet the MLR standard because they only cover 1,000 people and random events (like few filed claims) affect their MLR, rather than their spending on administration and profit.

Previously, everyone agreed to the solution to adjust the MLR of these small carriers – like a handicap in golf – called a credibility adjustment. This is done through actuarial calculations based on a “confidence level.” Basically, the confidence level is the amount of certainty that insurers tried to meet the MLR in good faith, but that random events prevent them from meeting the MLR target. The bottom line is that a higher confidence level means a much weaker MLR standard. The draft regulation crafted by NAIC workgroups allowed a 50 percent confidence level. The issue was heavily debated, and the actuaries agreed that 50 percent made the most sense mathematically and from a policy perspective.

… Third, counting broker fees in the MLR calculation. There is a move afoot to take broker commissions out of both the premium and the administrative expense component of the MLR. This could be damaging to consumers. Broker fees need to be counted toward administrative expenses and profits.

Read the whole post here, and see Politico’s take here.