Wednesday, July 27, 2011

Don't expect those medical loss ratio rebates yet

There's a handy little loophole in the Patient Protection and Affordable Care Act (ACA) that state insurance commissioners have been taking advantage of. States may ask the HHS to adjust minimum loss ratio requirements set forth in the ACA based on the volatility of their individual insurance markets due to the establishment of state exchanges.
So far, at least five states, including Iowa, Kentucky, Maine, Nevada, and New Hampshire have received waivers from the requirement of the Patient Protection and Affordable Care Act (ACA) that health insurers must spend at least 80% of individual insurance revenue on health care and quality improvement for their insureds. Surprisingly, North Dakota's request was turned down.

Normally, if states do not meet this medical loss ratio requirement, beginning in 2011, they must provide an annual rebate to each enrollee on a pro rata basis,
"except that such percentage shall be adjusted to the extent the Secretary determines that the application of such percentage with a State may destabilize the existing individual market in such State."
(Act Sec. 1001(5) of the Affordable Care Act, as amended by Act Sec. 10101(f), adding PHSA Sec. 2718(b)(1)(B)).

So, the ACA allows a state to obtain a waiver from the ACA's full medical loss ratio requirements if they would cause a substantial number of insurers to pull out of the state or stop offering health plans to individuals or families, thus disrupting the insurance system, and states that have so far received waivers have claimed that this is exactly what is happening.

The HHS released guidelines for these waivers, and requires a state to show that one or more insurers is likely to pull out as a result of the MLR requirements. Kentucky Insurance Commissioner Sharon P. Clark apparently did not, in her waiver application, name any particular insurer that was going to pull out as a result of the requirements, although at least one insurer had apparently indicated that it would probably do so. Iowa Insurance Commissioner Susan Voss, seemed more concerned that virtually none of the state's top individual insurers come close to meeting the 80% mark required by the ACA.

At first glance, it would seem that citizens of those five states were protected by the federal government, because it gave the states less leniency than they were requesting: For example, Iowa requested permission to require that only 60% of revenue received by insurance companies be spent on health care and quality improvement in 2011, 70% in 2012, and 75% in 2013. It only received permission from the HHS for the insurance companies selling insurance in Iowa to reach a medical loss ratio of 67% in 2011, 75% in 2012, and the full 80% in 2013. Kentucky requested a requirement of only 65% for 2011, 70% for 2012, and 75% for 2013, but insurance companies in that state will only have to reach a medical loss ratio of 75% in 2011, and then the full 80% in 2012.

One can't help wondering, however, if the states' insurance commissioners simply engaged in some classic negotiating and asked for more than they expected to get. Giving them extra time to comply makes it appear that the federal government is demanding relatively strict compliance with the law, and by requesting the waivers, state insurance commissioners appear to the insurance companies to be advocating for them.  Everybody wins.


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